Sidi Kerir Petrochemicals Co.

(Sidpec)

I. INVESTMENT SUMMARY
A. Macroeconomic Environment

Demand and pricing of petrochemicals is favorable during an economic expansion as

its prices have historically exhibited a direct correlation to GDP growth. The cracking
of oil is the primary process for the production of ethylene and propylene. It therefore
isn’t a surprise that prices of petrochemicals also follow the price of oil which has
been currently experiencing downward pressure due to a slowdown in the global
economy. European demand for petrochemicals has been mildly slowing during the
second half of 2014, but the likelihood of a crash or a significant decline in pricing
seems remote.

Even though forecasts for economic growth in both Europe and the US remain fairly
disappointing, inventories have been reduced considerably as most petrochemical
producers are operating at low utilization rates. China’s overheating economy is
another key driver that we will monitor closely as it is the world’s largest buyer of
petrochemicals. In Egypt, the slow economic growth and political uncertainty is
expected to cause local demand for petrochemicals to decline. The Institute of
International Finance estimates real GDP in the country to grow by 1.2% for 2013 and
1.8% for 2014. On a positive note however, Egyptian exports are expected to increase
as the Egyptian Pound has been trading near 12L.E / USD positioning Egyptian
products as attractive in markets abroad.

B. Business analysis

Sidi Kerir, also known as Sidpec, is Egypt’s only producer of ethylene and
polyethylene established in 1997 in sponsorship by the Egyptian government. The
company focuses on producing two main products, ethylene with a capacity 300,000
tons and polyethylene with a capacity of 225,000 tons. The Egyptian Natural Gas
Company (GASCO) supplies Sidpec with its feedstock needs at a subsidized price set
according to a formula that management does not disclose. Prior to 2008, Sidpec’s gas
price was around USD 1.25/mmbtu but was raised to USD 3.00/mmbtu that year
leading to a considerable hike in its production costs. We expect the company to
continue operating near its full capacity as it is the only Egyptian producer serving the

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local market. Historically, Sidpec’s local sales have constituted around 60% of its
revenues with the exception of 2009, where local sales captured almost 64% due to a
slowdown in regional markets. We expect the current mix to remain around 60/40 for
local/export sales unless an interruption occurs on the local or regional scene.

We estimate 2015’s revenues around EGP 2.35 billion, almost 24% higher than 2010.
Another key factor in the revenue equation is Sidpec’s production capacity in which
we expect no expansion to come online before 2015. Sidpec has signed an agreement
with GASCO, its feedstock supplier, to build a new ethylene production facility with
an annual capacity of 460,000 tons of ethylene, 400,000 of polyethylene and 20,000
tons of butadiene. The company has already leased 60 acres of its unused land and
raised USD 100 million as paid-in-capital to begin funding the project. Sidpec’s share
in the project is estimated at 20% and will therefore be treated as an equity
investment.

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 II. Financial analysis

Dividend (Yield) 9.57%

Beta 0.59
Shares 525,000,000
Outstanding

Profitability 2015 2014 industry Time series cross

ratios average section
Gross Profit Gross profit / 39% 47% 38.54% declined good
Margin Revenues
Operating Profit Operating profit / 36% 45% 36.25% declined good
Margin revenues
Net Profit net profit after tax 30% 33% 31.06% declined good
Margin / revenues
Return on Total net profit after tax 26% 32% 24.66% declined good
Assets (ROA) / total assets
Return on net profit after 43% 39% 46.52% improved good
equity tax / total equity
https://www.google.com/finance

50%
45%
40%
35%
30%
25%
20%
15%
10%
2015 5%
0%
2014 net profit net profit net profit OPERting GROSS
industry aveage after tax / after tax / after tax / profit / PROFIT /
total total revenues revenues Revenues
equity assets
Return on Return on Net Profit Operating Gross
equity Total Margin Profit Profit
Assets Margin Margin
(ROA)

Growth in the company’s business will be neutralized by the expiration of its 10-year
tax holiday where a tax rate of 25% now applies. Both ROA and ROE to decline in
2014 to reach 32% and 26%, respectively. the company’s profitability relies on
movements in oil prices which we assume to slightly decline during 2015.

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Gross profit and operating profit declined from 2014 to 2015 because the decline of
sales revenues. In all profitability rations the firm is better than industry averages.

Financial 2015 2014 industry Time cross

Strength average series section
ratios
Current CURRENT ASSETS / 1.66 4.95 1.66 declined good
Ratio CURRENT
LIABILITIES
Quick Ratio CURRENT ASSETS - 1.41 4.02 1.41 declined good
INVENTORY /
CURRENT
LIABILITIES
Debt Ratio TOTAL LIABILITIES / 41% 18% 55% bad good
TOTAL ASSETS
total debt to TOTAL LIABILITIES / 69% 22% 50.00% bad good
equity TOTAL EQUITY

Source: SIDI Kirir annual report

Sidpec enjoys good weak liquidity position with its current assets. We expect this
weak position to persist over the coming few years as no major capital expenditures
are planned besides its 20% equity stake in the expansion plans with GASCO. This
venture only requires another USD 14 million in the next few years .

Leverage at Sidpec increased with a debt to equity ratio consistently from 18%% and
41%. The company has had a stable operation since its inception with strong backing
from government entities and little need for any debt. Sidpec doesn’t have any
noticeable interest expenditures.

