TURKEY - PETKM - Company Update: Cost Savings Factored
In
With this report, we incorporate potential cost
savings for Petkim due to i) naphtha imports from Iraq (US$25mn) as of 2013;
and ii) SOCAR’s power plant (US$25mn) as of 2015, into our valuation model. We
also align our assumption of contributions from SOCAR refinery with the
management guidance, raising our forecast by US$25mn to US$100mn by 2017.
Petkim shares have gained 50% in value over the last 4-month period (in US$
terms) and outperformed the MSCI Europe Chemicals Index by 31% (also the
ISE-100 by 32%). Despite having revised our target price from TRL2.50 up to
TRL3.24 per share, we attach HOLD (L/T) and MARKETPERFORM (S/T) ratings to the
stock, given the limited upside potential left following the recent
upswing.
Substantial 2013E EBITDA growth… Following the 90% yoy fall in 2012 to US$7mn due to
weak petrochemical margins, we expect the EBITDA to grow to US$148mn in 2013 on
higher product margins, volume growth, as well as cost savings from naphtha
imports from Iraq and natural gas supply from SOCAR.
Near term multiples not attractive… Petkim shares trade at 11.7x EV/EBITDA and 21.7x P/E
on our 2013 estimates, well above respective global peer averages of 7.1x and
11.1x.
Major risks… Given that 58% of our target price is derived from potential cost
savings out of new projects, execution risk is the key pitfall, in our view.
Higher/lower-than-expected cost savings from the projects;
stronger/weaker-than-expected product margins; and the pace of demand recovery
in Europe and China are other significant risk factors.
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