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Yanbu National Petrochemical Co. (2290.SE)

CMP SAR 32.40 Target SAR 27.17 Downside 16.1%

MSCI GCC Index 440.25 Tadawul All Share Index 6,282.38

Key Stock Data Sector Petrochemicals Reuters Code 2290.SE Bloomberg Code YANSAB AB Equity Net Out. Shares (bn) 0.563 Market Cap (SAR bn) 18.225 Market Cap (USD bn) 4.872 Avg. 12m Vol. (mn) 1.686 Volatility (30 day) 32.442 Volatility (180 day) 50.699

Stock Performance (%) 52 week high / low (SAR) 34.00 / 12.85

1M 3M 12M Absolute (%) 15.7 26.1 -4.4 Relative (%) 4.5 10.3 13.5

Shareholding Pattern (%)

Saudi Basic Industries Corporation 55.95 General Organization for Social Insurance - Saudi Arabia 9.20 Arab Petroleum Investments Corporation 1.57 Corporate 1.97 Public 31.31

Yansab and Tadawul All Share Index

Executive Summary Established in 2006, Yanbu National Petrochemical Co. (Yansab) is mainly engaged in the production of petrochemical products. Saudi Basic Industries Corp. (Sabic) holds the majority stake of 55.95% in the company. The company is developing its integrated petrochemical complex in the Yanbu industrial city, to produce petrochemicals including polyethylene, polypropylene and benzene amongst others utilizing a capacity of 4 million tonnes per annum (mtpa). Yansab reported a net loss of SAR 15 million in 1H09 Yansab did not report any operational revenues in 1H09. The company’s G&A expenses increased 14% to SAR 14.89 million during the first half of 2009 compared to SAR 13.06 million in 1H08. Consequently, the company’s pre-operating loss comprising only expenses increased to SAR 14.89 million in 1H09 as against SAR 13.06 million in 1H08. The company did not report any other income in either 1H08 or 1H09. Accordingly, net loss was same as the pre-operating loss for the company for both the periods. The adjusted annualised loss per share (LPS) for the both the periods stood at SAR 0.05. Outlook and valuation The performance of companies operating in the petrochemicals sector was negatively impacted by the global economic crisis, which led to weak demand for petrochemicals and dip in products’ price realizations. However, on a positive note, there has been an improvement in the demand and pricing situation of the petrochemical products in anticipation of an economic recovery. Yansab holds the advantage in terms of owning an integrated petrochemical complex with a total capacity of 4 mpta. The company also has the inherent advantage of the strong backup of SABIC, which will provide it with essential feedstocks and extend financial support when needed. The company is expected to benefit from the revenue contribution from the petrochemical plants nearing completion. Despite all these, we believe the company’s stock price, which has already more than doubled (up 118.9%) since the start of the year heavily discounts the expected future earnings flow. In addition, operational challenges associated with the start-up of facilities, along with delays in the commencement of production is likely to hinder earnings growth. Accordingly, we recommend an exit strategy at the current level. To determine the fair value of Yansab, we have used the DCF valuation method. As Yansab is yet to start full-fledged operations, its low earning base translates into an exceptionally high P/E multiple of 764.74x on 2009E and 21.00x on 2010E earnings, and a P/B multiple of 3.18x and 2.73x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has outperformed the index by increasing 118.9% since January as against a gain of 30.8% by the Tadawul All Share Index. Considering the above factors, we arrive at a price target of SAR 27.17, which exhibits a potential downside of 16.1% from its closing price of SAR 32.40 (as on Oct 05, 2009). Accordingly, we initiate our coverage on Yanbu National Petrochemical Co. with an UNDERWEIGHT recommendation.

SAR Million 2007A 2008A 2009E 2010E 2011E Revenues NA NA 855.42 7,521.33 9,306.82 EBITDA -83.21 -25.59 112.96 1,606.20 2,071.26 Margin (%) NA NA 13.2 21.4 22.3 Net Profit 109.86 -25.59 23.83 867.93 1,250.29 Margin (%) NA NA 2.8 11.5 13.4 Adjusted EPS (SAR) 0.20 -0.05 0.04 1.54 2.22 Total Assets 15,309.28 18,677.09 20,388.08 21,962.98 23,348.29 RoAE 1.91 -0.4 0.4 14.0 17.7

UNDERWEIGHT

Background Established in 2006, Yanbu National Petrochemical Co. (Yansab) is a Saudi joint stock company engaged in the production of petrochemical products. Saudi Basic Industries Corp. (Sabic) holds a majority stake of 55.95% in Yansab. The company is developing the Yanbu Industrial City to significantly boost production capacities for basic petrochemicals, intermediates and polymers. Yansab’s integrated petrochemical complex built in Yanbu industrial city comprises of eight world-class plants with a total capacity of 4 mtpa (million tonnes per annum). The complex will convert ethane, a natural gas derivative, into several products including ethylene, propylene, ethylene glycol, linear low-density polyethylene (LLDPE), high-density polyethylene (HDPE), polypropylene, butene-1, butane-2, benzene, xylene, MTBE, toluene and xylene mixture. These products are mostly used across various plastic industries around the world. In May 2005, Yansab’s parent company, SABIC signed a Letter of Intent (LoI) with the US Flour Co. to construct utilities and site facilities at YANSAB. The utilities and site facilities are the largest units of the YANSAB complex and are vital for supplying the plants with water, power, steam and chilled water. Its polyolefins plant’s engineering, procurement and construction (EPC) contract was awarded to a joint venture between Aker Kvaerner and China Petrochemical Corporation (SINOPEC) on September 14, 2005. Later, in December 2005, Italy-based Technip was awarded an EPC contract for an ethylene and propylene plant, while Japanese Toyo Engineering Corporation (TEC) was given another EPC contract for an ethylene glycol plant at the same site. On April 19, 2006, the company signed an LoI with Shaw Stone & Webster Inc. for the design, supply and construction of its butene plant with a designed annual capacity of 135,000 mtpa of butene and 250,000 mtpa of benzene, toluene and xylene mixtures. With this LoI, Yansab completed the contractual process for all its plants. Finally, in July 2009, the company inaugurated its petrochemical complex with production starting at its 900,000 mtpa ethylene plant. Yansab employs state-of-the-art globally used technologies for the operation of its petrochemical complex. Some of the technologies will be used for the first time in the country. According to the company, the complex will utilize the SABIC and Sud Chemie-developed Scientific Design Ethylene Glycol (EG) technology as well as Butene-1 technology developed by SABIC in collaboration with the French Petroleum Institute. Also, it will deploy new hi-tech facilities for the production of High Density Polyethylene (HDPE), involving the latest state-of-the-art manufacturing processes to meet specific customer requirements. This technology is being introduced for the first time across SABIC’s plants in conjunction with a new technology for the extraction and conversion of pure aromatic compound to benzene.

