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Saudi Basic Industries CorporationSABIC: Initiation Report

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Research DivisionCompany Reports December 2011

Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), License No. 07076-37

Brokerage and Investment Centers DivisionResearch Division

General Manager - Brokerage DivisionAla’a Al-Yousef+966 1 [email protected]

Division ManagerAbdullah Alawi+966 2 [email protected]

AGM-Head of international and institutional brokerageLuay Jawad Al-Motawa +966 1 [email protected]

Senior Analyst Syed Taimure Akhtar +966 2 6618271 [email protected]

Regional Manager - Central RegionSultan Al-Mutawa+966 1 [email protected]

AnalystSaleh Al-Quati+966 2 [email protected]

Regional Manager - West and South RegionsAbdullah Al-Misbahi+966 2 [email protected]

Area Manager - Qassim & Eastern ProvinceAbdullah Al-Rahit+966 6 [email protected]

December 2011

Contents

Adapting to the New Industry Order 1

INVESTMENT RISKS 3

Valuation Summary 4DCF based Sum of the parts (SOTP) Valuation 5Comparative valuation 8Weighted average valuation 8Valuation Under Different Scenarios 9

Changing industry dynamics 10

Company overview 11Shareholding pattern 11

Operational subsidiaries & JVs 12Existing subsidiaries 12Other investments & JVs 13

SABIC - Stretching specialty portfolio 14Expanding production line to oleo-chemical products1 at Saudi Kayan 14Key investments in Polycarbonate3 and new technology & innovation 14Latest developments at KEMYA petrochemical plant 14SABIC & Montefibre S.p.A (Montefibre) - Technology agreement 14SABIC & Mitsubishi Rayon Company (MRC) - New Joint venture 15

Key operational segments outlook 16Petrochemical segment 16Fertilizer segment 17Steel/metal segment 17

Financial implication of upward revision in feedstock subsidized

prices 18

Financial Overview 219MFY11 financial results 21

Financial Outlook 22

4Q11 Financial Estimates 24

Financial Statements 25SABIC - Income Statement (FY10-14e) 25SABIC - Balance Sheet (FY10-14e) 26SABIC - Cash Flow Statement (FY10-14e) 27

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Adapting to the New Industry Order

• Largest regional producer of petrochemicals - Saudi Basic Industries Corporation (SABIC) is the back-bone of the Kingdom’s petrochemical sector; where the sector contributed 61.6% of the total non-oil exports of KSA in 2010. The company has a wide range of products, which classified its operational activities in four segments/units i.e. (i) petrochemical unit, (ii) fertilizer unit, (iii) metal/steel unit and (iv) corporate unit. It is worthy to mention that the aggressive expansions, in the past, led the company’s overall production capacity to reach at an estimated level of 65mn tons in 2010.

• Recent capacity expansions – Based on the given information, the company marked the completion of Saudi Kayan Petrochemical Company (Saudi Kayan) in 4QFY11. The complex has a capacity to produce around 6mn tons of different grades of petrochemical products including olefin, polyolefin and others. In addition, in 2010, Yanbu National Petrochemical Company (YANSAB), a subsidiary of SABIC, started its commercial operation; where the complex is designed to produce around 4mn tons of ethylene and its derivates along with petrochemical products.

• Changing industry dynamics – At present, we have witnessed a shift in the big players expansion focus primarily from basic chemical to high value added products. However, on an operational front the industry forces are presently focusing to further (i) enhance the feedstock resources and (ii) streamline production process. Consequently, we expect the outcome of such a shift will gradually evolve product-base competition against price/cost based competition. On the local front, the possible rise in feedstock gas prices from USD0.75/mmbtu in KSA (after 2011) will erode some of the low cost advantage to the local companies against international peers.

• SABIC to face dual competition - Beside the growing competition on a global level, the upcoming capacity expansion inside the Kingdom is expected to make local market more challenging. Since the company has a vast range of products (mainly intermediaries and polymers), so the real challenge is expected from highly value-added product segment; where SABIC is still making progress. Moreover, we believe the completion of Aramco’s Sadara Chemical Company in 2015 will further narrow down the company’s opportunities to expand easily in the value-added product segment.

• Keeping the growth momentum – In the wake of expected changes in industry dynamics, on the local & international front, the company primarily took a major shift in its expansion strategy. Based on the given plans, at present, the company is mainly focusing on the enhancement in value-added production capacity. It is worthy to mention that the expansions are not too big but these will stretch the company’s presence in high-value added segment. On the other hand, we cannot ignore the (i) positive impact of these

Key Financial and Valuation Data

Financials (All fig in SAR mn, unless otherwise stated) 2010 2011 E 2012 E 2013 E 2014 E

Revenues 151,970 192,197 194,018 198,223 205,412

EBITDA 46,966 65,093 67,928 68,936 70,924

Net income 21,529 32,624 33,008 33,846 35,305

EPS (SAR) 7.2 10.9 11.0 11.3 11.8

P/E 14.6 8.8 8.7 8.5 8.1

P/BV 2.6 2.0 1.8 1.6 1.4

EV/EBITDA 7.61 4.91 4.46 4.18 3.86 Source: Company Data, AlJazira Capital * Historical prices are based on respective year end closing and for 2011 &

subsequent year we have taken closing price as on 21st December 2011

Saudi Basic Industries CorpInitiation | KSA | Petrochemical Sector | December 2011

Rating: OverweightCurrent Price: SAR 95.7512 Months Price Target: SAR 114.8Upside: 19.9%

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Key Information Reuters Code 2010.SEBloomberg Code SABIC ABCountry: Saudi ArabiaSector: PetrochemicalPrimary Listing: TASIM-Cap: SAR 287.250 mn52 Weeks H/L: SAR 114/82.5

Company Overview

SABIC was established in Sep 1976 with the aim to diversify the dependence of economy from oil to non-oil.

The company’s operation, at present, is mainly based on 22 subsidiaries; where 20 are located in KSA.

SABIC & its subsidiaries are engaged in the manufacturing, marketing and distribution of chemicals, fertilizers and metal products in global markets.

Syed Taimure Akhtar(Senior Analyst)

[email protected]+966-2-6618271

Price Chart

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Saudi Basic Industries Corp

expansions on the utilization of in-house production as feedstock and (ii) possible reduction in the dependence on external demand. In addition, the company is also focusing to further strengthen its logistics to enhance its presence in the local and international markets.

