Sidi Kerir Petrochemicals Co. (SKPC) produces ethylene and polyethylene (PE) through processing the Western Desert ethane/propane (E/P) mixture. Exaggerated hikes of feedstock costs and cheaper polyethylene have been eroding SKPC’s operating margins over the last seven years. After PE prices continued to weaken SKPC’s performance in H1 2019, the stock price implied an EV/ton of USD851 vs. USD4,193 for its 20%-owned Egyptian Ethylene & Derivatives Co.’s (ETHYDCO) based on its investment cost in 2011. We see the EGP/USD rate significantly impacting SKPC’s operating income in the near future. We initiate coverage on the stock with a Neutral / High Risk rating and a 12M PT of EGP12.0/share (+20%).
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