Şirket Analiz - PETKM

TURKEY – PETKM – Company Update: Margin Support From Firmer Prices; Upgraded to BUY - OUTPERFORM

BUY (L/T) OUTPERFORM (S/T)

We upgrade Petkim to BUY (L/T) and Outperform (S/T), considering the recovery noted in petrochemical margins as of Jan’12, as well as Petkim’s 18% underperformance since our downgrade to HOLD on Nov 1. The stock, for which our TRL2.86/share target price implies 36% upside, is trading at 9.2x 2013E P/E, at 6% discount to int’l peers.

Petrochemical prices recovering -- Global petrochemical prices have been rebounding from their trough in Dec’11, underpinned by growing demand with the inception of the Chinese New Year, and a better PMI reading in China as of Jan’12. The US$30-120/tonne (3-10%) rise in thermoplastics prices mom as of Jan’12 is estimated to have offset the mom jump in naphtha prices to US$973/tonne levels. Accordingly, our synthetic petrochemical margin estimate, derived from various thermoplastics and ACN produced by the Company, is up 4% to US$278/tonne mom as of Jan’12. Provided that this margin improvement is sustained, we would expect a sequentially higher 1Q12 EBITDA margin performance from Petkim, possibly within the 4-5% range.

Restriction on imports from Iran -- The Ministry of the Economy will reportedly propose to the Cabinet a 7% additional excise tax on low density polyethylene (LDPE) imports from Iran, based on an application by Petkim, of whose revenues LDPE constitutes 27%. LDPE imports from Iran have increased from 5K tonnes in 2006 to 40K tonnes in 2010, representing 9% of the total market vs. Petkim’s 46% market share in LDPE. Additional taxes potentially levied on Iranian petrochemicals should alleviate the risk of a surge in imports from this country, given EU sanctions on Iranian petrochemicals to take effect on July 1, 2012.

Dividends finally forthcoming -- We expect Petkim to pay out 50% of its 2012E profit in dividend, implying 4% dividend yield.

Risks -- Contraction in petrochemical margins; potential postponement of Socar-Turcas Energy refinery investment; additional increase in natural gas prices; and overhang risk associated with the 10% Petkim stake sale of the PA are the key risk factors facing Petkim shares.