• Reasonable financial growth – We expect the company’s sales revenue to increase at a CAGR of 7.8%, during 2010-14; where the growth is mainly based on the expected (i) positive outcome of the expansion strategy, (ii) volumetric growth in tandem with growth in global demand and (iii) average prices products at favorable levels. On the other hand, the stability in gross margins, at 34%-35% during 2011-14, along with the efficient cost control measures will lead the company’s net profitability to increase at a CAGR of 13.2%, during 2010-14.

• Investment recommendation - We used a blended approach to derive the 12-month price target for SABIC. Under this valuation approach, we assigned 60% weights to our DCF based SOTP value and 40% to relative/comparative valuation (EV/EBITDA metrics) based value and arrived at a weighted average 12-month price target of SAR114.8/share. This implies the stock is offering a potential upside of 19.9% over the market price of SAR95.75/share (as of 21st Dec 2011) and trading at prospective 2012 P/E & P/BV of 8.7 and 1.8x, respectively. We, therefore, initiate our coverage on SABIC with Overweight recommendation.

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INVESTMENT RISKS

• Slower than expected growth in global economy – At present, ethylene and its derivates constitute most of the company’s capacity, which makes SABIC more responsive to any change in the outlook of these products. On the other hand, the outlook of these products is more sensitive with the ups & downs in global economy as compared to the other petrochemical products. Hence, any unexpected movement in the global economy will affect the dynamics of these products and lead us to adjust the company’s growth prospects along with the valuation, accordingly.

• Delay in ongoing expansions – We believe the enhancement in high-value added production capacity is the key focus area of the company’s current strategy. Hence, the completion of these expansions on time will enable the company to achieve the desired outcome of the strategy. However, the delay in the expansions will lead the company to face competition with more than expected intensity, which may reflect a negative impact on future growth prospects.

• Increase in feedstock prices – Since we are not sure the exact waive of subsidiary from feedstock prices, we have not taken any impact of a higher subsidized price on our valuation. However, in order to facilitate investors, in a later section, we have discussed in detail the impact of increase in subsidized prices on our forecasts and valuation of the company.

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Valuation Summary

DCF based Sum of the parts (SOTP)

We used DCF based sum of the parts (SOTP) valuation technique to value the net worth of the company. Under this valuation technique, we valued 13 subsidiaries (based on available information) of the company on isolated basis. The following are the key assumptions, which we used to value these subsidiaries:

• 4-years forecasted free cash flows (FCF)

• Terminal value calculation is based in Gordon Growth Model (GGM)

o Expecting terminal growth rate at 3%.

• Using Capital Asset Pricing Model (CAPM) to calculate cost of equity. However, the CAPM calculation is based on the following variables:

o Risk free rate of 3.1%, 10-years US bond yield + country risk premium of 1.25%.

o Equity risk premium taken at 10.77%.

o Use SABIC beta of 1.28 for non-listed subsidiary, while we used respective beta of all listed subsidiaries.

• We are using Weighted Average Cost of Capital (WACC) for discounting the future FCF of the company, where the calculation of WACC is based on the following variables:

o Cost of equity equivalent to CAPM

o Cost of debt taken at 3.9% for all subsidiaries not listed but used the respective cost of debt for list companies.

o Used respective capital structure for each listed subsidiaries and used SABIC for non-listed subsidiaries

Using the above assumptions, we arrived at DCF based SOTP value of SAR93.7/share for the company.

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All figures in SAR Mn, unless specified 2010 2011e 2012e 2013e 2014e

Revenues 151,970 192,197 194,018 198,223 205,412

EBITDA 46,966 65,093 67,928 68,936 70,924

Margin (%) 30.9% 33.9% 35.0% 34.8% 34.5%

EBIT 37,893 53,319 53,405 54,242 56,200

Margin (%) 24.9% 27.7% 27.5% 27.4% 27.4%

Net Income 21,529 32,624 33,008 33,846 35,305

Margin (%) 14.2% 17.0% 17.0% 17.1% 17.2%

Total assets 317,580 350,684 361,078 373,444 387,902

Shareholders' equity 120,782 140,355 160,158 180,465 201,646

Total liabilities & equity 317,580 350,684 361,078 373,444 387,902

Free Cash Flow (FCF) - Isolated Analysis

FCF - YANSAB - 1,026 1,957 2,095 2,144

Discount factor 0.99 0.88 0.78 0.69

Discounted FCF - YANSAB 1,013.68 1,717.32 1,632.97 1,484.55

NPV - YANSAB 21,782

FCF - Kayan (2,409) (777) 82 822 537


Discounted FCF - Kayan (770.79) 74.89 694.04 418.25

NPV - Kayan 8,365

FCF - Ibn Zahr 351 1,307 1,188 1,071 978


Discounted FCF - Ibn Zahr 1,291.01 1,038.66 829.03 670.07

NPV - Ibn Zahr 10,748

FCF - Sharq 451 1,680 1,527 1,377 1,257


Discounted FCF - Sharq 1,659.29 1,334.95 1,065.53 861.22

NPV - Ibn Sharq 13,814

FCF - Ar Razi 550 2,048 1,862 1,679 1,533


Discounted FCF - Ar Razi 2,023.53 1,627.99 1,299.42 1,050.27

NPV - Ar Razi 16,846

FCF - Jubail United Petrochemical 259 965 877 791 722


Discounted FCF - United 953.08 766.78 612.03 494.68

NPV - United 8,420

Continued...

