Yanbu National Petrochemical Co. (YANSAB) · 2012. 11. 27. · and recorded 1Q2010 sales revenue of SR688.6mn and the profitability of SR259.4mn. Moreover, during 2010, we expect

Yanbu National Petrochemical Company 1

Market Data Bloomberg Code: YANSAB AB Reuters Code: 2290.SE CMP (18th May 2010): SR43.6 O/S (mn): 562.5 Mkt Cap (SRmn): 24,525 Mkt Cap (US$mn): 6,539.5 P/E 2010e (x): 13.6 P/Bv 2010e (x): 3.3

Price Performance 1-Yr High /Low (QR): 49.0/25.1 Average Volume (000): 2,284.4

1m 3m 12m Absolute (%) -8.0 16.3 58.0 Relative (%) -3.8 14.0 48.3

Relative Performance

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

55.00

4,000.0

4,500.0

5,000.0

5,500.0

6,000.0

6,500.0

7,000.0

7,500.0

Dec-0

8

Jan

-09

Ma

r-0

9

Ap

r-0

9

Ma

y-0

9

Jun

-09

Jul-

09

Au

g-0

9

Sep

-09

Oct-

09

No

v-0

9

Dec-0

9

Jan

-10

Feb

-10

Ma

r-1

0

Ap

r-1

0

TASI (LHS) YANSAB (SR) - RHS

Source: Tadawul & Zawya

Syed Taimure Akhtar Senior Financial Analyst [email protected] Phone No: +966-1-2199966 Ext 950

Yanbu National Petrochemical Co. (YANSAB)

Well-integrated and state-of-art complex.

Commence commercial operation with favorable market

condition.

Marketing alliance with SABIC.

Global Research – Saudi Arabia

Investment Update

BUY

Target Price SR50.1

YANSAB Petrochemical Complex

Yanbu National Petrochemical Company (YANSAB) has a design capacity to

produce 4.0mn tons of different grades of petrochemical products including basic

chemicals, intermediaries and polymers. Based on the given information, the

production process at the complex is well integrated, which will allow to utilize the

basic chemical as a feedstock to produce the intermediaries and process polymers for

industrial & other uses. Hence, the company is expected to run its operation with

higher economies of scale with the company’s gross and net margins to remain in the

average range of 22.0%-25.0% and 19.0%-22.0%, during 2010-13, respectively.

Initiating Operational Activities

The company has started its commercial operation in late 1Q2010 i.e. March 2010

and recorded 1Q2010 sales revenue of SR688.6mn and the profitability of

SR259.4mn. Moreover, during 2010, we expect the ongoing improvement in the

global market situation that will help the company to run its operation with better

utilization rate, while average prices expected to remain on higher levels. Hence, we

expect the company to increase its sales revenue at a CAGR of 14.6%, during 2010-13

to SR13.1bn in 2013.

Affiliation With SABIC

We believe one of the key benefit for the company is the marketing agreement with

SABIC (parent company), under which the parent company is responsible to market

major portion of the company’s products. Consequently, this marketing agreement,

will lead the company to restrict the increase in selling & marketing cost and utilize

marketing channels of SABIC.

Valuation

On the back of commencement of commercial production and improvement in the

global market situation, we have updated our DCF base fair value of the company to

SR50.1, which offers a potential upside of 14.9% from the current market price of

SR43.6 (as on 18th May 2010).

Investment Indicators Year 2007A 2008A 2009A 2010E 2011E 2012E 2013E

Gross Profit (SRmn) - - - 2,150.1 2,598.1 2,859.3 3,100.1

Net Profit (SRmn) 109.9 (25.6) (29.2) 1,808.1 2,238.1 2,496.4 2,743.7

EPS (SR) 0.2 (0.0) (0.1) 3.2 4.0 4.4 4.9

BVPS (SR) 10.2 10.1 10.1 13.3 15.3 17.5 19.9

P/E (X) - - - 13.6 11.0 9.8 8.9

P/BV (X) 5.2 1.5 3.3 3.3 2.9 2.5 2.2 Source: Company Annual Reports & ‘Global’ Research

*Historical P/E & P/BV multiples pertain to respective year-end prices, while those for future years are based on closing

prices on the Tadawul as of 18th May 2010.

