Sidi Kerir Petrochemicals - SIDPEC - Re-initiation of Coverage - 6 April 2016

PRIME INVESTMENT RESEARCH
AUTOMOTIVE |EGYPT
GB AUTO – INITIATION OF COVERAGE
JANUARY, 14TH
2016
PETROCHEMICALS |EGYPT
SIDI KERIR PETROCHEMICALS - SIDPEC – RE-INITIATION OF COVERAGE
APRIL, 6TH
2016
WE RE-INTIATE COVERAGE FOR SIDI KERIR PETROCHEMICALS - SIDPEC
ASSIGNING A “BUY” RATING
♦ ONE OF THE MOST BENEFICIARIES OF THE EGP
DEVALUATION.
♦ ONE OF THE TOP BENEFICIARIES OF THE GOVERNMENT’S
RECENT INCOME TAX CUT, ON THE BACK OF HAVING 0%
LEVERAGE & NO TAX EXEMPTIONS.
♦ EGYPT’S SOLE POLYETHYLENE PRODUCER TO DATE.
♦ SOLID EXPORT MARKET WITH MORE THAN 50
COUNTRIES.
♦ DECLINING POLYETHYLENE PRICES SINCE 2014 IN
RESPONSE TO THE DECLINING CRUDE OIL PRICES;
HOWEVER AT A LOWER RATE DUE TO THE STRUCTURAL
SUPPLY GAP.
♦ ABILITY TO SELL POLYETHYLENE AT A DISCOUNT TO
INTERNATIONAL PRICES DUE TO FAVORABLE COST OF
PRODUCTION RELATIVE TO REGIONAL/INTERNATIONAL
PLAYERS.
♦ ETHYDCO – 20% OWNED BY SIDPEC HOLDS AN
ENORMOUS POTENTIAL TO SATISFY THE LOCAL MARKET
NEEDS.
WE RE-INITIATE COVERAGE FOR SIDI KERIR PETROCHEMICALS AT
A FAIR VALUE OF EGP 17.99/SHARE IMPLYING A 42% UPSIDE
POTENTIAL.
HENCE, WE ASSIGN SKPC A “BUY” RATING.

SIDI KERIR PETROCHEMICALS – SIDPEC – RE-INITIATION OF COVERAGE
APRIL, 2016
SIDI KERIR PETROCHEMICALS – SIDPEC …
ETHYDCO’S VALUE STILL NOT REFLECTED IN SKPC’S MARKET PRICE …
Stock Data
Outstanding Shares [mn] 525
Mkt. Cap[Bn] 6.699
Bloomberg – Reuters SKPC EY, SKPC.CA
52-WEEKS LOW/HIGH 9.95 – 15.17
DAILY AVERAGE TURNOVER (‘000S) 2,583
Ownership
Egyptian Petrochemicals Holding 20%
Egyptian Petrochemicals Company 7%
Al Ahly Capital Holding 7%
National Investment Bank 7%
Social Insurance Fund for Governmental Sector
Employees 19%
Social Insurance Fund for Public and Private Sector
Employees 12%
Misr Insurance 3%
Nasser Social Bank 2%
Free Float 23%
Financial Highlights
EGP mn 2015A 2016E 2017E 2018E
Revenues 2,788 2,755 3,138 3,270
GPM (%) 41% 40% 43% 42%
EBITDA 1,020 986 1,207 1,220
N.Income 842 802 983 1,012
NPM (%) 30% 29% 31% 31%
EPS 1.60 1.53 1.87 1.93
P/E 7.90 8.30 6.77 6.58
DPS 1.40 1.15 1.40 1.54
BV/S 4.88 4.98 5.55 5.87
Source: SIDPEC, Prime Estimates
Prices are as 5th
April 2016
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05/09/2015
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05/12/2015
05/01/2016
05/02/2016
05/03/2016
05/04/2016
SKPC.CA EGX 30 -Rebased
“BUY”
MARKET PRICE EGP 12.68
FAIR VALUE EGP 17.99
POTENTIAL 42% UPSIDE
INVESTMENT GRADE
“VALUE”
Report Content
Financial Statements 3
Assumptions & Forecasts 4
Industry Overview 6
Local Petrochemicals Market 9
Sidi Kerir Petrochemicals Company –SIDPEC 16
Source: Bloomberg
Sidi Kerir Petrochemicals Company – SIDPEC - is Egypt’s sole producer of Ethylene and Polyethylene
with a current production capacity of 300,000 tpa of ethylene and 225,000 tpa of Polyethylene.
SIDPEC produces its primary products; ethylene and polyethylene, in addition to several secondary
products that include Butene-1, Liquefied Petroleum Gas (LPG), Naphtha, Nitrogen and Ethane. Most
of the company’s Ethylene production is used internally for Polyethylene production, while, the
remaining quantity is supplied to the Egyptian Petrochemicals Company (EPC), a subsidiary of the
Egyptian General Petroleum Corporation (EGPC), for its PVC production. SIDPEC has a long term
contract with GASCO for the supply of the energy feedstock, for which the price is set according to a
formula that links gas prices to global prices of ethylene and polyethylene.
In 2010, SIDPEC signed an agreement with GASCO and ECHEM to establish a new Ethylene
production facility called “The Egyptian Ethylene and Derivatives Company –ETHYDCO-“. The new
facility will have a production capacity of 460,000 tpa of Ethylene, 400,000 tpa of Polyethylene and
20,000 tpa of Butadiene. ETHYDCO’s investment cost is USD 1.900bn and it was planned to be
financed through 65% debt and 35% equity. The facility is expected to start operating by 2H2016.
We re-initiate our coverage for Sidi Kerir Petrochemicals with a “BUY” rating driven from an
upside potential of 42%; driven from our estimated Fair Value of EGP17.99. Using the DCF
valuation methodology for SKPC, we utilized an average WACC over our forecasted horizon of
17.32%, a risk free rate of 11.46%, and a market risk premium of 8%. We used the 5-year adjusted
beta which is equivalent to 0.73. We applied a perpetual growth rate of 2.5%.
SKPC Fair Value is negatively affected by its debt-free policy, where the company’s cash flows are
discounted by only the cost of equity, which is higher than the cost of debt. The cost of equity
takes into account the risk-free rate “Rf”, in addition to a premium for the expected risk that is
inherent in equity positions “Equity Risk Premium”. On the other hand, ETHYDCO was able to
benefit from a more flexible capital structure, where it was financed through 65% debt and 35%
equity.
Petrochemicals – chemicals that are derived from crude oil or natural gas – are an essential part of
the chemical industry today. Petrochemistry is a fairly young industry as it only started to grow in
the 1940s. Global petrochemicals market size was valued at USD 514bn in 2014. In terms of
volumes, the global petrochemical size was 490.5mn tons in 2014. The petrochemicals sector is
affected by the global economic activity, growth in the industrial sector and population expansion.
The petrochemical industry was expected to grow at an estimated CAGR of 5.1% from 2015 – 2022.
The main driver of the market growth will be the globally increasing demand from end-use
industries ranging from consumer goods to manufacturing. China is currently the world’s largest
consumer of petrochemicals where it consumed more than 23% of the global petrochemicals in
2014; standing at USD 120bn. China is also expected to have the highest growth of 6.2% during
2015-2022.
The petrochemicals sector represents around 12% of Egypt’s total industrial production and is worth
around USD 7bn. The Petrochemicals industry contributes c3% of the Egypt’s total GDP.
Egypt’s production capacities are relatively small compared to its other regional players (GCC) and
international players. Capacities are expected to expand dramatically in the coming years on the back
of the National Master Plan that began in 2002 and is managed by ECHEM. The first phase has been
implemented according to the plan; however the second phase seems to be running behind
schedule. In 2002, the petrochemicals production stood at 520K tpa, while in 2015 it stood at 3,425K
tpa, showing a CAGR rate of 16%. A huge expansion is expected to take place in 2016, where the
production is expected to stand at 5,290 tpa, showing a 50% rise y-o-y.
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APRIL, 2016
Valuation Summary Total Per Share
Enterprise Value of SKPC EGP 6,106.16mn EGP 11.63
SKPC Share in ETHYDCO EGP 3,338.88mn EGP 6.36
Total EGP 9,445.04mn EGP 17.99
Upside Risks:
- Faster recovery of crude oil prices.
- Further devaluation of the EGP
- Earlier than anticipated operations of ETHYDCO or higher than anticipated utilization rates.
- Lower costs of feedstock (Ethane/Propane Mix).
Downside Risks:
- Deterioration of crude oil prices.
- Appreciation of the EGP and reversing all/portion of the devaluation effect.
- Selling Polyethylene at higher discounts to global prices.
- Postponement of ETHYDCO’s operations.
- Higher than anticipated costs of feedstock or/and fuel.
.
2