DCF based Sum of the parts (SOTP) Valuation

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DCF based Sum of the parts (SOTP) Valuation (Continued)


FCF - SADAF 508 1,891 1,718 1,550 1,415


Discounted FCF - SADAF 1,867.71 1,502.63 1,199.37 969.40

NPV - SADAF 15,549

FCF - Ibn Sina 231 860 782 705 644


Discounted FCF - Ibn Sina 849.88 683.75 545.76 441.11

NPV - Ibn Sina 7,075

FCF - Kemya 216 806 733 661 603


Discounted FCF - Kemya 796.46 640.78 511.45 413.39

NPV - Kemya 6,631

FCF - Petrokemya 585 2,178 1,979 1,785 1,630


Discounted FCF - Petrokemya 2,151.41 1,730.88 1,381.54 1,116.65

NPV - Petrokemya 17,911

FCF - Other Petrochemical complexes 4,933 11,066 10,910 9,090 8,662


Discounted FCF - Other petroch. Complexes 10,931.52 9,540.24 7,035.36 5,934.63

NPV - Other petrochemical complexes 94,722

FCF - SAFCO 943 1,525 1,837 1,845 1,821


Discounted FCF - SAFCO 1,505.16 1,592.52 1,404.49 1,217.38

NPV - SAFCO 17,244

FCF - Other fertilizer complexes (3,124) 786 3,955 4,014 4,064


Discounted FCF - Other fertilizer complexes 776.80 3,458.36 3,106.53 2,784.34

NPV - Other fertilizer complexes 31,585

FCF - Steel segment 660 1,728 1,997 2,189 2,361


Discounted FCF - Steel segment 1,707.35 1,745.95 1,694.08 1,617.81

NPV - Steel Segment 23,471

FCF - Corporate segment 2,746 3,740 1,497 1,616 1,658


Discounted FCF - Corporate segment 3,694.60 1,308.60 1,250.43 1,135.80

NPV - Corporate Segment 19,118

Continued...

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Source: AlJazira Capital

DCF based Sum of the parts (SOTP) Valuation (Continued)


Consolidated NPVs 313,281

Add: Net debts (32,079)

Total equity value 281,201

Shares (mn) 3,000.0

Fair value (SAR/share) 93.7

Terminal growth 3.0%

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Comparative valuation

Weighted average valuation Summery

Fair value Weights Weighted average

DCF based SOTP value 101.8 60% 61.1

Relative value 146.4 40% 58.5

Weighted average 12-month price target 119.6

All figures in SAR Mn, unless specified

Sector EV/EBITDA 7.2

Implict enterprise value 471,13

Cash 57,08

Debt (89,16)

Net worth of SABIC 439,06

Shares outstanding (mn) 3,00

Comparative value (SAR/share) 146.4

Comparative valuation

We used EV/EBITDA to compare SABIC with its peer group around the globe. Under the comparative valuation, we used the average 2011 EV/EBITDA of 7.2x for the peer group to arrive at a value of SAR146.4/share for the company.

Weighted average valuation

We used a blended approach to derive the 12-month price target for SABIC. Under this valuation approach, we assigned 60% weights to our DCF based SOTP value and 40% to relative/comparative valuation (EV/EBITDA metrics) based value and arrived at a weighted average 12-month price target of SAR114.8/share. This implies the stock is offering a potential upside of 19.9% over the market price of SAR95.75/share (as of 21st Dec 2011) and trading at prospective 2012 P/E & P/BV of 8.7 and 1.8x, respectively. We, therefore, initiate our coverage on SABIC with Overweight recommendation.

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Scenario 1 – Price Analysis

Scenario 2 – Capacity Utilization (Petrochemical Segment)


Valuation Under Different Scenarios

In order to examine different situations that SABIC could face, we have further tested our core fundamental assumptions under two possible scenarios: Bull Case and Bear Case. These scenarios illustrate how sensitive our valuation is to changes in key fundamental variables. We chose the impact of the (i) average prices of related products while keeping other factors constant and (ii) capacity utilization of petrochemical complexes while keeping the other factors constant on the company’s valuation.

Bear Case -15%

-10.0%

-7.5%

-5.0%

-2.5%

Base case

2.5%

5.0%

7.5%

10.0%

Bull case -15%

100 105 110 115 120 125 130

SAR/share

106.5

109.3

110.6

112.0

113.4

114.8

116.2

117.5

118.9

120.3

123.1

Bear Case - 50%

65.0%

70.0%

75.0%

80.0%

Base case

110.0%

112.5%

115.0%

117.5%

Bull case - 120%

0 20 40 60 80 100 120 140 160 180 200

SAR/share

60.4

75.4

80.4

85.4

90.4

114.8

120.8

123.0

125.5

128.0

136.3


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Changing industry dynamics

The global economic slowdown in 2008 caused a major shift in the growth perspective of the petrochemical industry around the world; where the rise in demand of highly value-added products overshadowed the requirement of basic chemicals (especially olefin). Consequently, this led the global industry to witness a diversion in expansion focus more on high value-added products, which played a vital role in the revival of the global demand and utilization rates since 4QFY08.

Going forward, we believe the change in expansion focus will support the large complexes (with sufficient basic chemical capacity) to (i) enhance their in-house consumption,(ii) reduce dependence on global recovery of basic chemicals (especially olefin) and (iii) enhance specialty portfolio. However, the mid-small size high-tech complexes (with limited basic chemical capacities) will continue to strive to come-up with more refined value added products, in order to avoid tough competition from large complexes. The expected increase in penetration of high value added products on intermediary level will lead the industry to phase-out price/cost benefit (more the product re-refining lower the price/cost benefit, since the subsidies are mainly on feedstock’s prices) in favor of product/technology. We, therefore, expect a shift in industry competition from price/cost-based to product/technology based, in mid-long term.

It is noteworthy that the mid-small size complexes are still depending on large size complexes for feedstock requirement. Hence, we believe this will help to keep the utilization rate at the basic chemical complexes in a favorable range, on the back of expected positive development at intermediaries and polymers complexes (a feedstock for value-added products). On the other hand, the average prices of petrochemical products are expected to show stability and remain on higher levels. Hence, we are expecting a limited price based growth in the sector, going forward.

On the local front, the industry is facing number of challenges of which the vital are (i) expected increase in feedstock price & reduction in discount to other petrochemical feedstock and (ii) possible oversupply of olefin products especially ethylene & its derivates. On the other hand, recently Saudi Aramco made an announcement for the establishment of a new USD20bn Sadara Chemical Company (Sadara) in association with Dow Chemical Company (Dow). The complex is expected to commence its operation in 2HFY15 with a designed capacity to produce 3mn tons of ethylene and propylene. According to the given information, the complex will utilize these basic chemicals to produce value added products/chemicals i.e. polyurethanes, propylene oxide, propylene glycol, elastomers, LLDPE, LDPE, glycol ethers and amines. Hence, this indicates the upcoming expansion at Sadara is mainly focusing on value added products rather than basic chemicals. Consequently, we are not expecting any potential threat from Sadara to SABIC in basic chemical segment, while we cannot ignore the probability of intense competition in value-added products.

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SABIC was established in 1976, under the then program to reduce the dependence of KSA on oil.