Global Research – Saudi Arabia Global Investment House

2 Yanbu National Petrochemical Company May 2010

Valuation & Recommendation

Discounted Cash Flow (DCF) Method We have used discounted cash flow (DCF) methodology to value YANSAB stock and used Capital Asset Pricing Model (CAPM) to calculate the cost of the equity, which is based on the following assumptions:

Risk-free rate of 5.6%

Market risk premium of 6.0%

Beta of 1.2

Cost of equity of 12.8%

Cost of debt of 7.0% The Weighted Average Cost of Capital (WACC) based on the above assumptions is 9.5%. We have assumed a terminal growth rate of 3.0% and arrived at the DCF base value of SR50.1 for YANSAB based on earnings projections till 2013.

DCF Base Valuation (SR mn) 2010 (E) 2011 (E) 2012 (E) 2013 (E)

FCF (136.5) 2,401.8 2,677.3 2,919.6 Discounted Cash Flow (128.1) 2,059.0 2,096.4 2,088.2 Terminal Value 46,400.9 Primary Value (discounted) 6,115.5 Terminal Value (discounted) 33,187.3 Net Present Value 39,302.9 Long-term Debt (11,944.4) Cash 811.0 Net Worth of YANSAB 28,169.4 Shares Outstanding ('000) 562,500 Fair Value (SR) 50.1

Source: Global Research

Sensitivity Analysis A sensitivity analysis for different estimated long-run future growth rates and weighted cost of capital is shown in table below. The table provides estimated DCF based fair values for YANSAB share based on a range of varying inputs. YANSAB – Sensitivity Analysis

Terminal Growth Rates

1.00% 2.00% 3.00% 4.00% 5.00%

WA

CC

7.48% 53.6 65.6 83.0 110.4 159.9

8.48% 43.2 51.8 63.5 80.5 107.2

9.48% 35.3 41.7 50.1 61.5 78.1

10.48% 29.1 34.0 40.2 48.4 59.6

11.48% 24.0 27.9 32.7 38.8 46.8

Source: Global Research

Valuation Based on our valuations, at present, the stock is trading at a prospective 2010 and 2011 P/E of 13.6x and 11.0x, and offering the potential upside of 14.9% from the current market price of SR43.6 as on 18th May 2010. We, therefore, recommend BUY for the stock.



Yanbu National Petrochemical Company - Financial Update Production Structure The production complex at YANSAB is designed to produce 4.0mn tons of different grades of petrochemical products ranging from basic chemicals to intermediaries to polymers of which most of the capacity is dedicated to produce ethylene and its related intermediaries and polymer products.

Capacity Composition

Ethylene, 32.1%

Propylene, 9.9%

MEG, 17.3%

DEG, 1.6%

TEG, 0.1%

Polypropylene,

9.9%

LLDPE, 9.9%

HLDPE, 9.9%

Buetene-1, 1.6%

Buetene-2, 1.2%MTBE, 0.5% Benzene, 4.2% BTX, 1.7%

Source: Company Annual Reports

Moreoever, the complex’s given production flow indicates the production at the complex at the plant is well-integrated and will enable the company to process most of its basic chemical to process intermediaries and polymer products for industrial and other uses. Sales Revenue Growth - Higher Capacity Utilization & Strong Prices We believe the timing of the commencement of commercial operation from YANSAB complex in 1Q2010 will remain the key benefit for the company to avail opportunities of improvement in the global market, which will lead the complex to enjoy better capacity utilization rate. Hence, we expect the newly-build complex will be able to run its capacity on better average utilization rate of 75.8%, during 2010, which will be translated in to the net production of 1.9mn tons. However, 2010 onwards, the expectations of better development in the global economy will remain the leading factor for the company to continue the improvement in its utilization rate, which will lead the company’s net production to increase at a CAGR of 6.3%, during 2010-13, and reach at 2.3mn tons in 2013.