APRIL, 2016
SOURCE: SIDPEC & PRIME ESTIMATES
INCOME STATEMENT
BALANCE SHEET
- Financial Statements … Historical & Forecasts
In EGP’000s 2015A 2016F 2017F 2018F
Revenues 2,787,929 2,754,617 3,138,229 3,270,445
COGS 1,640,123 1,645,927 1,791,764 1,896,303
Gross Profit 1,147,806 1,108,690 1,346,465 1,374,142
S, G & Adm. Expenses (72,988) (80,286) (88,315) (97,146)
Ongoing Provisions (67,169) (46,191) (56,650) (64,225)
Other Operating Income 12,176 6,740 8,533 9,149
Other Operating Expenses (3,013) (2,896) (2,199)
EBITDA 1,019,826 985,939 1,207,138 1,219,723
Depreciation 63,649 64,019 64,408 64,663
Reported EBIT 956,177 921,920 1,142,730 1,155,060
Interest Income 81,254 55,079 73,538 102,487
Other Non-Operating Income 8,896 9,783 9,783 9,783
Other Non-Operating Expenses 6,299 3,037 3,764 3,805
NPBT 1,040,028 983,745 1,222,287 1,263,525
Deferred Tax (4,781) (2,442) (3,835) (4,303)
Income Tax 259,958 232,981 285,489 293,720
NPAT 784,851 750,764 936,797 969,805
Capital Gain/Loss 30 - - -
FOREX Gains 57,474 51,727 46,554 41,899
Net Income 842,355 802,491 983,351 1,011,703
Less : Non-Appropriation Items 105,897 84,762 104,659 107,733
Net Attributable Income 736,458 717,729 878,693 903,970
In EGP ‘000s 2015A 2016E 2017E 2018E
Assets
Total Current Assets 1,718,382 1,900,424 2,408,190 2,731,879
Total Non-Current Assets 1,468,786 1,403,129 1,293,007 1,237,519
Total Assets 3,187,167 3,303,552 3,701,197 3,969,398
Liabilities & Shareholder's Equity
Total Current Liabilities 412,531 458,556 517,104 566,237
Total Non-Current Liabilities 214,948 229,542 271,917 321,455
Total Liabilities 627,478 688,098 789,021 887,691
Shareholders' Equity 2,559,689 2,615,455 2,912,176 3,081,707
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APRIL, 2016
SOURCE: BLOOMBERG
SOURCE: BLOOMBERG, WORLD BANK, PRIME ESTIMATES
GLOBAL MARKET DYNAMICS
GLOBAL CRUDE OIL & PE PRICES
- Assumptions & Forecasts:
We forecasted the Ethylene and Polyethylene prices based on the correlation with crude oil prices. A strong positive
correlation (0.59) exists between crude oil prices and Polyethylene prices.
2010 2011 2012 2013 2014 2015 2016F 2017F 2018F
Average Crude
Oil Prices
USD/Barrel 79.51 106.53 111.67 104.1 96.2 50.8 37 48 51.4
Growth 28.10% 34.00% 4.80% -6.80% -7.60% -47.20% -27.17% 29.73% 7.08%
Global PE Prices
USD/ton 1,561.90 1,597.43 1,622.91 1,815.27 1,816.29 1,464.26 1,229.38 1,445.20 1,505.65
Growth 6.80% 2.30% 1.60% 11.90% 0.10% -19.40% -16.04% 17.55% 4.18%
PE Prices -
Exports Market
USD/Ton 1,167.09 1,448.66 1,376.98 1,516.08 1,474.86 1,361.59 1,167.92 1,300.68 1,355.08
Growth 12.90% 24.10% -4.90% 10.10% -2.70% -7.70% -14.22% 11.37% 4.18%
Ratio of Global PE 0.75 0.91 0.85 0.84 0.81 0.93 0.95 0.9 0.9
Discount to Global PE 34% 10% 18% 20% 23% 8% 5% 11% 11%
PE Prices -
Local Market
USD/Ton 1,251.08 1,420.91 1,406.65 1,610.03 1,651.53 1,436.73 1,232.36 1,365.72 1,422.84
Growth 11.30% 13.60% -1.00% 14.50% 2.60% -13.00% -14.22% 10.82% 4.18%
Ratio to Ex. 1.07 0.98 1.02 1.06 1.12 1.06 1.06 1.05 1.05
Discount to Global PE 25% 12% 15% 13% 10% 2% 0% 6% 6%
Ethylene Prices -
Local Market
USD/Ton 1,076.40 1,382.80 1,307.48 1,398.18 1,290.27 981.97 842.29 956.00 995.99
Ratio to Global PE 0.86 0.97 0.93 0.87 0.78 0.68 0.68 0.7 0.7
Growth 0.90% 28.50% -5.40% 6.90% -7.70% -23.90% -14.22% 13.50% 4.18%
0
20
40
60
80
100
120
0
500
1,000
1,500
2,000
2,500
Nov/10 Nov/11 Nov/12 Nov/13 Nov/14 Nov/15
PE Prices Crude Oil Prices
Global prices of Ethylene and Polyethylene (Local and Export) in
relation to global crude oil prices. SIDPEC sells its products in the
exports markets at a discount to global prices. The average
discount during the period 2010-2015 was c19%. We forecast that
the discount to global prices for the period 2016-2020 will stand at
c10%
Ethylene prices are forecasted as a ratio of global Polyethylene
prices. During the period 2010-2015, Ethylene prices were equal to
0.85 of Polyethylene prices. We forecast that the Ethylene prices
would have the average of 0.75 of the global Polyethylene prices.
For more than 2 years, global oil prices have been declining and
the prices of petrochemicals have followed suit. This is mainly due
to the supply surpassing the demand by more than 1.5mn barrels
per day. The World Bank expects oil prices to start picking up by
2017 and to reach USD58.8/barrel.
USD/BlUSD/ MT
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APRIL, 2016
SALES BREAKDOWN -SIDPEC-
SALES BREAKDOWN - ETHYDCO-
Revenues - SIDPEC
2015A 2016F 2017F 2018F
Ethylene
Sales Volume (Tons) 34,480 20,625 20,625 20,625
Sales Value (EGP '000s) 262,646 151,417 176,472 183,853
Polyethylene
Total Sales Volume (Tons) 224,021 236,250 236,250 236,250
Local Sales Volume (Tons) 136,191 141,750 141,750 141,750
Local Sales Value (EGP '000s) 1,517,842 1,522,575 1,732,633 1,805,102
Export Sales Volume (Tons) 87,830 94,500 94,500 94,500
Export Sales Value (EGP '000s) 927,671 961,967 1,100,084 1,146,097
Production Wastes
Sales Volume (Tons) 194 468 468 468
Sales Value (EGP ‘000s) 1,603 4,152 4,735 4,933
Total PE Sales Value 2,447,116 2,488,694 2,837,453 2,956,132
Secondary Products
Sales Volume (Tons) 29,730 37,059 38,086 39,086
Sales Value (EGP '000s) 78,167 114,505 124,305 130,460
Total SIDPEC’s Sales Value 2,787,929 2,754,617 3,138,229 3,270,445
Revenues – ETHYDCO:
2016F 2017F 2018F
Ethylene
Sales Volume (Tons) 5,000 15,000 20,000
Sales Value (USD '000s) 4,211 14,340 19,920
Polyethylene
Total Sales Volume (Tons) 100,000 300,000 400,000
Local Sales Volume (Tons) 100,000 300,000 320,000
Local Sales Value (USD '000s) 123,236 409,715 455,308
Export Sales Volume (Tons) 0 0 80,000
Export Sales Value (USD '000s) 0 0 108,407
Total PE Sales Value (USD '000s) 123,236 409,715 563,715
Butadiene
Sales Volume (Tons) 5,000 15,000 20,000
Sales Value (USD '000s) 8,250 24,750 31,350
Total Sales Value 135,698 448,805 614,985
5