SINOPEC- SABIC is 50:50 JV with Chinese petrochemical giant SINOPEC. The plant is located in China. The group has proportionately consolidated its interest in this jointly controlled entity.

Sharq is the company’s 50% subsidiary and a project with Japanese consortium. The project completed its phase-III expansion in 2010 and made the addition of 2.8mn tons.

YANSAB is among the company’s listed subsidiaries; where SABIC owns 52% stakes. The completion of YANSAB in 2010 made the addition of 4mn tons.

SABIC - Product - wise capacity 2010 (estimated)

Shareholding Structure


Source: Tadawul * GOSI = General Organization for Social Insurance

Company overview

Saudi Basic Industries Corporation (SABIC) is among the largest producer of petrochemicals, fertilizer and steel products around the globe; where the estimated overall production capacity was more than 60mn tons in 2010. Not surprisingly most of the company’s production capacity is dedicated to produce petrochemical related products including basic chemicals (mostly olefins i.e. ethylene), intermediaries (mostly ethylene related) and polymers.

Based on our calculations, the company’s total capacity increased at a CAGR of 6.6%, during 2005-10, which was mainly associated with the completion of SABIC-SINOPEC, YANSAB, and SHARQ in early 2010. Based on the given information, these expansions resulted in the addition of around 8.4mn tons in SABICs petrochemical complexes; where these expansions were mainly focused to further enhance the capacity to produce ethylene & its derivates.

Shareholding pattern

The below chart shows the company’s current shareholding structure as of 31st Dec 2010:

Basic chemicals 46.77%

Intermidiaries, 12.55%

Polymers, 16.08%

Industrial gases, 6.37%

Fertilizers, 10.55%

Metals/Steel, 7.69%

Public Investment Fund 70%

GOSI 5.3%

General Public 24.7%

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Name Key products Interest

SABIC Industrial Investment Co. (SIIC) & its subsidiaries

Industrial investment 100%

SABIC Luxembourg S.a.r.l.(SUX)& its subsidiaries

- 100%

SABIC Asia Pacific Pte. Ltd & its subsidiaries

- 100%

Arabian Petrochemical Co. & its subsidiaries (Petrokemya)

Ethylene, polystyrene, butane-1, propylene, natural gasoline, butadiene, benzene

100%

Saudi Iron & Steel Co. (Hadeed) Steel rebar, wire rod, steel sections, flat steel 100%

SABIC Sukuk Co. (SUKUK) - 100%

SABIC Industrial Catalyst Co. (SABCAT)

- 100%

Saudi European Petrochemical Co. (Ibn Zahr)

MTBE, polypropylene 80%

Jubail United Petrochemical Co. (United)

Ethylene, polyethylene, EG, LAO 75%

National Petrochemical Fertilizers Co. (Ibn al-Baytar)

Ammonia, urea, compound fertilizer 71.5%

National Industrial Gas Co. (Gas) Oxygen, nitrogen, argon, krypton-xenon 70%

Yanbu National Petrochemical Co. (YANSAB)

Ethylene, propylene, EG, LLDPE, HDPE, polypropylene, butane-1, butane-2, benzene, xylene, MTBE, toluene & xylene mixture.

52%

Saudi Methanol Co. (Ar-Razi) Chemical grade methanol 50%

Al-Jubail Fertilizer Co. (Al-Bayroni) Ammonia, urea, 2-ethyl hexanol, DOP1385 50%

Saudi Yanbu Petrochemical Co. (YANPET)

Ethylene, polyethylene, EG, polypropylene, pyrolysis gasoline, propylene

50%

National Methanol Co. (Ibn Sina) Chemical grade methanol, MTBE 50%

Saudi Petrochemical Co. (SADAF)Ethylene, crude industrial ethanol, styrene, Caustic soda, EDC & MTBE

50%

Eastern Petrochemical Co. (Sharq) LLDPE, EG 50%

Al-Jubail Petrochemical Co. (Kemya) LDPE, EG 50%

Arabian Industrial Fiber Co. (Ibn Rushd)

Xylene, benzene, PTA, PTC, textile staple, bottle grade chips, carpet staple

47.3%

Saudi Arabian Fertilizer Co. (SAFCO) Ammonia, urea, sulphuric acid, melamine 43%

Saudi Kayan Petrochemical Co. (Saudi Kayan)

Ethylene, propylene, polypropylene, LDPE, HDPE, PC, EOA, ethoxylates, bisphenol A NDA and benzene

35%

SABIC Innovative Plastics Wide of specialty plastic related products 100%

Operational subsidiaries & JVs

Existing subsidiaries

At present, the company’s operational flow is based on 22 subsidiaries of which 20 are located inside the Kingdom, while the remaining subsidiaries are located in Luxembourg and Singapore. Furthermore, the company’s industrial operations are based on 18 subsidiaries and the remaining 4 are responsible to carry out corporate, logistics and investment activities in the sector.

SABIC - Subsidiaries

Source: SABIC 2010 financial report & company sources

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Other investments & JVs

Beside these subsidiaries, the company has carried out numbers of projects under joint ventures with local, regional & international companies. The key projects are:

Aluminum Bahrain (Alba)

Alba is primarily producing aluminum and its related products and located in the Kingdom of Bahrain. The facility is engaged in the production of liquid metal, ingots, rolling slabs and billets. At present, SABIC owns 20% stakes in Alba.

Ma’aden Phosphate Company (MPC)

MPC is the project of Saudi Arabian Mining Company (Ma’aden), which recently started its commercial operation. The project is designed to produce fertilizer related products, more specifically, di-ammonium phosphate, which indicates the expansion in the Kingdom’s fertilizers’ product-line from urea and ammonia. The company’s ownership is limited to the project; where at present SABIC owns 30% stakes in the project

SINOPEC-SABIC Tianjin, China

SINOPEC-SABIC is a 50:50 JV between two global petrochemical giants i.e. SABIC & SINOPEC. The production facility is located in China and has a design capacity to produce 3.2mn tons of ethylene, propylene, benzene, toluene, paraxylene and cyclohexane. The project started its commercial operation in 1H2010.

Gulf Petrochemical Industries Company (GPIC)

The project is equal partnership for the establishment of Petrochemical Industries Company in Kingdom of Bahrain. The facility was established in 1979 to produce methanol, ammonia and urea.

