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2011 will see Yansab benefit from full year production


The Saudi bank, NCB Capital (NCBC), released a new report on Yanbu National Petrochemical Company (Yansab) stating that the Saudi petrochemcial company is expected to benefit from full year contribution of its production, supported by higher petrochemical prices.

NCBC slightly decreased their price target to US$12.5/share based on higher risk premiums and remain Neutral on the stock.

• Petrochemical prices to remain firm in 2011

With oil currently above US$100/bbl, NCBC remains confident on petrochemical price growth during 2011. NCBC expect ethylene prices to rise 15 per cent YoY in 2011 and polyethylene by 6 per cent, while propylene prices are estimated to be up 13 per cent and polypropylene up 6 per cent. The report forecasts average selling prices for Yansab to increase by 14 per cent YoY during 2011. For forecasting petrochemical prices in 2011, we have conservatively assumed an average oil price of US$90/bbl, 13 per cent higher than the average price in 2010.

• 2011E net income to grow 55 per cent YoY

The report estimates Yansab's 2011E net income to come in at US$0.6 billion (up 55 per cent YoY) compared to US$0.4 billion in 2010 mainly driven by the full year contribution of Yansab’s petrochemical complex (which started operations in March 2010). Moreover, a sustained rise in petrochemical demand and improving petrochemical prices offer strong support to Yansab’s performance in 2011.

• Gross margins estimated at 37.5 per cent in 2011

The report estimates that Yansab's average gross margins will be 37.5 per cent for the full year 2011, higher than 37.3 per cent in 2010 mainly on the back of higher petrochemical prices.

• NCBC remains Neutral with a revised price target of USD$12.5/share

NCBC have reduced their price target to US$12.5/share from USD$12.6/share due to increased risk premiums given the ongoing instability in the region. However, the report does not expect a direct impact to Yansab's business from the political instability in many of the neighbouring countries as most of the company’s sales are to global end markets. A general risk is for a slowdown in global growth due to higher oil prices.