YANSAB’s Products

Product Name Plant Capacity

(‘000 tonnes per annum)

Ethylene 1,300 Propylene 400 Mono Ethylene Glycol 700 Di Ethylene Glycol 65 Tri Ethylene Glycol 5 Polypropylene 400 Low Linear Density Polyethylene 400

High Density Polyethylene 400 Butene 1 65 Butene 2 50 MTBE (Methyl tert-butyl ether) 20 Benzene 170 TX (Tolune/Xylene) 70 Source: Yansab

The project adopted a mixed financing structure with 70% debt and 30% equity. The deal was closed on June 18, 2006 with 19 local, regional and international banks along with two export credit agencies (ECA) and Public Investment Fund (PIF). The deal for Yansab included the biggest ever Islamic financing exercise in SABIC’s history for a start-up integrated complex.

Yansab integrated petrochemical complex to incorporate 8 world-class plants Strategic tie-ups with global players to set up various plants Focus on state-of-the-art global technologies Mixed financing structure

Board of Directors • Chaired by Mr. Mutlaq H. Al-Morished

• Mr. Fayez M. Al-Rokh - Board Secretary

• Mr. Hussein M.S. Kadi • Mr. Abdullah M. Al-Garawi • Mr. Fawaz M. Al-Fawaz • Mr. Abdulnasser Al-Babtain

• Mr. Mohammed M. Al-Ohali • Mr. Gasem M. Al-Shaikh Source: Yansab Global economy expected to witness negative growth of 1.1% in 2009

Business Model

Subsidiaries/Associates of Yansab Yansab has no subsidiaries, associates and affiliates. INDUSTRY SCENARIO According to estimates by the International Monetary Fund (IMF), the world economy will recede 1.1% during 2009 as a result of the continued economic slowdown. This is contrary to the growth rates of 5.2% and 3.0% registered for 2007 and 2008, respectively. However, the trend is likely to reverse with growth rebounding to 3.1% in 2010. The Middle East region’s GDP, which registered a healthy real growth of 5.7% and 6.2% during 2006 and 2007 respectively, is anticipated to come down from 5.4% in 2008 to 2.0% for 2009 before expanding back to 4.2% in 2010. Within the region, the GCC countries witnessed GDP growth of 6.4% in 2008, but are likely to grow at a mere 1.3% during 2009 owing to multiple factors that include weak oil prices, contraction of global demand and trade-related activity, squeezed liquidity, lower tourism and reduced remittances. However, the GCC’s growth is expected to normalize to 4.2% in 2010 on improving market dynamics. Saudi Arabia’s real GDP grew at an average 4.4% over the period 2004-08, on the back of high oil prices and subsequent economic development. However, unlike the overall GCC region, Saudi Arabia’s real GDP is expected to contract 0.9% during 2009 before bouncing back to a positive 4.0% in 2010. As per preliminary estimates, Saudi Arabia’s nominal GDP increased 22.0% YoY to reach SAR 1,753.50 billion in 2008 from SAR 1,437.68 billion in 2007, driven by record oil prices during the first half of the year. Average oil prices jumped to USD 95.0 per barrel (bbl) in 2008 from USD 67.6 per bbl in 2007. The mining & quarrying sector (up 37.2% to SAR 1,005.20 billion) was the largest contributor to the GDP at 57.3%. Meanwhile, recording a YoY growth of 9.2%, the construction sector logged in revenues worth SAR 71.03 billion during 2008 accounting for 4.1%. The finance, insurance, real estate and business services sectors together contributed 6.6%. In light of the financial turmoil and economic slowdown along with falling oil prices, the IMF forecasts a 19.2% decline in nominal GDP for 2009. However, a reversal is expected, as economic growth is likely to rebound to 16.7% in 2010. The country is estimated to run a budget deficit of SAR 65 billion (USD 16 billion) in 2009 – the first in six years. However, massive fiscal surpluses registered during 2003-2008 have allowed Saudi Arabia to boost its foreign assets, which supported higher spending and offset the pressure due to the global crisis.

The eight-unit petrochemical complex will convert ethane, a natural gas derivative, into several petrochemical products

YANSAB

Established for the production of various petrochemicals

Capitalize on SABIC’s long-standing experience and contribute to national development plans along with strengthening its competitive position

Application of state-of-the-art technologies for the operation of its petrochemical complex

Increased demand from Asian economies drives growth in the petrochemical industry Access to cheap feedstock instrumental to the emergence of Middle East as a petrochemical hub

Saudi Arabia's Nominal GDP

0

400

800

1,200

1,600

2,000

2004 2005 2006 2007 2008E0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Nominal GDP (SAR Billions) Nominal GDP Grow th (%)

Contribution to GDP (%)

0.0%

14.0%

28.0%

42.0%

56.0%

70.0%

2004 2005 2006 2007 2008E

Oil to GDP Non-oil to GDP

Source: SAMA, Central Department of Statistics & Information The global petrochemical industry witnessed a healthy growth scenario in the years prior to the global economic crisis on rising demand from emerging Asian economies. Rising population coupled with unparalleled growth witnessed by these economies over the last few years resulted in a rise in demand for petrochemicals from these regions. The demand for petrochemical products increased at a CAGR of 4% during the 2002-07 period. With demand being the key driver for any increase in capacity and utilisation rates, global petrochemical capacity increased at a CAGR of 3.3% to 128.4 million tonnes over this period and capacity utilisation rates reached 91.7% in 2007 compared to 87% in 2002. Consequently, petrochemical production has increased at a CAGR of 3.9% to 117.7 million tonnes over 2002-07. The year 2008 continued to benefit from soaring oil and gas prices, which contributed significantly to the top-line and bottom-line growth of the companies operating within the industry. Further, on the cost front, the Middle East & North Africa (MENA) region holds the advantage of lower feedstock costs owing to its rich oil fields and gas reserves. According to a study by the Association of Petrochemicals Producers in Europe (APPE), Middle Eastern producers enjoy the highest profit margins when compared to producers in Eastern European, American, and South East Asian. The trend is likely to continue as the region holds approximately 65% of the world oil reserves and 49% of the world gas reserves. Additionally, the willingness of the region to diversify its economy beyond oil and gas is adding up to an increased interest in the petrochemicals sector. The MENA region accounts for approximately 66% of the global petrochemical capacity of which the Gulf region (comprising the six GCC countries and Iran) contributes about 86%, while the rest is contributed by North African countries like Egypt, Libya, and Algeria. Saudi Arabia has the maximum share in the petrochemical capacity amongst the Gulf countries, accounting for approximately 43% of the total capacity. Saudi Basic Industries Corp. accounts for approximately 54% and 28% of the total production capacity of Saudi Arabia and MENA respectively, and is the biggest petrochemical company in the region. During the last few years, there has been a major shift in the petrochemical production base from the US and Europe to the MENA and China, which have emerged as the hub for new capacities and expansions. The North American region, which once used to be the hub of petrochemical facilities, has been on a downturn due to high feedstock costs that have hurt margins across the industry. The marginal returns earned by companies in the US petrochemical industry coupled with stiff competition from the Chinese and MENA regions on account of feedstock cost advantage have directly impacted capacity expansion plans. Even the European petrochemicals industry has suffered on account of higher feedstock costs, which has stalled growth for the industry. Further, the European industry has witnessed subdued growth due to various regulations including the Kyoto protocol - the European Union’s directive on chemicals and environmental campaigns. Ethylene is the most important feedstock in the production of a number of derivatives apart from being used as a raw material for a variety of inputs for plastics, fibres and elastomers. According to Chemical Market Associates Inc. (CMAI), the global ethylene industry operating rates are projected to fall from 92% in early 2008 to below 90% throughout 2012 in the wake of current economic situation. The massive build-up of ethylene capacity in the Middle East and Asia might be detrimental to the demand-supply dynamics of the sector. Historically, from 1995 to 2008, ethylene capacity increased by more than 22 million metric tonnes (mmt) in the Asia-Pacific region and approximately 13 mmt in the Middle East. CMAI projects that these regions are projected to add another 41 mmt of capacity by 2015. With investments to the tune of USD 80 billion planned over the next 5 years, Saudi Arabia is expected to double its ethylene capacity from the levels achieved in 2008 to18.2 million tonnes per annum by the end of 2013.