Production & Capacity Utilization YANSAB Sales Revenue Growth

75.8%

80.0%

85.8%

90.8%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

2010E 2011E 2012E 2013E

Capacity (000 tons) - LHS Poduction in (000 tons) - LHS Capacity Utilization - RHS

29.6%

8.5%

7.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

2010E 2011E 2012E 2013E

Sales Revenue (SR mn) - LHS Growth - RHS Source: Global Research Source: Global Research

On the back of expectations of average prices of related petrochemical products to remain strong, during 2010 , we believe the company’s sales revenue will reach at SR8.6bn. Moreover, from 2010 onward, the expected improvement in the company’s net production along with the higher average prices of related petrochemical product will lead the company’s sales revenue to increase at a CAGR of 14.6% during 2010-13 and reach at SR13.0bn in 2013. Sales Revenue Composition 2010E Sales Revenue Composition 2013E

Ethylene, 6.1%

Propylene, 2.1%

MEG, 28.4%

DEG, 2.6%

TEG, 0.2%

Polypropylene,

16.7%

LLDPE, 16.4%

HLDPE, 14.7%

Buetene-1, 3.5%

Buetene-2, 2.7%

MTBE, 0.5%Benzene, 4.5% BTX, 1.6%

Ethylene, 6.0%

Propylene, 2.0%

MEG, 28.2%

DEG, 2.6%

TEG, 0.2%

Polypropylene,

16.7%

LLDPE, 16.4%

HLDPE, 14.8%

Buetene-1, 3.4%

Buetene-2, 2.6%

MTBE, 0.5%Benzene, 4.5%

BTX, 2.0%

Source: Global Research Source: Global Research

Based on the given production capacity, we expect the most of the company’s sales revenue will drive from the sales of ethylene related polymers and intermediaries, which will account for 68.5% of total revenue, during 2010. However, we believe the contribution from ethylene (basic chemical) will remain at 6.1% during 2010-13, which is mainly based on the expectation to utilize most of the basic chemical to produce intermediaries and polymers. Gross & EBITDA Margins The expected improvement in the capacity utilization and strong average prices will lead the company to record the gross profit of SR2.1bn, during 2010, which indicates the gross margin of 24.7% during 2010. Going forward, we believe the expected improvement in the global markets, during 2011-13, will help the company to overcome the impact of higher depreciation and financial cost and maintain its gross margin in the average range of 23.0%-25.0% during 2011-13.



Gross Margins EBITDA Margins

24.7%

23.1%

23.4%

23.7%

22.0%

22.5%

23.0%

23.5%

24.0%

24.5%

25.0%

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

2010E 2011E 2012E 2013E

Gross Profit (SR mn) - LHS Gross Margins - RHS

32.4%

29.1%

29.1%29.2%

27.0%

28.0%

29.0%

30.0%

31.0%

32.0%

33.0%

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

2010E 2011E 2012E 2013E

EBITDA Profit (SR mn) - LHS EBITDA Margins - RHS Source: Global Research Source: Global Research

The company is expected to register EBITDA margin of 32.4% in 2010, which is expected to relax in the average range of 29.0%-30.0%, during 2011-13. In addition, the expectations of decline average EBITDA margins is mainly based on the increase in the operating expenses at a CAGR of 11.2%, during 2010-13. Profitability Growth The company has posted after tax profit of SR259.4mn in 1Q2010, since the inception of its commercial operation. We expect the company will post after tax profit of SR1.8bn (EPS; 3.21) in 2010, while the impact of full year operation along with better capacity utilization rate and strong average prices will lead the profitability to show YoY increase of 23.8% in 2011. Furthermore, we expect the company’s profitability will increase at a CAGR of 14.9% during 2010-13 to reach at SR2.7bn in 2013. Profitability & ROAA Profitability & ROAE

1.0%

-0.2% -0.1%

8.1%

9.3%

10.3%11.2%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

(500.0)

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

2007 2008 2009 2010E 2011E 2012E 2013E

Profitability (SR mn) - LHS ROAA - RHS

1.9%

-0.4% -0.5%

27.5%

27.9% 27.1%26.1%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

(500.0)

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

2007 2008 2009 2010E 2011E 2012E 2013E

Profitability (SR mn) - LHS ROAE - RHS Source: Company Reports & Global Research Source: Company Reports & Global Research

We expect the company’s prospective ROAA and ROAE will remain in the average range of 8.0%-11.5% and 25.5-28.0% during 2010-13, respectively.



Petrochemical Sector Regional Petrochemical Capacity Expansion Though there were some delays in the regional upcoming capacities, the countries remained committed to their expansion plans and did not cancel much of the projects. We believe the delay in these projects was mainly attributed toward the size and intention to further stream line the designed production flows along with the impact of global economic slowdown.

