Advanced Petrochemical Co. -Equity Report -10-07-2012

Q2 below expectations

Advanced Petrochemical Company (APC) reported a net profit of SAR53.9mn for Q2 2012, which was below our expectations (SAR59.9mn). Net profit declined by 65.4% y-o-y mainly on account of a steep decline in polypropylene prices and lower sales volume. Q2 performance was also affected by a scheduled maintenance shutdown for three weeks in May. As mentioned in our recent sector report (dated 25 June 2012), we expect product prices to remain under pressure as the global demand recovery is still not in sight and APC being a single-product company, could be affected from weak polypropylene prices. We await the detailed financial results before making changes in our estimates. For the moment, we remain Overweight on the stock with a target price of SAR29.8.

Valuation and Conclusion: Although APC has posted weak results in Q2 2012, we believe this is not on account of internal inefficiencies but has more to do with the steep decline in its product prices. Given the weak and uncertain global environment, we remain cautious on our outlook for APC for the next few quarters. For the moment, we remain Overweight on the stock with a target price of SAR29.8.