Benzene prices improve on increased demand from Asian producers India, China contribute to the rise in demand for polypropylene

Major Petrochemical Projects in Middle East

Country/Company Product Targeted completion Status

Saudi Arabia Arabian Industrial Fibers (Ibn Rushd) Propylene and derivatives 2012 Planned

Saudi Kayan Olefins, aromatics and derivatives 1Q11 Under construction

National Chevron Phillips Ethylene and derivatives 4Q11 Under construction

Petro Rabigh II Olefins, aromatics and derivatives Under study

Saudi Aramco/Dow Chemical Ethylene, aromatics and derivatives 2014 FEED stage

Saudi Aramco/Total Propylene and aromatics Post 2012 NA Abu Dhabi Borouge II Olefins and derivatives 2H10 Under construction

Borouge III Polyolefins 2014 Feasibility study stage

ChemaWEyaat Olefins, aromatics and derivatives 2014 Under preliminary

engineering Qatar

ExxonMobil/Qatar Petroleum Ethylene Post 2012 FEED award delayed

Honam Petrochemical/Qatar Petroleum Olefins and derivatives Post 2012 Decision on project

deferred to 2H12 Oman Duqm Refining & Petrochemical

Refinery, olefins and derivatives Post 2012 Delayed

* FEED – Front-End Engineering Design Source: Chemical Industry News & Intelligence

Benzene is the basic raw material for a number of petrochemical intermediaries including styrene, phenol, acetone, cyclohexane and nitrobenzene. Demand for benzene as a raw material for the production of styrene constitutes 52%, while cumene used in the manufacturing of phenol and cyclohexane accounts for 19% and 13%, respectively. Nitrobenzene and other chemical intermediaries account for the rest of the demand for benzene. Off late, the demand for benzene has been increasing buoyed by higher gasoline consumption in Asia. According to the CMAI, the demand for benzene is expected to witness an absolute growth of 1.3 million tonnes per annum (mtpa) through 2011. On the other hand, the supply side dynamics remain tight mainly due to a shortage of investments in the sector. However, rising demand has necessitated additional capacities to be installed. According to the CMAI, approximately 9 million tonnes per year of benzene capacity is likely to be added over 2007-10. Further, according to the CMAI, around 3.1 million tonnes per year of new benzene capacity is likely to be added across Northeast and Southeast Asia during the next five years. In the Middle East, 1.5 million tonnes of new annual benzene capacity will be added over 2007-11. However, on the flip side, increased capacity is likely to strain utilisation rates, which are expected to fall to 80%. Benzene prices, which follow crude oil and natural gas prices, have increased significantly since the start of 2Q09 mainly due to higher demand for styrene from Asia. The price of benzene shot up sequentially 66.9% during the first two months of the second quarter. Moreover, the Asian demand for benzene is increasing fast and the trend may necessitate exports from the US and the Europe. However, in the long run, with an increase in capacity, the price for benzene is expected to exhibit a better correlation to the cost of production. Polypropylene (PP) is the basic raw material for the production of a variety of products including fibers, yarns, and textiles. It is also used in food packaging, electronic films, photo and graphic arts applications and automobiles, where its low weight serves as an inherent advantage. Historically, the demand for PP has grown at around 7-8% mainly due to its versatility and relatively low cost compared to other polymers. According to the CMAI, the demand for PP is expected to increase at approximately 6% per annum over the 2007-12 period buoyed by rising demand from India and China. However, the overcapacity build-up in Middle East and Asia is expected to become a key challenge for the industry as 9 million tonnes of annual capacity gets added over 2008-10. The scenario is also expected to intensify the competition for the export markets with North America likely to lose its leadership position and Europe turning into a net importer. Meanwhile, China continues to remain the largest consumer of PP. According to the China Petroleum & Chemical Industry Association (CPCIA), the PP production is likely to increase to 12 million tonnes by 2010 from an estimated 7.13 million tonnes in 2007. Further, according to International Construction Information Society (ICIS), a cost and specification information provider for the construction industry expects at least 11 new PP plants with total capacity of 3.9 mtpa under construction to come on-stream between 2008 and 2011.

Asian economies, mainly China, remain the biggest export market for the Middle East Economic downturn leads to negative demand for petrochemicals in China

The ongoing global economic recession and credit crunch has dampened demand leading to price correction across basic petrochemical products. The prices of ethylene, butadiene, polypropylene and benzene have declined to at least three-year lows. However, on a positive note, the improving demand scenario has led to an improved trend in 2Q09. The prices for polypropylene, polyethylene and benzene witnessed a sequential improvement during 2Q09. While polypropylene prices reported a 24.4% sequential gain, polyethylene price improved 17.4% in 2Q09 compared to the previous quarter. The price of benzene however, gained the maximum rising 80.6% in 2Q09 on a sequential basis.

Price Change in Crude Oil and Natural Gas

-36%

-18%

0%

18%

36%

54%

72%

2004 2005 2006 2007 2008

Crude OPEC basket Natural Gas

Price Change of Key Petrochemicals

-56%

-28%

0%

28%

56%

2006 2007 2008 2009

Polyethylene Ethylene Benzene Polypropylene

Source: Bloomberg *2009 includes prices till August Source: Bloomberg On the demand side, Asian economies have emerged as the key markets for petrochemical products because of their favourable demand growth. China remains the biggest export market with petrochemical demand expected to rise around 9% each year till 2012 compared to a mere 1.8% projected for the US and Europe. At the same time, as a result of the feedstock cost advantage, the Middle East region has emerged as a significant petrochemical producer, targeting its low cost products towards the Asian markets. However, given the economic slump, the demand for petrochemical products is likely to remain low with over-capacity further deteriorating the situation. Ethylene derivatives exports from North America are expected to decline as a result of weakening global demand, appreciating dollar and overcapacity building up in the Middle East. The reduction in operating rates in Asia particularly the Middle East is expected to exert pressure on US exports and cash margins. According to ICIS, exports from the Middle East are expected to increase from 4.3 million tonnes in 2008 to 11.7 million tonnes in 2013 benefiting from capacity expansions. Consequently, net trade balance for US polyethylene is expected to fall from 3.4 million tonnes in 2008 to 0.80 million tonnes by 2013. With access to low cost feedstock (coal), China has been developing the local industry to fulfil the soaring domestic demand. However, the scenario is changing fast as a result of the sluggish demand for petrochemicals. According to CPCIA, Chinese petrochemical industry is moving downwards for the first time after ten years of high growth. Further, according to the Centre for Business Intelligence, an independent commodities information provider in China, demand for key petrochemical products including ethylene, polyethylene, benzene and purified terephthalic acid (PTA) witnessed negative growth in demand for the first time in 2008. Amongst this, PTA’s demand was the most affected declining 8% in 2008 compared to a rise of 26% in 2007. The slowdown in global demand for Chinese textiles, toys, electronics, home appliances, machinery and other finished manufactured goods has caused the dip in demand for petrochemical products. Further, industry experts believe that the sector would be challenged by overproduction, lack of innovation and competitiveness and price undercutting from other parts of the world.