Efficiency 2015 2014 industry Time cross

ratios aveage series section
Asset revenues / total 0.84 0.96 0.79 declined good
Turnover assets
Inventory cost of goods sold / 5.91429 4.968 6.16 improved poor
Turnover inventory 1672 871
Receivable credit sales / AR 4.95778 4.642 12.57 bad bad
Turnover 3411 196

Source: SIDI Kirir annual report

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Assets turnover declined from 2014 to 2015 from 0.96 to 0.84 , that
means each dollar invested in assets generate 0.84 because sales decline
but inventory turnover increased because the cost of revenues increase .

References
http://www.blominvestbank.com/

http://www.sidpec.com/

http://www.yahoofinance/Sidpec/

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Appendix

SKPC Balance Sheet

2015 2014
Total Current Assets 1886.47 1687.52

Cash and Short Term Investments 1184.92 991

Cash 82.45 62.85

Cash & Equivalents 420.4 495.17
Short Term Investments 682.07 432.97
Total Receivables, Net 343.23 339.04
Accounts Receivables - Trade,
185.87 170.6
Net
Total Inventory 287.72 316.75
Prepaid Expenses 70.6 40.73
Other Current Assets, Total - -

Total Assets 3302.16 3115.57

Property/Plant/Equipment, Total -
490.1 504.21
Net
Property/Plant/Equipment, Total
2399.93 2398.29
- Gross
Accumulated Depreciation, Total -1909.83 -1894.08

Goodwill, Net - -

Intangibles, Net - -

Long Term Investments 916.12 916.12

Note Receivable - Long Term - -

Other Long Term Assets, Total 9.47 7.73

Other Assets, Total - -
Total Current Liabilities 1136.38 340.94

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 Accounts Payable 22.04 25.7
Payable/Accrued 41.49 175.91
Accrued Expenses 14.36 -
Notes Payable/Short Term Debt - -
Current Port. of LT Debt/Capital
- -
Leases
Other Current liabilities, Total 1058.49 139.33

Total Liabilities 1350.17 555.89

Total Long Term Debt - -
Long Term Debt - -
Capital Lease Obligations - -
Total Debt - -
Deferred Income Tax 18.79 19.95
Minority Interest - -
Other Liabilities, Total 195 195
Total Equity 1951.99 2559.69
Redeemable Preferred Stock, Total - -
Preferred Stock - Non Redeemable,
- -
Net
Common Stock, Total 1050 1050
Additional Paid-In Capital - -
Retained Earnings (Accumulated
901.99 1509.69
Deficit)
Treasury Stock - Common - -
ESOP Debt Guarantee - -
Unrealized Gain (Loss) - -
Other Equity, Total - -
Total Liabilities & Shareholders' Equity 3302.16 3115.57
Total Common Shares Outstanding 525 525
Total Preferred Shares Outstanding

SKPC Income
Statement
2015 2014
Total Revenue 2787.93 2980

Revenue 2787.93 2980

Other Revenue, Total - -
Cost of Revenue, Total 1701.66 1573.89
Gross Profit 1086.27 1406.11
Total Operating Expenses 1770.88 1638.37
Selling/General/Admin.
72.27 63.58
Expenses, Total
Research & Development - -

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 Depreciation / Amortization 2.83 2.6
Interest Expense (Income) -
- -
Net Operating

Unusual Expense (Income) - -

Other Operating Expenses,

-5.88 -1.69
Total
Operating Income 1017.05 1341.62
Interest Income (Expense), Net Non-
138.73 120.03
Operating

Gain (Loss) on Sale of Assets 0.03 -

Other, Net -58.27 -30.72

Net Income Before Taxes 1097.53 1430.94

Provision for Income Taxes 255.18 434.36

Net Income After Taxes 842.36 996.57

Minority Interest - -
Equity In Affiliates - -
U.S GAAP Adjustment - -
Net Income Before Extraordinary
842.36 996.57
Items
Total Extraordinary Items - -
Net Income 842.36 996.57
Total Adjustments to Net Income - -
Income Available to Common
842.36 996.57
Excluding Extraordinary Items
Dilution Adjustment - -
Diluted Net Income 842.36 996.57
Diluted Weighted Average Shares 525 525
Diluted EPS Excluding
1.6 1.9
Extraordinary Items
DPS - Common Stock Primary Issue 1.4 1.65
Diluted Normalized EPS 1.6 1.9

SKPC Cash Flow

Statement
2015 2014
Net Income/Starting Line 1097.53 1430.94
Cash From Operating
295.91 1424.94
Activities
Depreciation/Depletion 63.65 62.96
Amortization - -
Deferred Taxes - -
Non-Cash Items -83.76 -89.93

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 Cash Receipts - -
Cash Payments - -
Cash Taxes Paid 563.29 515.56
Cash Interest Paid - -

Changes in Working
-781.51 20.97
Capital
Cash From Investing
407.05 -266.26
Activities
Capital Expenditures -21.56 -3.56
Other Investing Cash
428.61 -262.69
Flow Items, Total
Cash From Financing
-972.15 -1186.08
Activities
Financing Cash Flow
- -
Items
Total Cash Dividends
-972.15 -1186.08
Paid
Issuance (Retirement)
- -
of Stock, Net
Issuance (Retirement)
- -
of Debt, Net
Foreign Exchange Effects - -
Net Change in Cash -269.18 -27.39