Gulf Aluminum Rolling Mill Company (GARMCO)

GARMCO was formed in 1981 in the Kingdom of Bahrain. The facility started its commercial operation in 1986 and emerged as the largest downstream aluminum facility in the Arabian Gulf. At present, SABIC owns 31.3% stakes in GARMCO, which makes the company as the largest stakeholder.

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SABIC - Stretching specialty portfolio

In line with the ongoing changes in the industry dynamics, the company transformed its stance on expansion from aggressive to firm & steady. Hence, following the completion of YANSAB and Kayan, we have not witnessed any major announcements from SABIC to boost basic chemical capacity, more specifically ethylene based olefins and its derivatives. However, we have noticed a major shift in focus on product line & target market diversification with the addition of more value-added products in the company’s existing production line. On the other hand, the company is also focusing to (i) upgrade and enhance its existing technologies through technology agreement with a world-class technical provider and (ii) strengthen its logistic across the world. The company is scheduled to undertake the following projects, in near to medium term, which will remain crucial for its future growth;

Expanding production line to oleo-chemical products1 at Saudi Kayan

In 2010, the company made an announcement to further expand its production line from olefin petrochemical products to oleo-chemical products at the newly built Saudi Kayan complex. The expansion is expected to commence its operation in 2013 with a design capacity to produce 83,000 tons of distilled natural alcohols2. Moreover, the complex is scheduled to use renewable feedstock i.e. palm kernel oil and coconut oil.

Key investments in Polycarbonate3 and new technology & innovation

The company, in May 2011, has maintained its stance to further strengthen its foothold in Asian market. Moreover, the company has announced the (i) new investments for two technology & innovation centers in China & India and (ii) new project to produce polycarbonate (PC) in China. Based on the given information, the company has also secured collaboration from SINOPEC on PC production; where the facility has designed capacity to produce 260,000 tons of PC in China and located at SSTPC (SINOPEC-SABIC JV). In addition, the production facility is scheduled to commence its commercial operation in 2015.

Latest developments at KEMYA petrochemical plant

KEMYA, a 50:50 JV of SABIC & ExxonMobil, has signed long-term technology agreement with Continental Carbon Company (CCC) for the upcoming new green-field carbon black plant; where the final decision to implement Black Carbon4 plant is still pending with management. Moreover, KEMYA and CCC have also signed a long-term off-take agreement. On the other hand, SABIC in association with ExxonMobil is planning to establish a new Elastomers plant at KEMYA with the design capacity to produce 400,000 tons of rubber (of different grades) and thermoplastic specialty polymers.

SABIC & Montefibre S.p.A (Montefibre) - Technology agreement

In June 2011, the company has signed a technology agreement with Montefibre, which will use to make carbon fiber. It is worthy to mention that the company will be the first to use this technology in Carbon Fiber5 plant in the Kingdom. Moreover, SABIC and the technology provider also signed agreements to further enhance & upgrade its technology knowledge, which will help the company to hasten its products development expertise.

of 27 December 2011


SABIC & Mitsubishi Rayon Company (MRC) - New Joint venture

SABIC entered in 50:50 JV agreement with MRC to build and operate two plants (i) methyl menthacrylate (MMA) and (ii) polymethyl menthacrylate6 (PMMA), at one of the company’s operational affiliates in Jubail. The JV is scheduled to produce 250,000 tons of MMA and 40,000 tons of PMMA. We expect the new production line will commence its commercial operation on 2H2013. It is noteworthy that the completion of this JV will make the company the first of MMA and PMMA in the region.

1. Oleo-chemicals are chemicals mainly derived from plant and animal fats. The common use of oleo-chemicals is the produc-tion of biodiesel.

2. Distilled alcohols used as an anesthetic, wound cleaner and antiseptic.3. Polycarbonate is commonly used in electronic component, construction, data storage devices (CDs, DVDs and Blu-ray discs),

aircraft, automotive & security components and medical applications.4. The most common use of black carbon is as a pigment and reinforcing phase in automobile tires5. Carbon-fiber is used mainly in high-end automobile racing.6. PMMA is commonly used in small scale manufacturing industries like transparent glass substitute, daylight redirection and

medical implants, artistic and aesthetic and so on.

of 27 December 2011


On the other hand, the expected increase in the dependence on in-house feedstock will lead the company’s segment to show gradual improvement in capacity utilization. Subsequently, this will reflect positively on the segment production, which is expected to increase at a CAGR of 4.7%, during 2010-14. It is worth mentioning that we assumed the company will be able to utilize 70%-75% of its basic chemical production as a feedstock to run intermediaries (value-added chemicals) and polymers (including other products) complexes.

Petrochemical revenue composition 2010 Petrochemical revenue composition 2014e

Source: Company reports & Aljazira Capital

Production growth - SABIC Petrochemical segment

Source: Company reports & Aljazira Capital *2010 is based on our calculations

Key operational segments outlook

Petrochemical segment

Based on the company’s upcoming expansion plans (discussed earlier), we believe the company’s petrochemical capacity will increase at a CAGR of 3.7%, during 2010-14. Moreover, we expect by the end of 2014, the company will be able to produce new value added products like, MMA, PMMA, oleo-chemicals and so on. Hence, we expect a change in the company’s segment revenue-mix; where the contribution from basic chemical will reduce with the subsequent improvement in the contribution from intermediaries and other chemicals (high-value added).

Basic chemicals, 23.06%

Industrial gases 8.59%

Intermidiaries & other

chemicals, 28.00%

Polymers & other products(including value-added)

40.34%

Basic chemicals19.0%

Industrial gases, 8.3%

Intermidiaries & other

chemicals, 31.4%

Polymers & other products (including value-added),

41.3%

2010 2011e 2012e 2013e 2014e

Petrochemical Production (000 tons) - LHS Growth - RHS

32.6%

3.0%

13.1%

1.4%1.9%

-1.0%

4.0%

9.0%

14.0%

19.0%

24.0%

29.0%

34.0%

39.0%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

of 27 December 2011


Fertilizer segment

Fertilizer segment is primarily based on SAFCOs complex, which constitute most of the company’s fertilizer capacity. Hence, any expansion in SAFCO will have a significant impact on the performance of the company’s fertilizer segment. Similarly, the scheduled commencement of SAFCO-V project in 1HFY14 will lead the segment’s production capacity to increase at a CAGR of 4.6%, during 2010-14.