Regional Petrochemical Capacity Expansion

0.1%7.9%

15.2%

11.7%4.6%

4.6% 1.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

-

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

80,000.0

90,000.0

100,000.0 2

00

7

20

08

20

09

20

10

E

20

11

E

20

12

E

20

13

EProduction Capacity ('000' ton) Growth

Source: FAO & Global Research Based on the updated completion plans of upcoming complexes, we expect major regional capacity expansions to happen in 2010 and lead to an addition of 9.0% in the regional basic chemicals (aromatic, olefins and oxygenate) capacity. Moreover, in term of CAGR the regional basic chemical capacity is expected to increase at a CAGR of 4.7% during 2009-13 to 116.2mn tons. Regional Petrochemical Capacity Expansion (tons)

Project Names Country Olefins Aromatic Oxygenate Expected

Completion Sino-Saudi Petrochemical Project KSA 1,700,000 - - 2010 Saudi Kayan KSA 3,800,000 - - 1H2011 Styrene Plant KSA - 600,000 - 2010 Gulf Petrochemical Industries Co. Bahrain - - 1,728,000 2010 Salalah Methanol Plant Oman - - 1,080,000 2Q2010 QP/Shell Qatar 1,500,000 - - 2011 Qatar Petrochemical Complex Qatar 880,000 600,000 - 2012 Ras Laffin Petrochemical Qatar 1,300,000 - - 2012 Borogue 2 UAE 39,000 - - 2Q2010 Ruwais Gasoline and Aromatics UAE - 600,000 - 2010 Total 13,034,000 1,800,000 3,048,000

Source: Zawya & Global Research

Furthermore, based on the availability of feedstock gas at highly subsidized price in the region, we believe the region will be in the better position to react first and take advantage of the future recovery



as compared to the other international players. Furthermore, the advantage of the availability of gas at highly subsidized will help the region to keep their capacity utilization at higher rate compared to their international peers in the future. Saudi Arabia Petrochemical Sector Most of the regional petrochemical production facilities are located inside the Kingdom followed by the State of Qatar. Based on our calculations, the Kingdom is expected to maintain its domination in the overall regional capacity during 2009-13. Based on the given regional expansion plans, the contribution from the Kingdom is expected to remain stagnant during 2010-13. Meanwhile, the expected capacity expansions from the State of Qatar and Bahrain will lead to significant improvement in their regional contribution during 2010-13. KSA Regional Contribution 2009 KSA Regional Contribution 2013E

KSA , 74.4%

Qatar, 10.6%

UAE, 2.0%

Kuwait, 8.7%

Oman,

3.7%Bahrain, 0.7%

KSA , 69.8%

Qatar, 14.1%

UAE, 2.4%

Kuwait, 7.0%

Oman, 4.2%

Bahrain, 2.5%

Source: Company Reports & Global Research Source: Company Reports & Global Research

Furthermore, based on the given expansion plans, the Kingdom is expected to make an addition of around 8.6mn in the domestic basic chemical capacity by 2013, which shows the Kingdom is expected to contribute 50.6% to overall regional capacity expansion by 2013. Consequently, this will increase the domestic basic chemical production capacity to 61.8mn tons by 2013 at a 2009-13 CAGR of 3.8%. KSA Basic Chemical Capacity Growth KSA Production & Capacity Utilization

0.1% 5.6%

11.9%8.6%

3.3% 1.8% 1.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

-

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

20

07

20

08

20

09

20

10

E

20

11

E

20

12

E

20

13

E

Capacity ('000' mn) - LHS Growth - RHS

101.1%

76.6%

80.8%

90.1%

93.7%97.3%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

105.0%

-

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

20

08

20

09

20

10

E

20

11

E

20

12

E

20

13

E

Production ('000' tons) - LHS Capacity Utilization - RHS Source: Company Reports & Global Research Source: Company Reports & Global Research



