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Al Waha to start commercial operations in Q2 2011


The Saudi bank, NCB Capital (NCBC), has released a new report on Sahara Petrochemical Company. NCBC expects Saharas Al Waha project to start commercial operations in Q2 2011 and argues that the start up will be a positive trigger for the companys stock.

NCBC upgraded their rating to overweight with a revised target price of US$6.3 Off the back of regional instability, the stock has underperformed the TASI petrochemical index by 5.4 per cent in the last month, which we believe is unjustified.

• Al Waha's commercial start in Q2 2011 to boost 2011 earnings

The report aruges that Sahara will report revenues in Q2 2011 as the Al Waha plant is scheduled to complete trial runs in Q1 2011. The Al Waha plant is 75 per cent owned by Sahara and has an annual capacity of 450k mt of polypropylene. NCBC estimates a 75 per cent YoY increase in Sahara's earnings in 2011 mainly due to contribution from Al Waha and higher earnings from SEPC on account of improving demand and higher petrochemical prices.

• The n-Butanol plant to start in 2014

Sahara's 43 per cent owned subsidiary, Saudi Acrylic Acid Co (SAAC), has signed a preliminary agreement with Saudi Kayan and a proposed JV between Saudi Aramco and Dow Chemicals to build a 330k mtpa n-Butanol plant in Jubail. All 3 partners will equally share the output from the US$0.4bn plant. SAAC's share of output would be fed to its acrylic acid plant, while the remaining output would be exported and marketed by SABIC. NCBC expects the plant to start commercial operations in Q3 2014.

• Petrochemical prices to remain firm in 2011

The report estimates petrochemical prices to remain high during 2011 benefiting from strengthening oil prices (currently above the US$100/bbl level). we estimate ethylene prices to rise 15 per cent YoY in 2011 and polyethylene by six per cent, while propylene prices are estimated to grow 13 per cent and polypropylene by 6 per cent.

• Upgrade to Overweight

NCBC has upgraded Sahara to Overweight from Neutral and believe the news on the Al Waha start up will be a positive catalyst to the stock. Due to the regional political instability, we have increased the equity risk premium for Sahara, leading to a reduction in our target price to US$6.3/share, from US$6.6/share previously. However, given the stock unwarranted decline in the recent month, NCBC believes that the current levels are an attractive entry price.