We believe the current demand-supply gap on international level will allow the segment to show improvement in capacity. However, later on in 2014, the expected commencement of new capacity around the globe will lead the urea complexes (especially urea producers) to run at low utilization rate. Consequently, the company’s segment will force to run at lower utilization rate, which will lead the limited increase in fertilizer production at 2010-14CAGR of 1%.

Steel/metal segment

Likewise fertilizer segment, the company’s steel segment is based on Hadeed, a wholly-owned subsidiary. According to SABIC annual report 2010, the company is aiming to increase the segment’s long7 steel product capacity by 700,000 tons and reduced dependent on billets imports by 300,000 tons. Moreover, the company is also scheduled to conduct debottlenecking project at DRI facility, which will result in the addition of 250,000 tons in production. The company has not given a clear indication for the completion of these projects, so we have not included the impact of these projects in our valuation.

Sales revenue growth & gross margins - SABIC Petrochemical segment

Source: Company reports & Aljazira Capital

We believe the expected production growth along with the stability in the average prices of related products at favorable levels will lead the segment’s revenues to increase at a CAGR of 6%, during 2010-14. Furthermore, these factors will also strengthen the segment’s gross margins, which are expected to show improvement in 2011 gross margins and then stabilize in the average range of 37%-40%, during 2012-14.

31.7%

37.9%39.8% 39.5%

39.3%

30.0%

32.0%

34.0%

36.0%

38.0%

40.0%

42.0%

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

2010 2011e 2012e 2013e 2014e

Petrochemical Revenues (SARmn) - LHS Gross margins - RHS

7. Long steel products usually include bars, rods & wire, structural shape & rails and tubes.

of 27 December 2011


12-Month Price

Target(SAR)

Earnings per share(SAR)

2012eImpact

(%)2013e

Impact (%)

2014eImpact

(%)

Base case (Ethane Gas - USD0.75/mmbtu)

114.8 11.0 - 11.3 - 11.8 -

Ethane Gas - USD1/mmbtu 112.0 10.7 -2.7% 10.9 -3.4% 11.4 -3.1%

Ethane Gas - USD1.25/mmbtu 109.2 10.3 -6.4% 10.6 -6.0% 11.0 -6.5%




12-Month Price

Target(SAR)

Earnings per share (SAR)

2012eImpact

(%)2013e

Impact (%)

2014eImpact

(%)

Base case (Ethane Gas - USD0.75/mmbtu)

114.8 11.0 - 11.3 - 11.8 -






Source: Aljazira Capital


Scenario 1 – Impact of change in ethane feedstock prices for old complexes (Excl. new complexes)

Scenario 2 – Impact of change in ethane feedstock prices for all complexes (old + new)

Financial implication of upward revision in feedstock

subsidized prices

SABIC along with the other local complexes operated within the local petrochemical sector are still getting feedstock gas at USD0.75/mmbtu. The price level was set in 1999 with a view to promote large-scale high-tech industry inside the Kingdom and reduce export dependence from oil. It is worth mentioning that KSA joined World Trade Organization (WTO) in 2005 without compromising on feedstock pricing policy.

We believe that the rise in the demand of ethane gas in industrial units inside the Kingdom along with limited availability could lead to a possible upward revision in local feedstock price. It is noteworthy that the upward revision might be limited to the old complexes i.e. started in prior to 2004. On the other hand, the new complexes may continue to get feedstock at a subsidized price till 2015. Similarly, we are also anticipating revision in the existing discount currently applied to the prices of international on other liquid feedstock (butane and propane).

Since the government has not given any clear indication for any change in the feedstock price policy, so we are keeping feedstock prices at USD0.75/mmbtu in our valuation. In order to facilitate investors, we run scenarios analysis to test our valuation on possible feedstock prices; where we are not expecting the impact of any modification in feedstock subsidies prior to 2012.

of 27 December 2011


12-Month Price

Target(SAR)


2012eImpact

(%)2013e

Impact (%)

2014eImpact

(%)

Base case 67% disc to Intl market

114.8 11.0 - 11.3 - 11.8 -

75% disc to international market

112.7 10.7 -2.7% 11.0 -2.5% 11.5 -2.3%


110.9 10.5 -4.6% 10.8 -4.3% 11.3 -4.0%


109.7 10.3 -6.4% 10.6 -6.0% 11.0 -6.5%


107.9 10.1 -8.2% 10.4 -7.8% 10.8 -8.2%


106.1 9.9 -10.0% 10.1 -10.5% 10.6 -9.9%

12-Month Price

Target(SAR)


2012eImpact

(%)2013e

Impact (%)

2014eImpact

(%)

Base case 67% disc to Intl market & Ethane USD0.75/mmbtu

114.8 11.0 - 11.3 - 11.8 -

75% disc to Intl market & Ethane USD1/mmbtu

111.2 10.6 -3.7% 10.8 -4.3% 11.3 -4.0%

80% disc to Intl market & Ethane USD1.25/mmbtu

108.8 10.3 -6.4% 10.5 -6.9% 11.0 -6.5%


106.5 10.0 -9.1% 10.2 -9.6% 10.7 -9.1%


104.1 9.7 -11.8% 10.0 -11.4% 10.4 -11.6%


101.8 9.4 -14.6% 9.7 -14.0% 10.1 -14.2%



Scenario 3 – Impact of change in discount on liquid feedstock prices for old complexes (Excl. new complexes) old complexes (Excl. new complexes)

Scenario 4 - Impact of change in discount on liquid feedstock prices for all complexes (old + new)

of 27 December 2011


12-Month Price

Target(SAR)


2012eImpact

(%)2013e

Impact (%)

2014eImpact

(%)

Base case 67% disc to Intl market & Ethane USD0.75/mmbtu

114.8 11.0 - 11.3 - 11.8 -


109.9 10.4 -5.5% 10.7 -5.2% 11.1 -5.7%


105.3 9.8 -10.9% 10.1 -10.5% 10.5 -10.8%


100.8 9.3 -15.5% 9.5 -15.8% 10.0 -15.0%


96.2 8.7 -20.9% 9.0 -20.2% 9.4 -20.1%


91.7 8.2 -25.5% 8.4 -25.5% 8.8 -25.2%


Scenario 5 - Impact of change in feedstock prices & discounts on liquid feedstock prices for old complexes (Excl. new complexes)