Based on our calculations, the domestic capacity utilization has shown a significant fall during 2009, which is expected to show an improvement in coming years. The expectations of improvement in the domestic capacity utilization is mainly based on the (i) upcoming well integrated capacities, (ii) forecasted improvement in the global economies from 2H2010 onwards and (iii) revival in the domestic demand of petrochemical products. Consequently, this will lead to an increase in Kingdom’s overall petrochemical production at a 2009-13 CAGR of 16.7% to 56.1mn tons. Moreover, the ongoing weak demand in the core-petrochemical products (i.e. basic, intermediaries and polymers) in Western and US markets is still a big challenge for the Kingdom’s leading producers to maintain their exports. Feedstock & Petrochemical Product Prices Natural gas is the main feedstock for petrochemical and related products and crude oil prices are used as a benchmark to set gas prices in international markets. However, gas prices are highly subsidized in certain regions of the world such as Middle-East, Northern Africa, and South Asia where pre-determined discounts exist which fix the price to US$0.75 per mmbtu (in Saudi Arabia) to US$2.5 per mmbtu (North Africa and South Asia). In view of improvement in crude oil prices during 2H2009, we expect the average prices of crude oil will remain in the range of US$77.0 to US$85.0 per barrel during 2010 an increase of 26.6% to 39.7% over average prices recorded in 2009. Crude Oil & Gas Prices Basic Petrochemical Product Prices

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

2007 2008 2009 2010E 2011E 2012E 2013E

OPEC Crude Oil (US$ per barrel) - LHS Gas Prices (US$ per mmbtu) - RHS

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

-

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

5,000.0

2007A 2008A 2009A 2010E 2011E 2012E 2013E

Ethylene (US$ per ton) - LHS Propylene (US$ per ton) - LHS

Butadiene (US$ per ton) - LHS Methanol (US$ per ton) - RHS

MTBE (US$ per ton) - RHS Benzene (US$ per ton) - RHS Source: EIA, OPEC & Global Research Source: Bloomberg, & Global Research

Furthermore, on the back of improvement in global situation, we believe the long term prices of crude oil to remain in the range of US$80.0-85.0 per barrel during 2009-13. Subsequently, the long-term average prices of gas are expected to remain in the range of US$4.0 to US$5.25 per mmbtu during 2009-13. We believe the expected stability in the average prices of feedstock prices will lead the average prices of petrochemical products to increase at a CAGR of 10.7% during 2009-13. Furthermore, based on our expectations, the average prices per ton of ethylene, propylene, methanol, MTBE, benzene, and butadiene, during 2009-13 will remain in the range of US$1,120-1,200, US$1,200-1,300.0, US$300-350, US$840-880, US$950-1,000, and US$1,900-2,000 respectively.



INCOME STATEMENT YANBU NATIONAL PETROCHEMICAL COMPANY (SR '000') 2007 2008 2009 2010E 2011E 2012E 2013E

Sales - - - 8,694,154 11,267,016 12,223,420 13,091,354 Cost of Sales - - - (6,544,071) (8,668,909) (9,364,090) (9,991,266)

Gross Profit - - - 2,150,083 2,598,107 2,859,330 3,100,088

General & Administrative Expenses (83,210) (25,588) (29,213) (95,101) (112,670) (122,234) (130,914) Other Income 196,836 - - 1,653 1,720 1,790 1,862 Financial Cost - - - (178,526) (167,898) (151,982) (127,815)

Income Before Zakat 113,626 (25,588) (29,213) 1,878,109 2,319,258 2,586,904 2,843,221

Zakat (3,770) - - (70,012) (81,174) (90,542) (99,513)

Income After Zakat 109,856 (25,588) (29,213) 1,808,097 2,238,084 2,496,362 2,743,709 (SR '000') P&L Appropriation A/C Opening Balance - 83,481 57,893 28,680 1,654,943 2,549,153 3,546,674 Transaction cost (12,345) - - - - - - Transfer to statutory reserves (14,030) - - (180,810) (223,808) (249,636) (274,371) Net Income / Loss 109,856 (25,588) (29,213) 1,808,097 2,238,084 2,496,362 2,743,709 Directors' Remuneration - - - (1,024) (1,024) (1,024) (1,024) Dividend Paid - - - - (1,119,042) (1,248,181) (1,371,854)

Ending Balance 83,481 57,893 28,680 1,654,943 2,549,153 3,546,674 4,643,133 Source: Company Reports & Global Research