APRIL, 2016
SOURCE: VIRTUAL CHEMBOOK
Industry Overview:
What are Petrochemicals …
Petrochemicals are chemicals made from petroleum (crude oil) or natural gas. Both, petroleum and natural gas
are made up of hydrocarbon molecules, which are compromised of one or more carbon atoms, to which the
hydrogen atoms are attached. Oil and natural gas are the main raw materials (feedstock) used in the industry
due to its relatively cheap prices and them being abundant and readily available. A minimal amount - c5% - of
the oil and gas consumed is needed to produce all the petrochemicals worldwide. Products made from
petrochemicals include plastics, soaps, detergents, solvents, paints, drugs, fertilizers, pesticides, explosives,
synthetic fibers, rubbers and flooring materials.
The petrochemicals products are quiet diversified, where they can be generally classified into 2 main categories:
1) Primary Petrochemicals and 2) Intermediates and Derivatives.
Primary
Petrochemicals
1) Olefins
Are petrochemicals produced by
cracking the feedstock such as
Ethane, Propane, Butane and
Naphtha from the main raw
materials; crude oil and natural gas
The steam cracking divides the
long chain carbon molecules into
smaller chains to produce olefins.
Ethylene
Chemicals, Plastics
and Plastic Products
Butadiene
Synthetic Rubber
Propylene
Chemicals, Plastics
and Plastic
Products
2) Aromatics
Are by-products of cracking the
feedstock and they are produced in
the same olefin plants and refinery
units.
Benzene
Dyes and Synthetic
Detergents
Xylenes
Plastics and
Synthetic Fibers.
Toluene
Explosives
3) Synthesis Gas
Is a mixture compromising of
carbon monoxide, carbon
dioxide and hydrogen. they
Methanol
Solvent
and Chemical Inter
mediate
Ammonia
Fertilizers
(Urea) and
Explosives
6