12-Month Price

Target(SAR)


2012eImpact

(%)2013e

Impact (%)

2014eImpact

(%)

Base case 67% disc to international market

114.8 11.0 - 11.3 - 11.8 -


105.8 9.9 -10.0% 10.2 -9.6% 10.6 -9.9%


99.8 9.2 -16.4% 9.4 -16.7% 9.8 -16.7%


94.1 8.4 -23.7% 8.6 -23.8% 9.0 -23.5%


87.6 7.7 -30.0% 7.9 -30.0% 8.3 -29.5%


81.6 6.9 -37.3% 7.1 -37.1% 7.5 -36.3%



Scenario 6 - Impact of change in feedstock prices & discounts on liquid feedstock prices for all complexes (old + new)

of 27 December 2011


Source: SABIC quarterly financial statements

Source: SABIC quarterly financial statements

Income Statement: 9MFY11

Financial Ratios: 9MFY11

Financial Overview

9MFY11 financial results

SABIC registered net profitability of SAR8.2bn (EPS: SAR2.7) in 3QFY11 as compared to the net profit of SAR5.4bn (EPS: SAR1.8) in 3QFY10. The growth in bottom line was mainly associated with (i) YoY improvement in gross margins to 34.4%, on account of appreciation in prices and better capacity utilization rate and (ii) a decline of 22.1% in the company’s financial costs in 3QFY11. However, on quarterly basis, the company registered slight QoQ decline of 0.3% but the effective cost measures and lower financial cost led stability in the profitability.

All figures in SAR Mn, unless specified 9MFY10 9MFY11 YoY Change

Sales 110,862.2 142,889.2 28.9%

Cost of sales (75,084.8) (94,157.0) 25.4%

Gross profit 35,777.4 48,732.2 36.2%

General & Administrative expenses (7,957.0) (9,447.8) 18.7%

Income from main operation 27,820.4 39,284.4 41.2%

Other income/(expenses), net 827.9 1,527.1 84.4%

Financial charges (2,575.0) (2,193.6) -14.8%

Income before minority interest & zakat 26,073.3 38,617.8 48.1%

Minority interest (8,498.8) (12,542.5) 47.6%

Income before zakat 17,574.5 26,075.3 48.4%

Zakat (1,800.0) (2,100.0) 16.7%

Net income 15,774.5 23,975.3 52.0%

Earnings per share (SAR) 5.26 7.99

All figures in SAR Mn, unless specified 9MFY10 9MFY11

Profitability Ratios (%)

Gross Profit Margin 32.3% 34.1%

Operating Margin 25.1% 27.5%

Net Profit Margin 14.2% 16.8%

Return on Average Assets 14.4% 18.8%

Return on Average Equity 10.3% 14.0%

Liquidity Ratios (x)

Current Ratio 3.2 2.5

Quick Ratio 2.4 1.9

Turnover Ratios (x)

Inventory 4.1 4.5

Receivable 4.9 4.6

Payable 1.4 1.3

Capital Structure

Debt/Equity (%) 65.4% 49.7%

Interest Coverage (x) 7.5 12.2

of 27 December 2011


Source: SABIC financial reports & Aljazira Capital

Sales revenue growth (Segment-wise contribution)

Financial Outlook

Based on our expectations, the company is expected to show limited growth in 2012 revenue, which is mainly of expected decline in the average prices of related products. However, the average prices are expected to remain in favorable ranges. Going forward, the expected improvement in the company’s utilization along with flattered average prices will lead the company to resume reasonable growth in top line. We, therefore, expect the company’s overall sales revenues to increase at a CAGR of 7.8%, during 2010-14; where the revenue contribution from petrochemical segment will remain the key source of generating revenues.

We believe the expected decline in the average prices of related products and increase in depreciation costs will lead the company’s gross margin to show limited improvement in 2012. Going forward, the expected stability in average prices, gradual improvement in capacity utilization and no major expansions will support the company to maintain its gross margins in the average range of 34%-35%, during 2011-14.

47.5% 26.5% 0.9% 2.2% 3.6%

-5.0%

5.0`%

15.0%

25.0%

35.0%

45.0%

55.0%

0

50,000

10,0000

150,000

200,000

250,000

2010 2011e 2012e 2013e 2014e

Petrochemical (SAR mn)-LHS

Fertilizer (SAR mn)-LHS Steel (SAR mn)-LHS

Corporate (SAR mn)-LHS

Growth-RHS

of 27 December 2011



Net profitability growth, ROAA & ROAE

Moreover, the expected decline in financial charges (due to expected pay-off of debts) will give an additional cushion to the company’s financials. We, therefore, expect the company’s net profitability will increase at a CAGR of 13.2%, during 2010-14, which is mainly due to YoY growth of 51.5% in 2011 over PAT of SAR21.5bn recorded in 2010.

7.0%

9.8% 9.3% 9.2%

9.3%

18.8%

25.0% 22.0% 19.9%

18.5%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

5,000

10000

15,,000

20,000

25,000

30,000

35,000

40,000

2010 2011 e 2012 e 2013 e 2014 e

Net profitability (SARmn) - LHS ROAA - RHS ROAE - RHS

of 27 December 2011


All figures are in SARmn, unless otherwise stated

1QFY11A 2QFY11A 3QFY11A 4QFY11eQoQ change

4QFY11/3QFY11

Sales revenue 44,873 49,086 48,930 49,307 0.8%

Gross profit 15,425 16,494 16,811 17,511 4.2%

EBIT 12,508 13,276 13,500 14,034 4.0%

Net income 7,689 8,101 8,185 8,649 5.7%

EPS (SAR) 2.6 2.7 2.7 2.9

4Q11 Financial Estimates

The expected QoQ decline in the average prices of related products will limit the positive impact of start of commercial operation from Kayan complex on the company’s revenues in 4QFY11. Hence, the company’s sales revenue is expected to show limited QoQ growth of 1% in 4QFY11. On the other hand, the company’s profitability is expected to surge QoQ by 5.7%, which is mainly due to (i) positive impact of expected start of MPC on other income and (ii) further QoQ decline in the financial costs (due to expected pay-off of debts).

In comparison with the corresponding quarter last year, our expected revenues and net profitability for 4QFY11 are indicating a growth of 20% and 50.3%, respectively, which is mainly based on the expected YoY improvement in the (i) average prices of related products, (ii) capacity utilization and (iii) start of operation from Kayan.