BALANCE SHEET YANBU NATIONAL PETROCHEMICAL COMPANY (SR '000') 2007 2008 2009 2010E 2011E 2012E 2013E

Current Assets Cash and Equivalent 1,694,295 1,033,029 605,631 810,956 935,302 1,015,314 1,101,746 Advances to Suppliers & R/A 280,584 175,855 864,932 1,470,384 1,500,995 1,531,015 1,561,635 Inventories - 7,807 737,817 756,262 775,169 794,548 814,412

Total Current Assets 1,974,879 1,216,691 2,208,380 3,037,603 3,211,466 3,340,877 3,477,794

Fixes Assets Capital Work In Progress 12,987,313 17,105,252 18,575,835 20,401,638 20,477,748 20,556,902 20,639,223 Pre-Operating Expenses 200,000 200,000 200,000 198,000 247,500 309,375 386,719 Deferred Charges 132,668 121,132 109,595 115,075 126,582 139,240 153,164 Other Non - Current Assets 14,420 34,012 30,165 30,768 31,384 32,011 32,652

Total Fixed Assets 13,334,401 17,460,396 18,915,595 20,745,482 20,883,214 21,037,529 21,211,757

Total Assets 15,309,280 18,677,087 21,123,975 23,783,085 24,094,680 24,378,406 24,689,551

Liabilities & Equity Current Liabilities Trade Creditors 104,961 62,803 275,809 278,567 320,352 384,423 461,307 Accruals & Provisions 1,267,276 1,039,483 487,932 813,367 894,704 989,936 1,095,844 Current Portion of L-T Liabilities 668,737 915,717 915,717 934,031 980,733 1,029,770

Total Current Liabilities 1,372,237 1,771,023 1,679,458 2,007,651 2,149,087 2,355,092 2,586,921

Non-Current Liabilities Term-Loan 8,165,860 11,128,309 11,540,500 11,944,418 10,869,420 9,565,090 8,130,326 Employees' End Of Service benefit 48,672 80,832 81,107 93,273 107,264 123,354 141,857 Loans from Shareholders

2,155,200 2,262,960 2,376,108 2,494,913 2,619,659

Total Non-Current Liabilities 8,214,532 11,209,141 13,776,807 14,300,651 13,352,792 12,183,357 10,891,842

Total Liabilities 9,586,769 12,980,164 15,456,265 16,308,302 15,501,879 14,538,448 13,478,763

Shareholders' Equity Share Capital 5,625,000 5,625,000 5,625,000 5,625,000 5,625,000 5,625,000 5,625,000 Statutory Reserves 14,030 14,030 14,030 194,840 418,648 668,284 942,655 Retained Earnings 83,481 57,893 28,680 1,654,943 2,549,153 3,546,674 4,643,133

Total Shareholders' Equity 5,722,511 5,696,923 5,667,710 7,474,783 8,592,801 9,839,958 11,210,788

Total Liabilities & Shareholders' Equity 15,309,280 18,677,087 21,123,975 23,783,085 24,094,680 24,378,406 24,689,551 Source: Company Reports & Global Research



CASH FLOW STATEMENT YANBU NATIONAL PETROCHEMICAL COMPANY SR’000’ 2007 2008 2009 2010E 2011E 2012E 2012E

OPERATING ACTIVITIES Profit Before Zakat 113,626 (25,588) (29,213) 1,878,109 2,319,258 2,586,904 2,843,221

Depreciation - - - 739,956 769,554 800,336 832,350 Amortization - - - 24,496 20,995 17,995 15,424 Financial Cost - - - 178,526 167,898 151,982 127,815 Zakat Paid (3,770) - - (70,012) (81,174) (90,542) (99,513) Other Operating Activities 18,528 21,094 275 (1,653) (1,720) (1,790) (1,862) Change in Working Capital 1,091,653 (173,029) (1,757,632) (295,705) 73,604 109,904 132,308

Net Cash From Operating Activities 1,220,037 (177,523) (1,786,570) 2,453,718 3,268,417 3,574,789 3,849,743

INVESTING ACTIVITIES Capital Work In Progress (12,987,313) (4,106,403) (1,470,583) (2,590,255) (866,659) (897,486) (930,094) Pre-Operating Expenses (200,000) - - 2,000 (49,500) (61,875) (77,344) Deferred Charges (132,668) - - (5,480) (11,507) (12,658) (13,924) Other Non-Current Assets (14,420) (19,592) 15,384 12,191 14,071 16,227 18,701