APRIL, 2016
SOURCE: WORLD BANK & PRIME ESTIMATES
SOURCE: VIRTUAL CHEMBOOK
1.
Intermediates &
Derivatives
Petrochemical Intermediates
Are generally produced by the chemical conversion of
primary petrochemicals to form more complicated
derivative products
Petrochemical Derivatives
Can be made in several ways: directly from primary petrochemicals;
through intermediate products which still contain only carbon and
hydrogen; and, through intermediates which incorporate chlorine, nitrogen
or oxygen in the finished derivative.
Of all the processes used, one of the most important is polymerization. It is
used in the production of plastics, fibers and synthetic rubber, the main
finished petrochemical derivatives.
Vinyl Chloride
Alpha Olefins
Styrene
Acrylic Acid
Acrylonitrite
CumeneCyclohexane
PTA
Polyethylene Polyester
Polypropylene
Nylon
Polystyrene Ethylene Glycool
Acrylic Fibers
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APRIL, 2016
Global Petrochemicals Market Dynamics:
Cost and Availability of Feed Stock …. Cost Competition is Key to Petrochemicals Success…
The feedstock cost is the most important factor determining the competitiveness of the petrochemical producers. It is
crucial for the petrochemical producers to choose a feedstock that provides a cost advantage. However feedstock
options for the petrochemical producers are limited and mainly depend on the location of the manufacturing facilities.
The three main feedstocks used in the the global petrochemicals industry are naphta, natural gas and coal.
Most of the regions are dominated by only one single feedstock. Naphtha is a dominant feedstock used for
petrochemical production in Asia Pacific and Europe, while on the other hand, natural gas is dominant in the
Middle East, Africa, and North America regions. Naphtha and natural gas are converted into petrochemicals by a
process known as “steam cracking”. Naphtha is a liquid mixture of hydrocarbon produced from distillation of crude oil
and is directly used in the steam cracking. Natural gas is not used directly in steam cracking but its components such as
ethane, propane and butane are used to produce petrochemicals. These components are produced as by-products
during extraction of methane from natural gas. Mixtures of these gases are known as Natural Gas Liquids (NGLs) and
are most prevalent in the Middle Eastern countries for the petrochemical production. Coal is another major feedstock
used for petrochemical production but its use is limited to the Chinese market. The global petrochemical industry is
dominated by naphtha feedstock, which accounts for the largest share in the petrochemical production. However, the
selection of feedstock depends on many factors, such as the availability of petroleum resources and the production
cost of the feedstock in the region. The Middle Eastern petrochemical producers (including Egypt) use natural gas as
key feedstock as it is available to them at subsidized prices. The subsidies on natural gas in the Middle Eastern
countries make it 60-70% cheaper compared to natural gas in Europe and North America. It is worthy to note that
Saudi Arabia, the Middle East’s largestpetrochemicals producer uses Naphtha as its feedstock. Availability of huge
natural gas resources has brought the Middle East to the forefront of global petrochemical industry, making it one of
the most competitive regions in the world. The global petrochemical industry is witnessing significant changes in the
feedstock supply trend.
Global petrochemicals market size was valued at USD 514bn in 2014. In terms of volumes, the global petrochemicals
market size was 490.5mn tons in 2014. Generally, the petrochemicals sector is affected by the global economic activity,
growth in the industrial sector and population expansion. The petrochemical industry was expected to grow at an
estimated CAGR of 5.1% from 2015 – 2022. The main driver of the market growth will be the globally increasing
demand from end-use industries ranging from consumer goods to manufacturing.
China is currently the world’s largest consumer of petrochemicals where it consumed more than 23% of the global
petrochemicals in 2014; standing at USD 120bn. China is also expected to have the highest growth of 6.2% during
2015-2022. This comes as a result of growing demand for several plastic products (such as polyethylene and
polypropylene) and engineering plastics from domestic automotive, packaging and construction industry.
There are other Asian countries such as India and Thailand that are expected to witness significant gains in their
consumption of petrochemicals on the back of expected rapid industrialization and government support to increase
FDIs.
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APRIL, 2016
SOURCE: ECHEM
Local Petrochemicals Market:
Egypt’s Petrochemicals Industry Key Milestones
1945
The Petrochemicals industry started in Egypt in the
mid- forties with the establishment of Al-Ahleya Plastic
Company.
1950
The Suez governorate witnessed the first production
of fertilizers from the surpluses of Ammonia by the
refinery units of Abboud plants in Ataka.
1955
In the mid-fifties, Egypt established one of the earliest
production units of nylon worldwide in Kafr-El- Dawar.
1975
Talkha and Alexandria witnessed the establishment of
2 urea plants.
1980
The establishment of the Egyptian Petrochemical
Company (EPC) at Amereya - Alexandria as a public
sector company owned by the Egyptian General
Petroleum Corporation (EGPC), EPC produces
Polyvinyl Chloride with a total capacity of 80KT/Y, on
which the plastic industry depends. EPC was regarded
as the core for the petrochemical industry in Egypt.
1990
The establishment of Sidi Kerir Petrochemicals
Company (SIDPEC), where it used to produce ethylene
and polyethylene with a plant capacity of 225KT/Y
Ethylene. It is worth mentioning that the local gas
feedstock, retrieved from the western desert, was
used by EPC to cover local market demand of
Ethylene, while exporting the surplus.
2002
The Egyptian Petrochemicals Holding Company
(ECHEM) was established to manage and develop the
Petrochemicals industry in Egypt.
ECHEM’s priority is to enhance the growth of
Petrochemicals industry through implementing The
National Petrochemicals Master Plan with the target
of realizing the optimum utilization of natural gas in
value added products. The plan covers 14 complexes
including 24 projects and 50 production units during
the 20 years.
The petrochemicals sector represents around 12% of Egypt’s
total industrial production and is worth around USD 7bn. The
petrochemicals industry contributes c3% of the Egypt’s total
GDP. As of 2013, the petrochemical industry consisted of 91
companies operating inland with total investments of USD
4.65bn and 14 companies operating in free zones with total
investments of USD 182.64mn. Egypt represents one of the
most promising markets for petrochemicals and is expected
to become a significant exporter of petrochemicals over the
long-term. Total Exports of Manufactured Fuels reached USD
19.4bn during FY2013/14 representing 11% of the total
exports.
Even though Egypt is considered a key petrochemical
producer in Africa, its production capacities are relatively
small compared to its other regional players (GCC) and
international players. Production capacities have expanded
in the last decade and it is expected to keep expanding at
even higher rates. The capacity of Ethylene production was
expected to expand by 6 times in 2013-2017
Major new projects are expected to take place in the coming
period, on the back of the government’s National Plan for
Petrochemicals that was set in 2002. The plan targets to
reduce imports, increase exports, create new production
facilities and complexes and create job opportunities.
In BMI's latest Petrochemicals Risk/Reward Index for the
Middle East and Africa region, Egypt ranked the 8
th
place
with a score of 49.3 points, up 0.7 points since the previous
quarter as a result of the ongoing improvements in the
political and economic environments. The increase in its
score has enabled it to pull ahead of Turkey in the regional
ranking, putting it 2.2 points ahead of South Africa and 1.3
points ahead of Turkey, with a considerable upside for
further improvement.
The local demand for petrochemicals is considerably high in
Egypt. The demand for plastics (main consumer of
petrochemicals) and rubber stood at 2.2mn tons in 2014.
Plastics and rubber consumption in Egypt is c25kg for each
citizen on an annual basis.
Egypt is an important worldwide exporter of petrochemical
products. Egypt supplies petrochemical products to about 50
countries worldwide, with Europe consuming the majority of
Egyptian Exports. France and the UK are the largest
importers of Egyptian fertilizers of total fertilizers, while
around 30% of total plastics exports were directed to
Germany and Belgium.
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APRIL, 2016
KEY FEATURES OF PETROCHEMICALS MASTER PLAN
Petrochemicals Sector Drivers:
i. A wide variety of products creating strong demand: Plastics, fertilizers, pharmaceuticals, and acrylics are produced
in Egypt.
ii. Natural Resource Abundance: Egypt is ranked No. 16 globally in natural gas production, as it produced more than
61bn m
3
in 2015. Egypt also has one the world’ largest gas reserves, as it stood at 1.8tn m
3
in 2014. Moreover, Egypt
has reserves of many raw materials needed for the manufacturing of several petrochemicals products.
iii. Competitive Production Costs: The production of petrochemicals is being skewed towards countries with lower
feedstock prices and natural gas costs, such as Egypt
iv. Feeder and Support Industries: Egypt has several feeder industries to support the petrochemicals sector. This
facilitated doing business and it reduces the outsourcing costs.
v. Proximity to Customers: Egypt is close to major petrochemical consumers in Europe, Africa and the Middle East.
vi. Infrastructure: Egypt has more than 15 commercial and 51 specialized ports, including 15 for petroleum. Egypt also
has several international ports, airports and highways. This delivers quiet flexible export options and ease of
transport.
vii. Built in Market: With a population that crossed 90mn, Egypt’s domestic consumption is expected to keep growing.
Government Support for the Petrochemicals Industry:
The government of Egypt has shown its intention to collaborate with the private sector to expand business opportunities in
the petrochemicals sector through public private partnerships (PPP). In the early 2000s, The Egyptian Ministry of Petroleum
has established the Egyptian Petrochemicals Holding Company (ECHEM) to accelerate the implementation of new
petrochemicals projects.
The government has adopted a 3-phase, 20-year master plan (2002-2022) in order to guide investment decisions in the
petrochemicals industry, with an estimated budget of USD 20bn. It is expected that the plan’s implementation will last longer
than anticipated, due to the occurrence of 2 revolutions in Egypt, one taking place in January 2011 and the other in June 2013.
The main aim of the master plan is to displace the imports and develop the minimal self-sufficiency of the Egyptian
petrochemicals.
14 Complexes
24 Projects
50 Production Units
Achieve:
USD 15bn / Annum Revenues
Produce:
15mn TPA of Intermediate and
Final Products
Create:
100,000 Job Opportunities
(Direct & Indirect)
Invest:
USD 20bn in 20 Years
10

APRIL, 2016
SOURCE: SIDPEC
SOURCE: SIDPEC
PETROCHEMICALS PRODUCTION CAPACITIES IN EGYPT
The government reserved 6 different locations in different governorates where the petrochemicals complexes can be established.
The proposed locations were Alexandria, North Gulf of Suez, Damietta, Port Said, Zaafarana and Rosetta.
Market Dynamics: Production, Consumption and Balance of Trade:
According to The General Authority for Investments and Free Zones - GAFI -, the petrochemicals industry represents around 12% of
the Egyptian industrial output. The Master Plan has effectively enhanced the “Production Capacity”; total petrochemicals’
production capacity increased from around 600,000 tpa in 2002 to 3.15mn tpa in 2012 and 5.27mn tpa in 2015.
L
Phase 1 - (2002 – 2008)
USD 5.6bn
Phase 2 - (2009 – 2015)
USD 6bn
Phase 3 - (2016 - 2022)
USD 7.4bn
Acrylic Fiber - 2009
Polystyrene – 2011
Methanol – 2010
Urea – 2009
PVC – 2010
LAB – 2009
Polypropylene - 2010
Polyethylene - 2011
Styrene
Polyester
Aromatic Complex
Ethoxglates
PTA
SB Latex
2ND
Olefins Complex
Methanol II
Vinyl’s Complex
Propylene
Polypropylene
3RD
Olefins Complex
Styrenic Complex
Butadiene
SB Latex
Detergents
National Plan for Petrochemicals Industry
- 14 Petrochemicals Industrial Complexes
- Estimated Investment Cost USD 20bn
Most of the projects of phase 2 are either under construction or under development.
The delay in the 2nd
phase is due to political turmoil in the previous period.
Total: 600KTA
- EPC: 80 KTA PVC
- SIDPEC: 225 KTA PE
- LAB Unit: 50 KTA LAB
- OPC: 165 KTA PP
Total: 1,400 KTA
- Acrylic Fibers: 54 KTA AF
- E-LAB: 100 KTA LAB
- MOPCO: 600 KTA Urea & 50
KTA Ammonia
Total: 3,150 KTA
- E-Methanex: 1,150 KTA
Methanol
- EPP: 400 KTA PP
- E-Styrenics: 200 KTA PS
2002 2009 2012 2015
Total: 5,270 KTA
- Styrenics: 300 KTA
Styrene
- -EIPET: 420KTA PET
- MOPCO: 100KTA
Ammonia & 1300 KTA
Urea
11