Demand and Production in China in 2008 ('000 tonnes)

0

3,200

6,400

9,600

12,800

16,000

Ethy

lene

Prop

ylen

e

Poly

ethy

lene

(PE)

Poly

prop

ylen

e

Petro

benz

ene

Purif

ied

tere

phth

alic

acid

(PTA

)

Mon

oeth

ylen

egl

ycol

(MEG

)

Met

hano

l

Demand Production Sources: CBI Research & Consulting, China National Bureau of Statistics

Global turmoil leads to weak demand, over capacity aggravates situation

The Chinese government has undertaken certain initiatives to revive the industry. During January 2009, China’s state council approved a stimulus package of approximately RMB 500 billion (USD 73 billion) to ensure scheduled commission of planned capacity additions, in order to revive the local industry. This initiative will likely reduce chemical imports to 17 mmt in 2011 from 20 mmt in 2007.

China Cracker Expansion Plans, ’000 tonnes

Company Project location 2009 expansion

2010 expansion

2011 expansion

Start-up time

Sinopec (including joint ventures) Fujian United Petrochemical

Fujian, South China 800 - - 1H 2009

Shanghai Secco Petrochemical

Shanghai, East China 300 - - Aug-09

Tianjin Petrochemical Tianjin, North China 1,000 - - Sep-09

Zhenhai Refinery and Petrochemical

Zhejiang, East China 1,000 - - Oct-09

Guangzhou Petrochemical

Guangdong, East China - - 1,000 Planning

board Wuhan Petrochemical

Hubei, Central China - - 800 Planning

board Petro China Dushanzi Petrochemical

Xinjiang, Northwest China 1,000 - - 1Q 2009

Panjin Petrochemical Liaoning, Northeast China 450 - - Oct-09

Fushun Petrochemical

Liaoning, Northeast China - 800 - Planning

board Sichuan Petrochemical

Sichuan, Southwest China - - 800 Planning

board Daqing Petrochemical

Heilongjiang, Northeast China - 600 - Planning

board Total New Capacity 4,550 1,400 2,600 Source: CBI Research & Consulting

The demand for petrochemicals has remained weak given the ongoing financial turmoil. This in turn has led to the closure of production facilities, delays in capacity addition plans and industry-wide merger and acquisition activity. Capacity additions have been facing delays or postponement mainly in the financing and engineering stages with tightened credit availability. The liquidity crunch has already forced Qatar Petroleum and Korea-based Honam Petrochemical to defer a joint cracker and derivatives project. Saudi Aramco and Dow Chemical-operated Ras Tanura project, estimated at USD 26 billion and touted as the biggest petrochemical project in the sector is faced with apprehensions regarding the scheduled completion in 2014. While decline in feedstock costs has improved profitability for producers, the weak demand scenario has kept a check on the volumes of business generated. However, on a positive note, the demand situation is expected to improve in the medium term. Petrochemical prices, which have already seen multi-year lows, have been slowly, but definitely, recovering. On the other hand, with a decline in construction costs, petrochemical players are renegotiating contracts with their engineering partners. Saudi Aramco decided to renegotiate contracts for its giant Manifa oilfield development project towards the end of 2008. Apart from this, the present situation is believed to be throwing up an array of consolidation and merger opportunities with the Middle East being considered a potential buyer for distressed assets across Asian and European petrochemical companies. In February 2009, Abu Dhabi’s sovereign wealth fund IPIC agreed to acquire Canada-based NOVA Chemicals for USD 2.3 billion, including the debt assumption. In another development, Sabic and Sipchem have signed an MoU to work together on new projects worth USD 4 billion using Sipchem’s government allocation of feedstock ethane. Further, the companies are also taking preparatory steps towards streamlining operational efficiencies, enhancing vertical integration, reducing capacity and realigning portfolios to focus on core businesses and see through this global turmoil.

Yansab reported a net loss of SAR 25.59 million in 2008

Financial Performance - FY2008 Yansab’s financial performance for 2008 mainly captured its non-operational activities. Further, financial performance for 2007 includes consolidated figures for the period from Feb 11, 2006 to Dec 31, 2007. The company reported SAR 25.59 million as general & administrative (G&A) expenses for 2008 compared to SAR 83.21 million for 2007. The company did not report any other income in 2008, which compares to an income of SAR 196.84 million for 2007. Accordingly, Yansab reported a loss of SAR 25.59 million in 2008 compared to a net profit of SAR 109.86 million in the previous period. Adjusted loss per share (LPS) was reported at SAR 0.05 in 2008 compared to SAR 0.20 in 2007.

-100

-80

-60

-40

-20

0

2007 2008 1H08 1H09

Operating Profit (SAR Millions)

-60

-30

0

30

60

90

2007 2008 1H08 1H09

Net Profit (SAR Millions)

-

4,000

8,000

12,000

16,000

20,000

2007 2008 1H08 1H09

Total Assets (SAR Millions)

-0.5%

-0.2%

0.2%

0.5%

0.9%

1.2%

2007 2008 1H08 1H09

Return on Average Assets (RoAA)

-

1,400

2,800

4,200

5,600

7,000

2007 2008 1H08 1H09

Shareholders' Equity (SAR Millions)

-2%

-1%

0%

0%

1%

2%

2007 2008 1H08 1H09

Return on Average Equity (RoAE)

Chart Gallery

Size of the Company The salient features of the balance sheet are:

Yansab witnessed a 20.3% growth in total assets to SAR 19,721.78 million compared to SAR 16,394.40 million in 1H08 mainly led by an increase in capital work in progress. The company’s capital work in progress, which includes development projects in progress, increased 22.3% to SAR 18,003.93 million compared to SAR 14,715.92 million in 1H08. Accordingly, its share in total assets increased from 89.8% to 91.3% in 1H09. However, the increase in total assets was somewhat restricted due to a 16.2% decline in cash & cash equivalents to SAR 927.79 million during 1H09.