4Q11 Financial Estimates

of 27 December 2011


Source: SABIC financial reports & Aljazira Capital* Available information shows no apparent impairment of goodwill is in the horizon

** As per available information till date no new debts will be raised soon

SABIC - Income Statement (FY10-14e)

Financial Statements

All figure in SAR Mn, unless specified 2010 2011E 2012E 2013E 2014E

Sales 151,970 192,197 194,018 198,223 205,412

Cost of sales (103,423) (125,954) (126,531) (129,145) (133,477)

Gross Profit 48,547 66,242 67,486 69,078 71,935

Impairment of goodwill - - - - -

Selling, general & administration expenses (10,654) (12,923) (14,081) (14,836) (15,735)

Income from main operations 37,893 53,319 53,405 54,242 56,200

Investment income and other income 1,256 2,034 2,212 2,352 2,448

Financial charges (3,394) (2,780) (2,068) (1,684) (1,372)

Profit before zakat & minority interest 35,754 52,573 53,549 54,910 57,276

Minority interest (11,726) (17,148) (17,671) (18,120) (18,901)

Net income before zakat 24,029 35,425 35,878 36,790 38,375

Zakat (2,500) (2,801) (2,870) (2,943) (3,070)

Net income for the year 21,529 32,624 33,008 33,846 35,305

P&L Appropriation A/C 2010 2011E 2012E 2013E 2014E

Opening balance 8,777 17,029 20,290 23,589 26,972

Net profit for the year 21,529 32,624 33,008 33,846 35,305

Dividend paid (9,000) (13,050) (13,203) (13,539) (14,122)

Board of directors's remuneration (1.4) (1.4) (1.4) (1.4) (1.4)

Transfer to general reserves (4,275) (16,312) (16,504) (16,923) (17,652)

Retained Earnings 17,029 20,290 23,589 26,972 30,501

of 27 December 2011



SABIC - Balance Sheet (FY10-14e)


Assets

Current Assets

Cash & cash equivalents 50,648 57,076 59,919 62,848 65,757

Accounts receivable 28,890 37,556 38,495 39,458 40,444

Inventories 26,122 33,959 35,487 37,084 38,753

Prepayments & other current assets 11,439 17,159 18,446 19,829 21,317

Total current assets 117,099 145,750 152,347 159,219 166,270

Non current & fixed assets

Investments 8,904 9,706 10,191 10,701 11,236

Property, plant & equipment 164,889 167,151 169,714 173,900 179,921

Intangible assets 22,624 25,030 25,626 26,265 26,948

Other non-current assets 4,063 3,047 3,200 3,360 3,528

Total non current & fixed assets 200,481 204,934 208,731 214,225 221,632

Total assets 317,580 350,684 361,078 373,444 387,902

Liabilities & Owners' Equity

Current liabilities

Accounts payables 13,387 22,088 23,745 25,526 27,440

Accrued liabilities & other payables 12,369 14,224 14,580 14,944 15,318

Short-term banking borrowings 1,121 1,681 1,513 1,361 1,225

Current portion of long-term debt 15,634 17,041 17,893 18,787 19,727

Zakat payable 1,795 2,692 2,827 2,968 3,117

Total Current liabilities 44,305 57,726 60,557 63,587 66,827

Non current liabilities

Long-term debt 93,848 89,156 75,782 63,657 52,517

Other non-current liabilities 13,281 13,546 13,682 13,818 13,957

Total non current liabilities 107,129 102,702 89,464 77,476 66,474

Total liabilities 151,433 160,428 150,021 141,063 133,301

Provisions & liabilities

Owners' Equity

Share capital 30,000 30,000 30,000 30,000 30,000

Statuary reserves 15,000 15,000 15,000 15,000 15,000

General reserves 58,753 75,065 91,569 108,492 126,145

Retained earnings 17,029 20,290 23,589 26,972 30,501

Total owners' equity 120,782 140,355 160,158 180,465 201,646

Minority interest 45,365 49,901 50,899 51,917 52,955

Total equity 166,147 190,256 211,057 232,382 254,601

Total liabilities & owners' equity 317,580 350,684 361,078 373,444 387,902

of 27 December 2011



SABIC - Cash Flow Statement (FY10-14e)


Operating cash flow

Income before zakat 24,029 35,425 35,878 36,790 38,375

Depreciation & amortization 10,610 11,774 14,523 14,694 14,724

Other cash flows from operations 8,669 15,091 14,656 14,508 14,754

Change in Working Capital (13,683) (10,769) (1,607) (1,656) (1,706)

Net Cash from operating activities 29,625 51,521 63,450 64,335 66,146

Investing Cash flow

Addition to property. Plat & equipment (16,100) (14,036) (17,086) (18,880) (20,744)

Other investment activities (3,962) (157) 977 1,044 1,062

Cash Flows from Investing Activities (20,063) (14,193) (16,109) (17,836) (19,683)

Financing Cash flow

Long-term debt, net 3,407 (3,285) (12,521) (11,231) (10,201)

Short-term bank borrowings, net 181 560 (168) (151) (136)

Dividend paid (8,962) (13,050) (13,203) (13,539) (14,122)

Minority interest (10,737) (15,126) (18,606) (18,650) (19,096)

Cash Flows from Financing Activities (16,111) (30,901) (44,498) (43,570) (43,555)

Increase/Decrease in Cash (6,549) 6,428 2,843 2,929 2,909

Cash Beginning Balance 57,197.2 50,648.4 57,076.2 59,919.1 62,848.3

Cash Ending Balance 50,648 57,076 59,919 62,848 65,757

Rating Terminology 1. Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target.

Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months.

2. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months.

3. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months.

4. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.

COMPANY PROFILE

AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business.

For further queries about our special services, contact us at the toll free number 800 116 9999.

Disclaimer

The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by AlJazira Capital from sources believed to be reliable, but AlJazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. AlJazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in AlJazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report. This report has been produced independently and separately and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report. It should be also noted that the Research Division of AlJazira Capital had no information at the time of issuing this report regarding any conflict of interest between the company/companies mentioned in this report and any members of the board / executives / employees of AlJazira Capital or any of Bank AlJazira Group companies. No part of this document may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of AlJazira Capital. Persons who receive this document should make themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations.

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