APRIL, 2016
SOURCE: OXFORD BUSINESS GROUP
PETROCHEMICALS PRODUCTION – KT – 2002 PETROCHEMICALS PRODUCTION – KT – 2009
ETHYLENE PRODUCTION CAPACITIES
The Egyptian petrochemicals capacity is still considered relatively small, compared to the Gulf countries, such as Saudi Arabia and
Qatar, which is mainly explained by the difference in the raw materials’ abundance and greater oil and gas reserves. In January
2013, the total capacity of ethylene production in the Middle East and Africa stood at 26mn tpa (representing c18% of the global
production capacity which is equivalent to 143.3mn tpa), where Egypt’s capacity represented only 1.3%. Saudi Arabia has the
region’s largest capacity of 13.2mn tpa, followed by Iran with 4.7mn tpa, followed by Qatar, the UAE and Kuwait with 2.5mn tpa,
2.05mn tpa and 1.65mn tpa respectively. When comparing Egypt to its African counterparties, Egypt is the second largest producer
in North Africa, where it is behind Libya’s capacities of 350,000 tpa and it is ahead of Algeria with a capacity of 133,000 tpa. Egypt is
considered the third largest producer in Africa, among other major producers as South Africa – 585,000 tpa and Nigeria – 300,000
tpa.
Ethylene Production Capacities –MEA - 2013
Ethylene Production
Capacity
MN TPA
% of MEA
Capacity
% of World
Capacity
1. Saudi Arabia 13.2 51% 9%
2. Iran 4.7 18% 3%
3. Qatar 2.5 10% 2%
4. UAE 2.05 8% 1%
5. Kuwait 1.65 6% 1%
* Egypt 0.338 1% 0%
MEA Capacity 26 - 18%
World Capacity 143.4 - -
Capacities are expected to expand dramatically in the coming years, with the previously mentioned National Master Plan that
began in 2002 and is managed by ECHEM. The first phase has been implemented according to the plan; however the second phase
seems to be running behind schedule. In 2002, the petrochemicals production stood at 520K tpa, while in 2015 it stood at 3,425K
tpa, showing a CAGR of 16%. A huge expansion is expected to take place in 2016, where the production is expected to stand at
5,290 tpa, showing a 50% rise y-o-y. This massive increase will be mainly from Urea, Polyethylene and Polypropylene.
520
225
165
80
50
0 100 200 300 400 500 600
Total
HDPE
PP
PVC
LAB
1,274
600
165
225
80
150
54
0 500 1000 1500
Total
Urea
PP
HDPE
PVC
LAB
Acrylic Fiber
Ethylene Production Capacities - Africa – 2013
Ethylene Production Capacity TPA
1. South Africa 585,000
2. Libya 350,000
3. Egypt 338,000
4. Nigeria 300,000
5. Algeria 133,000
12

APRIL, 2016
SOURCE: SIDPEC
SOURCE: STATISTA
SOURCE: SIDPEC
PETROCHEMICALS PRODUCTION – KT – 2015 PETROCHEMICALS PRODUCTION – KT – 2016 E
3425
1150
600
420
400
280
225
200
150
0 1000 2000 3000 4000
Total
Methanol
Urea
PET
PP
PVC
HDPE
PS
LAB
5290
1900
1150
565
525
420
280
150
150
150
0 1000 2000 3000 4000 5000 6000
Total
Urea
Methanol
PP
HDPE
PET
PVC
LAB
PS
LLDP
The consumption of petrochemicals is mainly measured
according to the end uses, mainly plastics. Egypt is one of the
countries with consumption per capita of plastics is far above
the regional average level, while lower than the global average
level. Currently Egypt has a consumption per capita level of
25kg/annum.
The average growth rate for the plastics demand is c6%
annually. In 2006, Egypt’s consumption of plastics stood at
1.64mn tons, while in 2015 it stood at 2.22mn tons of plastics.
Egypt produces only 28% of the plastic materials that are
locally consumed.
PLASTICS CONSUMPTION IN EGYPT (MN. TONS)
1.64
2.07
2.22
0
0.5
1
1.5
2
2.5
2006 2012 2015
PLASTICS CONSUMPTION (KG/CAPITA/ANNUM) - MEA
16
10
3
0 5 10 15 20
2015
2005
1980
PLASTICS CONSUMPTION (KG/CAPITA/ANNUM) - WORLD
45
30
11
0 10 20 30 40
2015
2005
1980
13

APRIL, 2016
SOURCE: CAPMAS
EXPORTS, IMPORTS & TRADE BALANCE
EXPORTS, IMPORTS & TRADE BALANCE
Egypt has always been considered a net importer of petrochemicals and chemical products. The trade balance shows a huge deficit
over the 2003-2014 period. However, it is worthy to note that the value of exports’ growth has increased at a faster rate than that
of imports. Egypt exports petrochemicals to more than 30 countries, where European countries were the largest importers (67%),
followed by Asian (21%) and African (12%) countries.
Mn EGP 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Exports
Chemical
Products
1,989 1,417 1,620 1,993 1,913 13,746 14,963 17,965 22,305 21,502 24,469 22,613
Imports
Chemical
Products
-6,344 -7,238 -9,346 -8,449 -9,312 -23,419 -21,080 -24,921 -30,714 -36,053 -41,665 -46,064
Trade Balance -4,355 -5,821 -7,726 -6,456 -7,399 -9,673 -6,117 -6,956 -8,409 -14,551 -17,196 -23,451
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Exports - y-o-y Change - -29% 14% 23% -4% 619% 9% 20% 24% -4% 14% -8%
Total Change 1037%
CAGR 25%
Imports - y-o-y Change - 14% 29% -10% 10% 151% -10% 18% 23% 17% 16% 11%
Total Change 626%
CAGR 20%
Trade Balance - y-o-y Change - 34% 33% -16% 15% 31% -37% 14% 21% 73% 18% 36%
Total Change 438%
CAGR 17%
-50,000
-40,000
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Exports - Chemical Products - Mn EGP Imports - Chemical Products - Mn EGP Trade Deficit
14

APRIL, 2016
SOURCE: SIDPEC
SOURCE: SIDPEC
Out of all the polymers, Egypt produces only 3 types; Polyethylene, Polypropylene and Polyvinyl Chloride (PVC)
Polymer Consumption KTA Balance
Polyethylene (PE) 555 65% Imported
Polypropylene 460 60% Imported
Polyvinyl Chloride (PVC) 390 70% Imported
Polyethylene Terephthalate 300 60% Imported
Polystyrene 120 100% Imported
Others 400 100% Imported
Total 2225
Egypt imports all of the Engineering and other plastics materials. These engineering plastics represent more than 12% of the
Egyptian plastics demand.
Polymers Consumption KTA Balance
Acrylic Polymers and PMMA 120
100% Imported
Synthetic Rubber 80
Acrylonitrile and Styrene Polymers (ABS and SAN) 65
Polyurethanes 50
Polyvinyl Acetate/Alcohol 25
Polyesters 20
Ethylene Vinyl Acetate ( EVA ) 10
Others (Polycarbonates, Epoxies, Polyamide …. etc.) 30
Total 400
15

