• Disappointing set of results as one-offs drive bottom-line losses Sahara Petrochemicals reported a loss of SAR48 million in 4Q2015, disappointing our forecasts (net income of SAR49 million) and Bloomberg consensus forecasts (SAR84 million). The losses were driven primarily by several one-offs including: i) write-downs in inventory; ii) lower earnings at 24%-owned SEPC due to provisions taken on product prices; iii) a SAR30 million one-off expense related to the company’s restructuring programme; and vi) foreign exchange losses. Earnings were also affected by lower prices this quarter (PE -8% Q-o-Q, PP –15%, Acrylic acid –18%, EDC -26%). While we were initially very negative on the results, it appears that the miss was driven mainly by the one-offs. We will review our forecasts and valuation, but maintain our Buy rating for now.
• Al Waha the main bright spot; one-offs main reason behind miss Al Waha’s revenues fell 14% Q-o-Q to SAR433 million (in line), while gross profit dropped 24% Q-o-Q to SAR117 million, 7% ahead of our forecasts on higher-than-expected margins. Al Waha was the main bright spot in the results, and it appears the plant’s operational issues are now behind us. Full financials are not yet available, but other income, which typically consists of investment income from SEPC, SAAC and SAMAPCO came in at SAR26 million, higher than our breakeven forecast. As such, we believe the earnings miss was driven mainly by i) the one-off expenses as other expenses came in at SAR125 million versus our SAR31 million forecast and ii) a surge in S,G,&A expenses, which jumped 98% Q-o-Q.
• Acrylates likely to remain a drag in 1H2016 Acrylic acid prices have been under severe pressure and have been driving substantial losses at Sahara’s 32%-owned subsidiary, SAAC. We expect this to continue to drag on Sahara’s earnings until the butanol plant starts operations (which we expect in 2H2016), which should reduce costs at the complex substantially. Although we still expect the project to generate some losses - given the poor pricing environment - this should drive a substantial earnings improvement, in our view.

Youssef Husseini