Yansab’s total liabilities increased 31.4% to SAR 14,039.74 million compared to SAR 10,684.95

million in 1H08 taking its share in the total balance sheet to 71.2% from 65.2% in 1H08. Non-current liabilities accounting for 63.6% of the total balance sheet increased 27.3% to SAR 12,544.65 million during 1H09 led by expansion in the company’s term loans portfolio. Yansab’s long term loans portfolio increased 22.6% to SAR 11,998.36 million as the company completely utilised its un-disbursed loan amounts to finance its development projects, mostly in the final stages of completion. The company also withdrew an amount of SAR 465.00 million as term loan from its shareholders. At the same time, the loans due within the next one year increased nearly four-fold to SAR 892.28 million during the first half of 2009. For the period under review, the company’s debt to equity ratio increased to 2.35 from 1.76 during the first half of 2008.

The company’s shareholders’ equity remained flat at SAR 5,682.03 million during 1H09 however,

its share in the total balance sheet decreased from 34.8% to 28.8% in 1H09. Retained earnings were lower by 38.9% at SAR 43.00 million during 1H09 on reported losses during the period.

Financial Performance Analysis – 1H09 Yansab did not report any operational revenues in 1H09. The company’s G&A expenses increased 14% to SAR 14.89 million during the compared to SAR 13.06 million reported in the first half of 2009. Consequently, the company’s pre-operating loss comprising only expenses increased to SAR 14.89 million in 1H09 as against SAR 13.06 million in 1H08. The company did not report any other income in either 1H08 or 1H09. Accordingly, net loss was same as the pre-operating loss for the company for both the periods. The adjusted annualised LPS for the both the period stood at SAR 0.05. Due to losses reported during 1H08 and 1H09, Yansab’s annualised negative returns on average equity stood at 0.5% for both the periods. Annualised negative returns on average assets also came at 0.2% for both the periods.

Yansab reported a net loss of SAR 15 million in 1H09

Peer Comparison In order to do a peer comparison, we have taken comparable companies involved in petrochemicals business across Saudi Arabia that includes Saudi Industrial Investment Group (SIIG), National Industrialization Company (NIC), Saudi International Petrochemical Company (SIPCHEM) and Yansab.

Financial Performance of Comparable Companies SIIG NIC SIPCHEM Yansab 2008 1H09 2008 1H09 2008 1H09 2008 1H09 Ratios: Total Assets Turnover Ratio (x) 0.31 0.27 0.36 0.25 0.18 0.06 NA NA Operating Profit Margin (%) -0.5 5.4 9.7 5.2 55.3 4.2 NA NA EBITDA Margin (%) 2.2 5.4 16.7 5.2 55.9 4.2 NA NA Net Profit Margin (%) 2.3 1.8 6.0 1.7 31.4 8.8 NA NA Debt Equity Ratio 0.53 0.82 2.20 2.32 0.75 1.04 2.07 2.35 RoAA (%) 0.7 0.5* 2.2 0.4* 5.8 0.5* -0.2 -0.2* RoAE (%) 1.2 0.9* 9.1 1.8* 13.5 1.2* -0.4 -0.5* Market Indicators: Adj. EPS (SAR) 0.11 0.10* 1.30 0.29* 1.61 0.18* -0.05 -0.05* P/E (x) 208.61 216.99 16.79 76.22 13.54 122.40 NM NM Adj. BVPS (SAR) 11.55 11.60 15.88 15.74 14.89 14.40 10.13 10.10 P/BV (x) 1.96 1.95 1.38 1.39 1.46 1.51 3.20 3.21 Current Market Capitalisation (SAR Millions) 10,170 10,170 10,089 10,089 7,267 7,267

18,225

18,225

(SAR Million)

Revenues 2,138.96 1,317.56 10,037.14 3,796.42 1,708.58 335.50 NA NA

% YoY change 46.6 14.3 38.9 -26.5 11.8 -66.4 NA NA Operating Profit/ (Loss) -10.32 71.60 974.43 198.57 945.34 13.96 -25.59 -14.89 % YoY change NA -73.2 -12.9 -66.5 5.4 -97.7 NA NA EBITDA 46.26 71.60 1,671.81 198.57 954.44 13.96 -25.59 -14.89 % YoY change -90.2 -73.2 12.4 -66.5 5.3 -97.7 NA NA Net Profit/ (Loss) 48.75 23.43 600.85 66.19 536.78 29.69 -25.59 -14.89 % YoY change -88.9 -92.1 -9.1 -82.1 -9.6 -91.9 NA NA Total Assets 8,649.03 10,534.40 30,422.66 31,050.35 10,833.39 11,633.97 18,677.09 19,721.78 % YoY change 74.2 34.5 23.4 8.7 39.8 26.3 22.0 20.3 Shareholders’ Equity 5,197.23 5,219.95 7,317.76 7,249.45 4,964.60 4,801.14 5,696.92 5,682.03 % YoY change 66.3 -4.1 23.2 -9.5 65.7 -9.9 -0.4 -0.5 NA: Not applicable, NM: Not meaningful Source: Zawya, Yansab’s financial statements

Inaugurated its petrochemical complex at Yanbu industrial city Around USD 3.5 billion financing deals in last four years

New Projects and Strategies Yansab aims to provide high-quality and value-added products to boost the nation’s domestic industrial production, as well as to strengthen the company’s competitive capabilities. On August 30, 2009, the company started its 4 mtpa polypropylene (PP) plant. Propylene feedstock for the PP plant, which uses Dow technology, is being sourced from Yansab’s 1.3 mtpa ethane cracker that started in July 2009. Besides the cracker and the PP plant, the company also commenced operations at its polyethylene and monoethylene glycol (MEG) plants in July 2009. The company is expected to start exporting PP by the end of September 2009, while export of linear low density polyethylene (LLDPE) and high density polyethylene (HDPE) is expected to commence towards end-September-end and end-October, respectively. Owing to the increase in project costs by nearly USD 640 million, Yansab received a USD 124.16 million loan from its parent company SABIC in July 2009. The loan would be charged according to the prevailing commercial average rate and the repayment would start in June 30, 2012. The company has signed financing agreements worth USD 3.5 billion with local banks and financing authorities over the last four years including USD 1.067 billion from Saudi Arabia’s Public Investment Fund (PIF), USD 150.00 million from UK’s Export Credits Guarantee Department and USD 550.00 million from Italy’s SACE. The remaining USD 1.733 billion was arranged from 19 international, regional and local banks with an Islamic tranche making up USD 850.00 million and a commercial tranche accounting for the remainder. ABN Amro and Saudi Hollandi Bank were the financial advisers and underwriters for the bank facility. SWOT Analysis

THREATS

Competition from a number of private firms operating in the sector

OPPORTUNITIES The country’s continuous focus on expanding its petrochemical sector and becoming a primary centre for global production of basic chemicals Diversify from the existing oil-based economy and increase the competitiveness of the industrial sector Government funding to mega strategic projects amidst global crisis

WEAKNESS

No historical performance to support manufacturing business record of the company

STRENGTHS

Strategic relationship with SABIC to provide technical and marketing assistance Relative proximity to the emerging markets in Asia Access to inexpensive feedstock Considered one of the world’s largest petrochemical complexes

Cost of Equity: 12.13% WACC: 7.82%

Risks and Concerns:

The prevailing economic slowdown has tightened liquidity across most economies in the GCC. Lower oil prices have proved detrimental to the budget surpluses enjoyed by the regional governments till last year. Consequently, mobilisation of funds towards infrastructure projects has been adversely impacted, leading to a further slowdown in overall economic activity. In addition, weak economic growth has negatively impacted the demand across sectors, thereby restricting consumer spending. Consequently, the region’s economies will likely witness slower/negative growth during 2009 despite some improvements during the second half of the year. Furthermore, as demand for petrochemicals is heavily dependent on the overall economic growth, companies might witness restrained revenue growth. The prices of petrochemical products are mainly determined by the demand/supply scenario and tend to follow the global price trends for crude oil and natural gas, which form the basic raw materials. Therefore, any significant dip in crude oil and natural gas prices might lead to lower price realisations for petrochemical products, whereas at the same time, lower input costs might help improve operating margins as well. Valuation Methodology: We have used the DCF valuation method to arrive at the fair value of Yansab, as discussed below: Assumptions:

(i) Risk free Rate (Rf) of 3.19%, equivalent to one year average yield on 10 year US T-bill. (ii) Levered Beta of 1.26 (iii) A terminal growth rate of 2%

Based on the inputs and the Capital Asset Pricing Model (CAPM), we have arrived at a Cost of Equity of 12.13% and a WACC of 7.82%.

DCF Calculations DCF Valuation (FCFF Model)

(in SAR Million) 2009E* 2010E 2011E 2012E 2013E 2014E Operating Profit (EBIT) 39.54 1,180.56 1,620.96 1,944.51 2,286.35 2,663.25 Zakat on EBIT 1.31 39.17 53.78 64.52 75.86 88.36 Effective Tax Rate 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% NOPAT 38.23 1,141.39 1,567.18 1,879.99 2,210.49 2,574.89 Add: Depreciation and Amortisation 88.31 425.64 450.30 474.52 501.21 528.30 Less: Capex 462.85 683.16 684.33 702.35 783.82 805.86 Less: Change in Net Working Capital 58.92 442.72 215.95 261.89 187.05 224.65 Operating Free Cash Flows to Firm (OFCFF) -395.23 441.15 1,117.20 1,390.28 1,740.83 2,072.68 Free Cash Flow to Firm (FCFF) -395.23 441.15 1,117.20 1,390.28 1,740.83 2,072.68 WACC (Ko) (%) 7.82% 7.82% 7.82% 7.82% 7.82% 7.82% Present Value / Discount Factor 0.9631 0.8932 0.8285 0.7684 0.7127 0.6610 Long-Term Growth Rate (g) (%) 2.00% Terminal Multiple [(1 + g) / (WACC - g)] 17.53 Nominal Terminal Value [(FCFF * (1 + g)) / (WACC - g)] 36,342.48 Present Value of Free Cash Flows -380.64 394.05 925.57 1,068.30 1,240.68 1,370.09

*2009E excludes 1H09A

Calculation of Equity Value and Fair Value Per Share NPV of Free Cash Flows (during Explicit Forecast Period) 4,618.05 Terminal Value: Residual Cash Flow (FCFF of 2014E) 2,072.68 WACC 7.82% Long-Term Growth Rate (g) 2.00% Divided by Capitalisation Rate (WACC - g) 0.06 Equals Nominal Terminal Value 36,342.48 Implied Multiple of 2014E EBITDA 11.39 Times PV/ Discount Factor 0.66 Present Value of Terminal/Residual Value 24,023.09 Enterprise Value 28,641.14 Implied Multiple of 2014E EBITDA 8.97 Less: Long-term Debts 13,355.64 Less: Market Value of Preferred Shares 0.00 Add: Surplus Cash and Investments 0.00 Equity Value 15,285.50 No. of Outstanding Shares (Million) 562.50 Fair Value Per Share (SAR) 27.17

* figures in SAR Million unless specified

Sensitivity Analysis We have prepared a sensitivity analysis table, showing the probable nominal terminal value, discounted terminal value and enterprise value, given different growth rate assumptions and the WACC. The shaded area represents the most probable outcomes.

Sensitivity Analysis of Nominal Terminal Value (SAR Million) Discount

Factor Long-Term Growth Rate

1.00% 1.50% 2.00% 2.50% 3.00% 5.82% 43,456 48,729 55,384 64,044 75,778 6.82% 35,986 39,565 43,887 49,209 55,927 7.82% 30,707 33,302 36,342 39,955 44,317 8.82% 26,779 28,751 31,012 33,630 36,699 9.82% 23,742 27,044 27,044 29,034 31,316

Sensitivity Analysis of Discounted Terminal Value (SAR Million)

Discount Factor

Long-Term Growth Rate 1.00% 1.50% 2.00% 2.50% 3.00%

5.82% 31,841 35,705 40,581 46,926 55,524 6.82% 25,038 27,529 30,535 34,239 38,913 7.82% 20,298 22,013 24,023 26,411 29,294 8.82% 16,825 18,064 19,484 21,130 23,058 9.82% 14,185 16,158 16,158 17,347 18,710

Sensitivity Analysis of Enterprise Value (SAR Million)

Discount Factor

Long-Term Growth Rate 1.00% 1.50% 2.00% 2.50% 3.00%

5.82% 37,226 41,089 45,965 52,311 60,908 6.82% 30,225 32,715 35,722 39,426 44,099 7.82% 25,297 27,012 28,641 31,410 34,293 8.82% 21,645 22,884 24,304 25,949 27,877 9.82% 18,835 20,808 20,808 21,996 23,360

Investment Opinion The expansion of petrochemical sector remains highly dependent on the demand pattern for products, which in turn is reliant on the macroeconomic health. The petrochemicals sector witnessed healthy growth during 2008, as sound economic growth registered by economies worldwide kept the demand for petrochemical products at a high level. At the same time, price realisations followed an upward trajectory leading to record top and bottom-line growth for the companies operating in the sector. However, towards the later part of 2008, the sector witnessed slower growth as demand for petrochemicals plunged as a result of the economic slump. The slowdown across the world economies driven by multiple factors including the subprime mortgage crisis and declining oil prices, amongst others, have been instrumental in pulling down the demand for petrochemical products. The prices of basic petrochemicals such as ethylene, butadiene, propylene, styrene, and benzene all slumped to at least three-year lows. Even China, which continues to be one of the largest consumers of petrochemicals, was no exception and witnessed negative demand growth for the first time in 10 years. As the impact of the economic crisis widened, the petrochemicals sector became more prone to shut-downs of production facilities and delays in capacity addition plans. In addition to this, the sector has also been abuzz with merger and acquisition talk. However, there has been a reversal in the prices of crude oil and natural gas. The OPEC crude increased from USD 35.58 per bbl at the start of the year to USD 67.15 per bbl as of October 02, 2009. The prices for polypropylene, polyethylene and benzene have all witnessed sequential improvements in 2Q09. While polypropylene prices reported a 24.4% sequential gain, polyethylene price improved 17.4% in 2Q09 compared to the previous quarter. The price of benzene gained the maximum rising 80.6% in 2Q09 on a sequential basis. This is expected to lead to a gradual improvement in earnings of the companies operating in this sector. Yansab holds the advantage in terms of owning an integrated petrochemical complex with a total capacity of 4 mpta covering a wide variety of products including ethylene, propylene, ethylene glycol and polyethylene amongst others. Besides this, the company has a strong backup of SABIC, which holds nearly 56% stake in the company and provides it with essential feedstocks at a discounted rate and financial support. Furthermore, most of the Yansab’s petrochemical plants are nearing completion, with the full petrochemical complex expected to be fully operational by the end of the year. This is expected to benefit the company by gradually contributing to the top-line as these complexes attain optimum utilization. Despite all these, we believe the company’s stock price, which has already more than doubled (up 118.9%) since the start of the year heavily discounts the expected future earnings flow. In addition to this, operational challenges associated with start-up facilities, along with delays in commencement of production is likely to hinder earnings growth. Accordingly, we recommend an exit strategy at the current level. As Yansab is yet to start full-fledged operations, its low earning base translates into an exceptionally high P/E multiple of 764.74x on 2009E and 21.00x on 2010E earnings, and a P/B multiple of 3.18x and 2.73x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has outperformed the index by increasing 118.9% since January as against a gain of 30.8% by the Tadawul All Share Index. Considering the above factors, we arrive at a price target of SAR 27.17, which exhibits a potential downside of 16.1% from its closing price of SAR 32.40 (as on Oct 05, 2009). Accordingly, we initiate our coverage on Yanbu National Petrochemical Co. with an UNDERWEIGHT recommendation.

