The markets of many petrochemicals display growth rates aligned with those of the global GDP. With a severe economic slowdown witnessed across key economies in 2008 and throughout the first half of 2009 and a soft recovery taking shape in the period that followed, major macro-economic shocks and developments have surfaced again in several parts of the world resulting in the possibility of a downward revision to global economic forecasts. Accordingly, as the macro-economic vision is to a certain extent blurry, with a bumpy global economic recovery remaining ahead, and as petrochemical demand is a function of GDP growth, we hold a cautious stance regarding the global petrochemical demand outlook.

• Excess Oversupply Still a Concern – But Less So

Our concern of an excess oversupply in the petrochemical industry is still in place, however is somewhat mitigated by expansion delays in the key developing petrochemical hubs of Asia and the Gulf region, coupled with rationalizations in Europe and the US. The flood of excess capacities, in the regional and international markets, comes as China is striving to achieve a self-sufficiency level and the Gulf region is capitalizing on its inherent competitive advantages. Yet, the severeness of the excess oversupply is largely debatable owing to the low visibility surrounding the petrochemical industry globally and lack of consensus on the size of the additional supply to hit the markets.

• A Rising Star

Benefiting from massive oil and gas reserves, and the resulting access to low-cost feedstock, the Gulf region has evolved from a low-profile production base into a petrochemical hub. In particular Saudi Arabia, which holds the lion’s share of the world’s oil reserves and a significant portion of the world’s gas reserves, has reached a stardom level in the international petrochemical arena.

• Welcoming a New International Player

Sipchem’s aggressive expansionary drive will turn the company into one of the largest petrochemical producers in the region and will bring it to the forefront of leading international petrochemical firms. Specifically, Sipchem’s acetyl complex will play an instrumental role in the Kingdom’s and the region’s petrochemical sector development and will promote the company at the international level.

• Window of Opportunity

Even when factoring in a cautious and conservative market environment, Sipchem’s stock price today does not reflect the company’s earnings and cash flow generation power stemming from vast expansions and a favorable business model. Using the FCFE and relative valuation methodologies, Sipchem’s final fair value per share is estimated at SAR 28.52, providing investors with a window of opportunity. Sipchem’s stock today trades at SAR 22.65, thus offering investors an upside potential of 25.9%.