APRIL, 2016
SOURCE: SIDPEC
OWNERSHIP STRUCTURE
Sidi Kerir Petrochemicals Co. - SIDPEC -
Operational Overview:
SIDPEC’s main products are Ethylene and Polyethylene; however it produces other secondary products; namely Liquefied
Petroleum Gas (LPG), Ethane, Nitrogen, Naphtha and Butene-1. SDIPEC is Egypt’s sole producer of both Ethylene and
Polyethylene. The current annual production capacity of SIDPEC stands at 300,000 tpa for Ethylene and 225,000 tpa for
Polyethylene. More than 90% of the produced Ethylene is used for the production of Polyethylene, where the remaining
10% is sold to the Egyptian Petrochemicals Company (EPC), which is a subsidiary of the Egyptian General Petroleum
Corporation (EGPC). SIDPEC works through 4 different plants; the Ethylene plant, the Polyethylene plant, the Butene-1
plant and the LPG plant.
Ethane/Propane Mix to Ethylene:
The Egyptian Natural Gas Company “GASCO”, a subsidiary of the Egyptian General Petroleum Corporation (EGPC), provides
SIDPEC with the main feedstock “Ethane/Propane Mix”. The mix is comprised of 90% Ethane and 10% Propane and it is
provided to the company through GASCO’s pipelines. Due to the abundance of natural gas in Egypt and its relatively low
price compared to naphtha, SIDPEC uses natural gas rather than naphtha as its energy feedstock. SIDPEC has entered into
a long-term contract with GASCO for the supply of the mixture; however the pricing formula has never been disclosed. The
feedstock price is set according to a formula, where the feedstock price is set in accordance to the global Ethylene and
Polyethylene prices. The pricing formula sets an upper and lower limit for the prices, where it limits the margin from
expanding beyond a certain limit during cycle upturns and limiting the margins from declining below a certain level during
the cycle downturns. The inputs that are used in the pricing formula are reviewed every 3 years. We believe that the
feedstock cost is determined as a function of 20-25% of the global Ethylene and Polyethylene prices. It is worthy to note
that the feedstock factor is 1.6; 1.6 tons of Ethane/Propane mix is required to produce 1 ton of Ethylene.
Sidi Kerir Petrochemicals Co. - SIDPEC - is an Egyptian joint stock
company that was established in 1997 under the Egyptian
Investment Law. SIDPEC is Egypt’s sole producer of Ethylene
and Polyethylene. It also produces Butene-1, Naphtha and
Nitrogen among other products. It produces different types of
polyethylene such as HDPE and LLDPE, which are used in several
applications, such as film grades, blow molding grades, injection
molding grades and roto molding grades. The company has a
current capacity of 300,000kta of Ethylene, 225,000kta of
Polyethylene, 25,000kta of LPG, 10,000kta of Naphtha
The company’s authorized capital amounts to EGP 5.1bn and its
paid-in-capital is EGP 1.05bn distributed over 525mn shares at a
par value of EGP2. SIDPEC was listed on the EGX on March 2005,
where The Egyptian Petrochemicals Holding Co. is still the major
shareholder with ownership of 20%. The free float represents
c23% of the company’s shares.
20%
7%
7%
7%
19%
12%
3%
2%
23%
Egyptian
Petrochemicals
Holding
Egyptian
Petrochemicals
Company
Al Ahly Capital
Holding
National Investment
Bank
Social Insurance Fund
for Governmental
Sector Employees
Social Insurance Fund
for Public and Private
Sector Employees
Misr Insurance
Nasser Social Bank
Free Float
16

APRIL, 2016
Ethylene to Polyethylene and Other Secondary Products:
The produced Ethylene is distributed among 3 different routes: SIDPEC’s Polyethylene plant, Butene-1 plant and the LPG
plant. Most of the Ethylene is directed towards the Polyethylene plant and the remaining Ethylene is sold to the The
Egyptian Petrochemicals Company (EPC), a subsidiary of EGPC, for its Polyvinyl Chloride (PVC) production.
SIDPEC’s products are sold under the brand name of “Egyptene” and the company offers Polyethylene of two different
grades: Linear Low Density Polyethylene (LLDP) and High Density Polyethylene (HDPE). There are several applications for
Egyptene products:
1. Film: used in the production of shopping and grocery bags and sheets.
2. Blow Molding: used in the production of containers.
3. Injection Molding: used in the manufacturing of pallets, boxes, dustbins and seats.
4. Roto Molding: used in the production of tanks.
17

SIDI KERIR PETROCHEMICALS – SIDPEC - INITIATION OF COVERAGE
APRIL, 2016
Sidi Kerir Petrochemicals Company – SIDPEC- Production Scheme
Ethylene Plant
50,000 TPA
Ethylene
Egyptian
Petrochemicals
Company“EPC”
468,000 TPA
Ethane/ Propane
Mix
Acid Gas
Removal
Cracking
Heaters
Compression
& CO2
Removal &
Drying
Chilling
&
Separation
& Ethylene
Recovery
Refrigeration
225,000
TPA
Ethylene
S.R.U
F.S.U
Polyethylene Plant
Train I, Cr
C.A.U P.P.U P.U
Train II, Zg
A.P.U
225,000TPA
Polyethylene –
HDPE & LDPE
GASCO Co.
Natural Gas
SOURCE: SIDPEC &PRIME RESEARCH
50,000 TPA
LPG
LPG Unit
+C3
Demi Water
Cooling Water
Fire Fighting Water
Potable Water
Process Water
Plant Air
Instrument Air
Breathing Air
HS
Utilities & Offsite Facilities
R.S.U.
10,000TPA
Ethylene
C.P.U P.P.U P.U
Butene-1
Butene-1 Plant
B.U.
PE Plant Unit’s Abbreviations:
- S.R.U.: Solvent Recovery Unit
- F.S.U.: Feed Stock Unit
- R.S.U: Reagent Storage Unit
- C.A.U: Catalyst Activation Unit
- P.P.U: Pre-Polymerization Unit
- P.U: Polymerization Unit
- A.P.U: Additives & Pelletizing Unit
- B.U: Bagging Unit