Cash Flows From Investing Activities (13,334,401) (4,125,995) (1,455,199) (2,581,544) (913,595) (955,791) (1,002,660)

FINANCING ACTIVITIES Proceeds from Long-Term Financing 8,165,860 3,631,186 659,171 403,918 (1,056,683) (1,257,629) (1,385,727) Short-Term Financing - - 2,155,200 107,760 113,148 118,805 124,746 Other Financing Activities 5,642,799 11,066 - (178,526) (1,286,940) (1,400,163) (1,499,669)

Cash Flows from Financing Activities 13,808,659 3,642,252 2,814,371 333,151 (2,230,476) (2,538,986) (2,760,650)

Increase/Decrease in Cash 1,694,295 (661,266) (427,398) 205,325 124,346 80,012 86,432 Cash Beginning Balance - 1,694,295 1,033,029 605,631 810,956 935,302 1,015,314

Cash Ending Balance 1,694,295 1,033,029 605,631 810,956 935,302 1,015,314 1,101,746 Source: Company Reports & Global Research



FACT SHEET YANBU NATIONAL PETROCHEMICAL COMPANY 2007 2008 2009 2010E 2011E 2012E 2013E Liquidity Ratios Current Ratio 1.44 0.69 1.31 1.51 1.49 1.42 1.34 Cash Ratio 1.23 0.58 0.36 0.40 0.44 0.43 0.43

Profitability Ratios Gross Margin n/a n/a n/a 24.7% 23.1% 23.4% 23.7% EBITDA Margin n/a n/a n/a 32.4% 29.1% 29.1% 29.2% EBIT Margin n/a n/a n/a 23.7% 22.1% 22.4% 22.7% Net Profit Margin n/a n/a n/a 20.8% 19.9% 20.4% 21.0% ROE 1.9% -0.4% -0.5% 27.5% 27.9% 27.1% 26.1% ROA 1.0% -0.2% -0.1% 8.1% 9.3% 10.3% 11.2%

Leverage Ratios Debt to Equity 58.8% 66.1% 67.1% 61.5% 55.8% 49.3% 42.0% Debt to Asset 53.3% 59.6% 54.6% 50.2% 45.1% 39.2% 32.9% Liabilities/Total Assets (x) 0.63 0.69 0.73 0.69 0.64 0.60 0.55

Growth Rates Revenue Growth Rate n/a 29.6% 8.5% 7.1% Net Income Growth Rate -21.7% -123.3% 14.2% n/a 23.8% 11.5% 9.9% Equity Growth Rate -0.5% -0.4% -0.5% 31.9% 15.0% 14.5% 13.9% Total Asset Growth Rate 116.2% 22.0% 13.1% 12.6% 1.3% 1.2% 1.3%

Ratios Use for Valuation BV per share (SR) 10.17 10.13 10.08 13.29 15.28 17.49 19.93 EPS (SR) 0.20 (0.05) (0.05) 3.21 3.98 4.44 4.88 Market Price (SR) 52.75 14.8 33.4 43.6 43.6 43.6 43.6 Market Cap in (SRmn) 29,671.9 8,325.0 18,787.5 24,525.0 24,525.0 24,525.0 24,525.0 EV (SRmn) 36,143 18,420 29,722 35,658 34,459 33,075 31,554 EV/EBITDA n/a n/a n/a 12.64 10.51 9.30 8.26 P/E Ratio n/a n/a n/a 13.56 10.96 9.82 8.94 P/BV Ratio 5.19 1.46 3.31 3.28 2.85 2.49 2.19 Dividend Yield 0.0% 0.0% 0.0% 0.0% 4.6% 5.1% 5.6%

Source: Company Reports & Global Research *Historical P/E & P/BV multiples pertain to respective year-end prices, while those for future years are based on closing prices on the Tadawul as of 18th May 2010.



The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure.

Disclosure Checklist Company Recommendation Ticker Price Disclosure

Yanbu National Petrochemical Company

BUY YANSAB AB 2290.SE

SR43.6 1,10

1. Global Investment House did not receive and will not receive any compensation from the company or anyone else for the preparation of this report.

