Source of
opportunity
We reiterate our
Sell rating on Petkim with a new price target of TRY1.50 (from TRY1.63) due to
our lower estimates following the 2Q results and updating our timeline for its
new projects after some delays. While Petkim is trying to implement several
projects to improve its efficiency, and the new STAR refinery (due in 2016) is
likely to contribute synergies, we expect its overall margins and returns to
remain low, ranking fourth-quartile (Q4) relative to the global chemicals peers
or our Turkish non-financials coverage. With the valuation not compelling, we
reiterate our Sell rating.
Catalyst
In the coming
years, we believe Petkim will face rising capex as it tries to expand some of
its facilities. The completion of the Socar-Turcas (STAR) refinery (which we do
not expect to come online before 2016) is likely to bring significant synergies
(we assume c.TRY100 mn pa), however as the timeline is far out, we believe it
is unlikely to be priced into the current share price. In addition, this
refinery coming on stream is likely to coincide with the US adding significant
petrochemical capacity on the back of shale gas revolution there, shifting the
global cost curve for basic petrochemicals, which would put the profitability
of European and NE Asian high-cost producers like Petkim most at risk.
Valuation
We value Petkim
on a mid-cycle global chemicals EV/EBITDA of 8.0x applied to our new 2013
estimate. We discount this by 20% to 6.4x to reflect Petkim’s Q4 CROCI to
derive our new 12-month price target of TRY1.50.
Key risks
The key risk to our investment case would be a stronger-than-expected
global GDP recovery, which would lead to a stronger-than-expected rise in
petrochemical prices and expansion of naptha-crack margins.
Goldman
Sachs Global
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