APRIL, 2016
SOURCE: SIDPEC
Production:
As previously mentioned, SIDPEC’s capacity is 300,000tpa of Ethylene and 225,000tpa for Polyethylene. The utilization rate is
usually above 95% for both. The feed stock factor for Polyethylene production is 1.1; 1.1 ton of Ethylene is required to
produce 1 ton of Polyethylene. In 2015, both the production of Ethylene and Polyethylene declined by 0.7% and 1.4%
respectively. This is due to the lower levels of the provided feedstock from GASCO. GASCO changed the specifications of the
feedstock by raising the carbon dioxide levels, which affected the production levels negatively. Moreover, during the severe
storms that hit Alexandria during the winter, the agriculture drainage got mixed with the cooling units at the complex.
2010A 2011A 2012A 2013A 2014A 2015A
Ethylene
Designed Capacity 300,000 300,000 300,000 300,000 300,000 300,000
Actual Capacity 275,000 275,000 275,000 275,000 275,000 275,000
Utilization rate 100% 103% 93% 107% 98% 97%
Production 276,000 283,000 255,000 293,000 270,000 268,000
Raw for PE production 248,600 253,593 239,800 267,300 248,870 245,300
Polyethylene
PE Capacity 225,000 225,000 225,000 225,000 225,000 225,000
Utilization rate 100% 102% 97% 108% 101% 100%
Production 226,000 230,539 218,000 243,000 226,245 223,000
Sales & Pricing:
SIDPEC sells its products in the local market and it has a solid export base. In the local market, it sells its products to major
distributors and large plastic manufacturers. As for the export markets, the company exports only its main product -
Polyethylene - to more than 50 countries. In 2015, 33% of SIDPEC’s revenues came from its export markets.
Sales in 2015 Quantity (Tons) Value (EGP Mn.) % of Value
Ethylene 34,480 262.65 9%
Polyethylene
- Local 136,191 1,517.84 54%
- Export 87,830 927.67 33%
- Production Wastes 194 1.60 0%
LPG 17,749 48.47 2%
Butene-1 459 4.22 0%
Naphtha 11,168 20.54 1%
Ethane 339 4.92 0%
Nitrogen 15 0.02 0%
Total 288,425 2,787.93 100%
19

APRIL, 2016
SOURCE: WORLD BANK & SIDPEC
- Pricing:
The selling prices of SIDPEC’s products are set in terms of USD. The selling prices in the local market are also set in USD,
however they are paid in EGP using the prevailing exchange rate. SIDPEC is among the top companies that benefit from
the EGP devaluation. On the other hand, the cost of the energy feedstock is also set in terms of USD.
SIDPEC sets the prices of Ethylene and Polyethylene (Local and Export) in relation to crude oil prices. SIDPEC sells its
products in the exports markets at a discount to global prices. The average discount during the period 2010-2015 was
c19%. This pricing strategy enabled the company to maintain its global market share and it is supported by the higher
margins that SIDPEC can attain due to its favorable production mechanisms using natural gas rather than naphtha. SIDPEC
changes its pricing strategy in response to any changes that occur in the global Polyethylene prices; when the global prices
tend to rise, the company is able to maintain or even increase its discount to global prices and on the other hand, during
the periods of declining global prices, SIDPEC would slightly decrease its discount to global prices in order to maintain its
margins. In the local market, SIDPEC also sells its Polyethylene at a discount to global prices; however the discount is
always less than the discount for its exports, with an average of c13%. In 2015, SIDPEC followed the same strategy where it
sold its products at prices very close to the global prices, where it minimized the discount in order to maintain its margins.
2010 2011 2012 2013 2014 2015
Average Crude Oil
Prices
USD/Barrel 79.51 106.53 111.67 104.10 96.2 50.8
Growth 28.1% 34.0% 4.8% -6.8% -7.6% -47.2%
Global PE Prices
USD/ton 1,561.90 1,597.43 1,622.91 1,815.27 1,816.29 1,464.26
Growth 6.8% 2.3% 1.6% 11.9% 0.1% -19.4%
PE Prices -
Exports Market
USD/Ton 1,167.09 1,448.66 1,376.98 1,516.08 1,474.86 1,361.59
Growth 12.9% 24.1% -4.9% 10.1% -2.7% -7.7%
Ratio of Global PE 0.75 0.91 0.85 0.84 0.81 0.93
Discount to Global PE 34% 10% 18% 20% 23% 8%
PE Prices -
Local Market
USD/Ton 1,251.08 1,420.91 1,406.65 1,610.03 1,651.53 1,436.73
Growth 11.3% 13.6% -1.0% 14.5% 2.6% -13.0%
Ratio to Export Price 1.07 0.98 1.02 1.06 1.12 1.06
Discount to Global PE 25% 12% 15% 13% 10% 2%
Ethylene Prices -
Local Market
USD/Ton 1,076.40 1,382.80 1,307.48 1,398.18 1,290.27 981.97
Ratio to Global PE 0.86 0.97 0.93 0.87 0.78 0.68
Growth 0.9% 28.5% -5.4% 6.9% -7.7% -23.9%
20

APRIL, 2016
- Product Sales:
2010A 2011A 2012A 2013A 2014A 2015A
Ethylene
Sales Volume (Tons)
41,302 44,280 34,803 42,815 37,669 34,480
Sales Value (EGP '000s)
251,185 362,485 279,852 407,070 347,513 262,646
2010A 2011A 2012A 2013A 2014A 2015A
Polyethylene
Total Sales Volume (Tons) 228,544 230,090 217,451 242,590 225,493 224,021
* Local Sales Volume (Tons) 136,665 157,754 137,394 158,866 136,752 136,191
% of Production 60% 69% 63% 65% 61% 61%
Local Sales Value (EGP' 000s) 966,033 1,326,993 1,188,579 1,739,296 1,614,824 1,517,842
* Export Sales Volume (Tons) 91,879 72,336 80,057 83,724 88,741 87,830
% of Production 40% 31% 37% 35% 39% 39%
Export Sales Value (EGP '000s) 605,856 620,359 677,959 863,141 935,794 927,671
*Production Wastes (Tons) 356 449 807 471 326 194
% of PE Production 0.16% 0.19% 0.37% 0.19% 0.14% 0.09%
Sales Value (EGP' 000) 1,791 2,556 3,898 3,220 2,943 1,603
Total PE Sales Value 1,573,680 1,949,908 1,870,436 2,605,657 2,553,561 2,447,116
21

APRIL, 2016
SOURCE: SIDPEC & PRIME
OWNERSHIP STRUCTURE - ETHYDYCO
Long-Term Investments – ETHYDCO:
ETHYDCO Production Plants
Secondary Products Sales 2010A 2011A 2012A 2013A 2014A 2015A
LPG
Sales Volume (Tons) 25,945 26,297 20,042 21,897 18,659 17,749
Sales Value (EGP '000s) 31,604 33,720 26,326 32,446 46,818 48,471
Ethane
Sales Volume (Tons) 988 1,056 1,178 601 411 339
Sales Value (EGP '000s) 10,262 11,942 13,636 7,898 5,582 4,915
Nitrogen
Sales Volume (Tons) 121 59 87 18 15 15
Sales Value (EGP '000s) 156 193 115 24 20 20
Naphtha
Sales Value (EGP '000s) 17,393 18,552 16,560 21,741 20,151 20,538
Butane
Sales Volume (Tons) 1,179 850 951 757 749 459
Sales Value (EGP '000s) 6,632 6,050 6,919 6,249 6,353 4,223
20%
20%
11%
21%
14%
10%
4%
ECHEM
SIDPEC
GASCO
Al Ahli Capital
Holding
National Investment
Bank
Banque Misr
Nasser Social Bank
In 2010, SIDPEC signed an agreement with GASCO and ECHEM to
establish a new petrochemicals company, named The Egyptian
Ethylene and Derivatives Company - ETHYDCO-. It was
established in January 2011, under the Egyptian Investment Law
with a total investment cost of USD 1.9bn. It was planned that it
would be financed through 35% equity and 65% debt, however,
currently; the debt portion is fully paid. The complex will
produce 3 products; Ethylene, Polyethylene and Butadene.
We believe that even though ETHYDCO will have almost double
the capacity of SIDPEC – 460,000tpa of Ethylene and 400,000 of
Polyethylene; we believeit will not impose a threat to SIDPEC as
SIDPEC only covers 45% of the local market needs. It is possible
that SIDPEC may focus more on exporting its products in order
to secure FX for the government, while ETHYDCO may satisfy
the local market needs.
SOURCE: ETHYDCO
22