2. The company being researched holds more than 5% stake in Global Investment House. 3. Global Investment House makes a market in securities issued by this company. 4. Global Investment House acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her

household) has a direct ownership position in securities issued by this company. 6. An employee of Global Investment House serves on the board of directors of this company. 7. Within the past year , Global Investment House has managed or co-managed a public offering for this

company, for which it received fees. 8. Global Investment House has received compensation from this company for the provision of investment

banking or financial advisory services within the past year. 9. Global Investment House expects to receive or intends to seek compensation for investment banking

services from this company in the next three month. 10. Please see special footnote below for other relevant disclosures.

Global Research: Equity Ratings Definitions Global Rating Definition

Buy Fair value of the stock is >10% from the current market price Hold Fair value of the stock is b/w +10%/-10% from the current market price Reduce Fair value of the stock is b/w -10%/-20% from the current market price Sell Fair value of the stock is < -20% from the current market price

This material was produced by Global Investment House - Saudia, a firm regulated by the Capital Market Authority of KSA. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities Information and opinions contained herein have been compiled or arrived by Global –Saudia from sources believed to be reliable, but Global- Saudia has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global – Saudia accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global- Saudia for, or sent by Global- Saudia to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Global investment house- Saudia is authorized and regulated by the Capital Market Authority (CMA) in the Kingdom of Saudi Arabia. License Number 07067-37”.

Global Investment House Website: www.globalinv.net

Global Tower Sharq, Al-Shuhada Str.

Tel. + (965) 2 295 1000 Fax. + (965) 2 295 1005

P.O. Box: 28807 Safat, 13149 Kuwait

Research Faisal Hasan, CFA (965) 2295-1270 [email protected]

Index Rasha Al-Huneidi (965) 2295-1285 [email protected]

Brokerage Yousef S. Fahed Alebrahim (965) 2295-1702 [email protected]

Wealth Management - Kuwait Rasha Al-Qenaei (965) 2295-1380 [email protected]

Wealth Management-MENA & Far East Fahad Al-Ibrahim (965) 2295-1400 [email protected]

Global Kuwait Tel: (965) 2 295 1000 Fax: (965) 2 295 1005 P.O.Box 28807 Safat, 13149 Kuwait

Global Bahrain Tel: (973) 17 210011 Fax: (973) 17 210222 P.O.Box 855 Manama, Bahrain

Global Dubai Tel: (971) 4 4477066 Fax: (971) 4 4477067 P.O.Box 121227 Dubai, UAE

Global Abu Dhabi Tel: (971) 2 6744446 Fax: (971) 2 6725263/4 P.O.Box 127373 Abu Dhabi, UAE

Global Saudi Arabia Tel: (966) 1 2199966 Fax: (966) 1 2178481 P.O. Box 66930 Riyadh 11586, Kingdom of Saudi Arabia

Global Qatar Tel: (974) 4967305 Fax: (974) 4967307 P.O.Box 18126 Doha, Qatar

Global Egypt Tel: 20 (2) 24189705/06 Fax: 20 (2) 22905972 24 Cleopatra St. Heliopolis, Cairo

Global Jordan Tel: (962) 6 5005060 Fax: (962) 6 5005066 P.O.Box 3268 Amman 11180, Jordan

Global Wealth Manager E-mail: [email protected] Tel: (965) 1-804-242

Disclaimer This document and its contents are prepared for your personal use for information purposes only and is not an offer, or the solicitation of an offer, to buy or sell a security or enter into any other agreement. Projections of potential risk or return are illustrative, and should not be taken as limitations of the maximum possible loss or gain. The information and any views expressed are given as at the date of writing and subject to change. While the information has been obtained from sources believed to be reliable we do not represent that it is accurate or complete and it should not be relied on as such. Global Investment House, its affiliates and subsidiaries can accept no liability for any direct or consequential loss arising from use of this document or its contents. At any time, Global Investment House or its employees may have a position, subject to change, in any securities or instruments referred to, or provide services to the issuer of those securities or instruments.

Documents

Yanbu National Petrochemical Co. (YANSAB) · 2012. 11. 27. · and recorded 1Q2010 sales revenue of SR688.6mn and the profitability of SR259.4mn. Moreover, during 2010, we expect