Fair Value: SAR 27.17 Investment Opinion: UNDERWEIGHT

Financial Statements Consolidated Balance Sheet

(in SAR Million) 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E ASSETS Non-current assets Capital work in progress 12,987.31 17,105.25 14,715.92 18,003.93 0 0 0 Plant, property & equipment 0 0 0 0 18,544.05 19,619.60 20,718.30 Pre-operating expenses 200.00 200.00 200.00 200.00 200.00 171.43 142.86 Deferred charges 132.67 121.13 126.90 115.36 110.09 105.41 98.05 Other non-current assets 14.42 34.01 31.12 31.28 32.34 40.33 48.71 Total non-current assets 13,334.40 17,460.40 15,073.95 18,350.58 18,886.47 19,936.77 21,007.92 Current assets Cash and cash equivalents 1,694.30 1,033.03 1,106.68 927.79 960.49 1,004.26 1,087.91 Receivables 155.49 76.79 0 0 47.05 451.28 604.94 Advances to suppliers and other receivables 125.10 99.07 213.77 184.34 205.86 238.23 270.77 Inventory 0 7.81 0 259.07 288.21 332.44 376.76 Total current assets 1,974.88 1,216.69 1,320.45 1,371.20 1,501.61 2,026.21 2,340.37 Total Assets 15,309.28 18,677.09 16,394.40 19,721.78 20,388.08 21,962.98 23,348.29 LIABILITIES AND EQUITY Liabilities Non-current liabilities Term loans 8,165.86 11,128.31 9,788.71 11,998.36 12,560.71 12,814.99 13,317.43 Term loans from shareholder 0 0 0 465.00 465.00 465.00 465.00 Employees end of service benefits 48.67 80.83 64.76 81.29 83.43 87.43 94.09 Total non-current liabilities 8,214.53 11,209.14 9,853.47 12,544.65 13,109.14 13,367.41 13,876.52 Current liabilities Accounts payable 104.96 63.11 75.20 45.39 67.31 391.11 502.57 Accruals and provisions 1,267.28 1,039.18 521.94 557.42 525.28 510.95 484.81 Current portion of long term loans 0.00 668.74 234.34 892.28 963.20 1,015.64 1,056.36 Total current liabilities 1,372.24 1,771.02 831.48 1,495.09 1,555.80 1,917.70 2,043.73 Total liabilities 9,586.77 12,980.16 10,684.95 14,039.74 14,664.94 15,285.12 15,920.25 Equity Share capital 5,625.00 5,625.00 5,625.00 5,625.00 5,625.00 5,625.00 5,625.00 Statutory reserve 14.03 14.03 14.03 14.03 16.41 103.21 228.24 Retained earnings 83.48 57.89 70.42 43.00 81.72 949.66 1,574.80 Equity attributable to equity holders of the Company 5,722.51 5,696.92 5,709.45 5,682.03 5,723.14 6,677.86 7,428.04 Total liabilities & equity 15,309.28 18,677.09 16,394.40 19,721.78 20,388.08 21,962.98 23,348.29

Consolidated Income Statement (in SAR Million) 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E Revenues NA NA NA NA 855.42 7,521.33 9,306.82 Cost of sales NA NA NA NA -707.43 -5,599.55 -6,835.76 Gross profit NA NA NA NA 148.00 1,921.78 2,471.06 General & administration -83.21 -25.59 -13.06 -14.89 -35.04 -315.58 -399.80 Depreciation & amortization 0 0 0 0 -88.31 -425.64 -450.30 Operating income -83.21 -25.59 -13.06 -14.89 24.65 1,180.56 1,620.96 EBITDA -83.21 -25.59 -13.06 -14.89 112.96 1,606.20 2,071.26 Other income 196.84 0 0 0 0 0 0 Finance costs 0 0 0 0 0 -282.85 -327.76 (Loss)/ income before zakat 113.63 -25.59 -13.06 -14.89 24.65 897.72 1,293.20 Zakat -3.77 0 0 0 -0.82 -29.79 -42.91 Net (loss)/ income for the period 109.86 -25.59 -13.06 -14.89 23.83 867.93 1,250.29 Adjusted EPS 0.20 -0.05 -0.05* -0.05* 0.04 1.54 2.22

* Annualized

Consolidated Cash Flow Statement (in SAR Million) 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E Cash Flow From Pre-Operating Activities Net (Loss)/income for the period before zakat 113.63 -25.59 -13.06 -14.89 24.65 897.72 1,293.20 Adjustments for: Provision for employees end of terminal benefits 27.20 21.37 20.30 5.93 11.59 15.30 19.53 Depreciation & amortization 0 0 0 0 88.31 425.64 450.30 Finance costs 0 0 0 0 0 282.85 327.76 Working capital changes Inventory 0 -7.81 0.00 -251.27 -280.41 -44.23 -44.32 Receivables -280.58 104.73 66.82 -8.48 -77.05 -436.61 -186.20 Payables 1,372.24 -269.95 -775.10 -499.48 -509.69 309.46 85.32 Cash from pre-operating activities 1,232.48 -177.25 -701.05 -768.19 -742.60 1,450.13 1,945.58 Employees end of terminal benefits paid -8.67 -0.27 -4.20 -5.47 -8.99 -11.30 -12.86 Zakat paid -3.77 0.00 0.00 0.00 -0.82 -29.79 -42.91 Net Cash from Pre-operating Activities 1,220.04 -177.52 -705.25 -773.65 -743.42 1,420.34 1,902.68 Cash Flow From Investing Activities Capital work in progress -12,987.31 -4,106.40 -1,722.84 -892.91 -892.91 0 0 Additions to plant, property & equipment 0 0 0 0 -462.85 -683.16 -684.33 Pre-operating expenses -200.00 0 0 0 0 28.57 28.57 Deferred charges -132.67 0 0 0 11.05 4.67 7.36 Other non current assets -14.42 -19.59 -16.70 2.73 1.67 -7.99 -8.38 Net Cash flows from (used in) Investing Activities -13,334.40 -4,126.00 -1,739.55 -890.18 -1,343.04 -657.91 -656.78 Cash Flow From Financing Activities Issue of share capital 5,625.00 0 0 0 0 0 0 Transaction costs -12.35 0 0 0 0 0 0 Proceeds from term loans 8,165.86 3,631.19 1,857.19 1,093.59 1,548.92 -435.82 -834.48 end of service benefits transferred to the company 30.14 11.07 0 0 0 0 0 Term loans from shareholder 0 0 0 465.00 465.00 0 0 Finance costs 0 0 0 0 0 -282.85 -327.76 Net Cash flows from Financing Activities 13,808.66 3,642.25 1,857.19 1,558.59 2,013.92 -718.67 -1,162.25 Net change in cash & cash equivalents 1,694.30 -661.27 -587.61 -105.24 -72.54 43.77 83.65 Cash & cash equivalents balance, Beginning of period 1,694.30 1,694.30 1,033.03 1,033.03 960.49 1,004.26 Cash & cash equivalents balance, End of period 1,694.30 1,033.03 1,106.68 927.79 960.49 1,004.26 1,087.91