APRIL, 2016
1- Ethylene & Butadiene Plant
Ethylene: Capacity: 460 KTA
Butadiene: Capacity: 20 KTA
2- Polyethylene Plant Capacity: 400 KTA
3- Butadiene Derivatives Plant Capacity : 36 KTA
4- Utility Plant -
In 2013, SIDPEC granted the new venture the right to use 77 fedans of unused land for annual fee of EGP 27.5 /sqm until the
project becomes operational. The fee will be revised upwards by 10% every 3 years. In March 2016, SIPEC announced that 97.2%
of the project is completed and production is expected to commence in 2H 2016.
SOURCE: ETHYDCO
23

APRIL, 2016
SOURCE: SIDPEC
Financial Overview:
- Revenues:
Revenues Breakdown 2010A 2011A 2012A 2013A 2014A 2015A
Ethylene
Sales Value (EGP '000s) 251,185 362,485 279,852 407,070 347,513 262,646
Polyethylene
Total Sales Volume (Tons) 228,544 230,090 217,451 242,590 225,493 224,021
Local Sales Volume(Tons) 136,665 157,754 137,394 158,866 136,752 136,191
Local Sales Value (EGP '000s) 966,033 1,326,993 1,188,579 1,739,296 1,614,824 1,517,842
Export Sales Volume (Tons) 91,879 72,336 80,057 83,724 88,741 87,830
Export Sales Value (EGP '000s) 605,856 620,359 677,959 863,141 935,794 927,671
Production Wastes Sales Volume (Tons) 356 449 807 471 326 194
Production Wastes Sales Value (EGP '000s) 1,791 2,556 3,898 3,220 2,943 1,603
Total PE Sales Value 1,573,680 1,949,908 1,870,436 2,605,657 2,553,561 2,447,116
Secondary Products Sales
Sales Value (EGP '000s) 66,047 70,457 63,556 68,358 78,924 78,167
Total Sales Value 1,890,912 2,382,850 2,213,844 3,081,085 2,979,998 2,787,929
In 2015, SIDPEC reported net sales of EGP 2,787mn compared with EGP 2,980mn a year earlier, declining by 6%. In terms of
volume, Ethylene sales volume dropped by 8% reaching 34,480 tons in 2015, compared to 37,669 tons in 2014. As for the
Polyethylene sales volume, it dropped by just 1%, reaching 224,021 tons in 2015, compared with 225,493 in 2014. Almost 60% of
the total Polyethylene was sold in the local market, while the remaining 40% was exported to 53 countries, mainly in Europe.
- COGS & Gross Profit:
Total COGS increased in 2015 by 8% reaching EGP 1,640mn, as compared with EGP 1,513mn in 2014. COGS/Sales increased on the
back of rising COGS and declining Revenues. COGS/Revenues stood at 58.83% in 2015 versus 50.76% in 2014. Moreover, the
company achieved a gross profit of EGP 1,148mn in 2015, yielding a GPM of 41%, compared to a gross profit of EGP 1,467mn in
2014, which yielded a GPM of 49%. We expect that total COGS will increase at a CAGR of 4% over the period 2016-2020, on the
back of rising international prices of Ethylene and Polyethylene and the government slightly reducing the subsidies on fuels over
the coming years.
COGS Breakdown - 2015
Raw Materials 65%
Fuel 14%
Packing 3%
Spare Parts 2%
Utilities 0%
Labor 14%
Other 3%
SIDPEC’s COGS is dominated by raw materials. Raw materials which is mainly the
required stock of the ethane/propane mix represents c65% of the total COGS. The
feedstock factor to produce Ethylene is 1.6; 1.6 tons of Ethane/Propane mix is required
to produce 1 ton of Ethylene. The price per ton is determined based on certain ratio of
the average global prices of Polyethylene and Ethylene. The ratio had an average of 21%
during 2010-2015, where it is revised upwards during declining global prices and revised
downwards during rising global prices. The cost of raw materials increased in 2015 by
7% reaching EGP 1,067mn versus EGP 993mn in 2014.
25

SIDI KERIR PETROCHEMICALS – SIDPEC - INITIATION OF COVERAGE
APRIL, 2016
ESTYRENCS Co. SIDPEC Co.
Ethylene
60,000 TPA Ethylene
Butene-1
HPDE / LLDPE
GASCO Co.
Ethylene Plant
460,000 TPA
400,000 TPA Polyethylene Plant
400,000 TPA
400,000 TPA
Butadiene
Butadiene Unit
20,000 TPA Butadiene
20,000 TPA
Butadiene Derivatives Plant
36,000 TPA
20,000 TPA
SSBR / LCBR
36,000 TPA
LCBR
Utilities ESTYRENCS Co.
SOURCE: ETHYDCO &PRIME RESEARCH
ETHYDCO – Integration with Sister Companies

APRIL, 2016
EGP ‘000s 2010A 2011A 2012A 2013A 2014A 2015A
Revenues 1,890,912 2,382,850 2,213,844 3,081,085 2,979,998 2,787,929
COGS 949,833 1,097,684 1,057,038 1,328,235 1,512,758 1,640,123
Gross Profit 941,079 1,285,166 1,156,806 1,752,850 1,467,240 1,147,806
Gross Profit Margin (GPM) 50% 54% 52% 57% 49% 41%
COGS/Revenues 50.23% 46.07% 47.75% 43.11% 50.76% 58.83%
2016F 2017F 2018F
COGS (EGP '000s) 1,645,927 1,791,764 1,896,303
Gross Profit Margin (GPM) 40% 43% 42%
- Net Profit:
SIDPEC’s bottom line dropped by 15% in 2015, where it reached EGP 842mn, yielding a NPM of 30%, versus EGP 997mn in
2014 with a NPM of 33%. Consequently the EPS dropped from EGP 1.90/share in 2014 to EGP 1.60/share in 2015. SIDPEC has
one of the highest payout ratios. The shareholders of Sidi Kerir Petrochemicals decided to increase the 2015 cash dividends
payout to EGP1.40/share from the proposed EGP1.25/ share. They agreed to distribute EGP1 per share within a month as of
the approval date and EGP 0.40 after three months. In 2014, the company paid out dividends at EGP 1.65/share, totaling EGP
866.2mn.
EGP ‘000s 2010A 2011A 2012A 2013A 2014A 2015A
Revenues 1,890,912 2,382,850 2,213,844 3,081,085 2,979,998 2,787,929
Net Income 821,003 889,689 869,655 1,298,738 996,574 842,355
Net Profit Margin (NPM) 43% 37% 39% 42% 33% 30%
Per Share Data 2014A 2015A 2016F 2017F 2018F
EPS per share 1.90 1.60 1.53 1.87 1.93
D.P.S per share 1.65 1.40 1.15 1.40 1.54
- Cash & Liquidity Status:
SIDPEC holds a solid liquidity position, as the company reported EGP 991mn in 2015 of cash and cash equivalents. The
company enjoys a debt-free position. Even though the debt-free capital structure of the company provides it with a solid
position, it weights down the company’s value due to the higher cost of equity, compared to the cost of debt as mentioned
earlier.
26

APRIL, 2016
- Tax Position:
SIDPEC does not enjoy any tax shield, due to the fact that it is debt-free. Consequently, SIDPEC would be benefit largely from
the change in the corporate income tax that was approved in 2015, where the corporate income tax was lowered from 25%
to 22.5%
27

APRIL, 2016
28

APRIL, 2016
HEAD OFFICE
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Tel: +202 33005700/770/650/649
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 research@egy .primegroup.org  +202 3300 5728
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29

Sidi Kerir Petrochemicals - SIDPEC - Re-initiation of Coverage - 6 April 2016

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