Common – Size Statements

Common-Size Consolidated Balance Sheet 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E ASSETS Non-current assets Capital work in progress 84.8% 91.6% 89.8% 91.3% 0.0% 0.0% 0.0% Plant, property & equipment 0.0% 0.0% 0.0% 0.0% 91.0% 89.3% 88.7% Pre-operating expenses 1.3% 1.1% 1.2% 1.0% 1.0% 0.8% 0.6% Deferred charges 0.9% 0.6% 0.8% 0.6% 0.5% 0.5% 0.4% Other non-current assets 0.1% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Total non-current assets 87.1% 93.5% 91.9% 93.0% 92.6% 90.8% 90.0% Current assets Cash and cash equivalents 11.1% 5.5% 6.8% 4.7% 4.7% 4.6% 4.7% Receivables 1.0% 0.4% 0.0% 0.0% 0.2% 2.1% 2.6% Advances to suppliers and other receivables 0.8% 0.5% 1.3% 0.9% 1.0% 1.1% 1.2% Inventory 0.0% 0.0% 0.0% 1.3% 1.4% 1.5% 1.6% Total current assets 12.9% 6.5% 8.1% 7.0% 7.4% 9.2% 10.0% Total Assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% LIABILITIES AND EQUITY Liabilities Non-current liabilities Term loans 53.3% 59.6% 59.7% 60.8% 61.6% 58.3% 57.0% Term loans from shareholder 0.0% 0.0% 0.0% 2.4% 2.3% 2.1% 2.0% Employees end of service benefits 0.3% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% Total non-current liabilities 53.7% 60.0% 60.1% 63.6% 64.3% 60.9% 59.4% Current liabilities Accounts payable 0.7% 0.3% 0.5% 0.2% 0.3% 1.8% 2.2% Accruals and provisions 8.3% 5.6% 3.2% 2.8% 2.6% 2.3% 2.1% Current portion of long term loans 0.0% 3.6% 1.4% 4.5% 4.7% 4.6% 4.5% Total current liabilities 9.0% 9.5% 5.1% 7.6% 7.6% 8.7% 8.8% Total liabilities 62.6% 69.5% 65.2% 71.2% 71.9% 69.6% 68.2% Equity Share capital 36.7% 30.1% 34.3% 28.5% 27.6% 25.6% 24.1% Statutory reserve 0.1% 0.1% 0.1% 0.1% 0.1% 0.5% 1.0% Retained earnings 0.5% 0.3% 0.4% 0.2% 0.4% 4.3% 6.7% Equity attributable to equity holders of the Company 37.4% 30.5% 34.8% 28.8% 28.1% 30.4% 31.8% Total liabilities & equity 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Common-Size Income Statement 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E Revenues NA NA NA NA 100.0% 100.0% 100.0% Cost of sales NA NA NA NA -82.7% -74.4% -73.4% Gross profit NA NA NA NA 17.3% 25.6% 26.6% General & administration NA NA NA NA -4.1% -4.2% -4.3% Depreciation & amortization NA NA NA NA -10.3% -5.7% -4.8% Operating income NA NA NA NA 2.9% 15.7% 17.4% EBITDA NA NA NA NA 13.2% 21.4% 22.3% Other income NA NA NA NA 0.0% 0.0% 0.0% Finance costs NA NA NA NA 0.0% -3.8% -3.5% (Loss)/ income before zakat NA NA NA NA 2.9% 11.9% 13.9% Zakat NA NA NA NA -0.1% -0.4% -0.5% Net (loss)/ income for the period NA NA NA NA 2.8% 11.5% 13.4%

Financial Ratios 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E Liquidity Ratios: Current Ratio (x) 1.44 0.69 1.59 0.92 0.97 1.06 1.15 Quick Ratio (x) 1.44 0.68 1.59 0.74 0.78 0.88 0.96 Profitability Ratios: Return on Average Equity (RoAE) (%) 1.9 -0.4 -0.5* -0.5* 0.4 14.0 17.7 Return on Average Assets (RoAA) (%) 1.0 -0.2 -0.2* -0.2* 0.1 4.1 5.5 Leverage Ratios: Debt to Equity (D/E) Ratio (x) 1.43 2.07 1.76 2.35 2.44 2.14 2.00 Shareholders' Equity to Total Assets Ratio (x) 0.37 0.31 0.35 0.29 0.28 0.30 0.32 Total Liabilities to Total Assets Ratio (x) 0.63 0.69 0.65 0.71 0.72 0.70 0.68 Current Liabilities to Equity Ratio (x) 0.24 0.31 0.15 0.26 0.27 0.29 0.28 Growth Rates: % YoY Growth in Revenues NA NA NA NA NA NM 23.7 % YoY Growth in Operating Profit NA NA NA NA NA NM 37.3 % YoY Growth in EBITDA NA NA NA NA NA NM 29.0 % YoY Growth in Net Profit NA NA NA NA NA NM 44.1 % YoY Growth in Total Assets 116.2 22.0 39.7 20.3 9.2 7.7 6.3 % YoY Growth in Shareholders' Equity -0.5 -0.4 -0.5 -0.5 0.5 16.7 11.2 Ratios used for Valuation: Adj. EPS (SAR) 0.20 -0.05 -0.05 -0.05 0.04 1.54 2.22 Adj. BVPS (SAR) 10.17 10.13 10.15 10.10 10.17 11.87 13.21 P/E Ratio (x) 165.90 -712.25 -697.63 -611.95 764.74 21.00 14.58 P/BV Ratio (x) 3.18 3.20 3.19 3.21 3.18 2.73 2.45 Current Market Price (SAR)** 32.40 32.40 32.40 32.40 32.40 32.40 32.40

* Annualized ** Current Market Price as on October 05, 2009

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