• Net income beats on FX gains, but volumes likely weak Despite a solid bottom- line beat (+24% above our forecastvs EFGe) we were slightly disappointed by the 1Q2016 operational figures reported by Sidpec last Thursday (28 April). While PE prices dropped a marginal 2% Q-o-Q, revenues fell 15% to EGPF629 million (+16% Y-o-Y) and missed our forecasts by 8%, likely on lower-than-expected volumes. The higher revenue Y-o-Y is due to a low base in 1Q2015, when the company shutdowns its complex for maintenance. Full financials are not yet available, but we believe the bottom- line beat was likely driven by FX gains following the devaluation during in the quarter, as it the company holds a portion of its cash in USD. Volumes are likely to recover in 2Q2016 and with prices rallying strongly from 1Q2016 levels, the short-termST outlook is positive for the stock. We maintain our Buy rating.
• Gross profit below forecast, but margin better -than -expected Gross profit missed our forecasts by 8%, but only fell 11% Q-o-Q as better margins softened the impact of the reduced revenues. The gGross margins improved to 32.9% from 31.4% in 4Q2015, partially driven by base effect as the previous quarter included a retroactive adjustment in feedstock costs. Margins were higher than our 31.4% forecast as cash costs were below our expectations. We had conservatively assumed a USD1/mmBTU feedstock cost increase for 2016, given the lack of clarity on where the actual price would be set after feedstock prices were increased in 4Q2015, but it appears the feedstock increase was slightly below our expectations.
• 2Q outlook is much better as prices and, volumes should recover We expect a significant improvement in 2Q16 as prices have already recovered by 5-6% and demand has improved substantially, which should drive a recovery in volumes in the next quarter. We are more wary of 2H2016, when the majority of PE supply expected to come online in 2016 will hit the market, although any price pressure from this could be offset by improved oil prices if the market reaches balance before the end of the year. We expect a significant improvement in 2Q2016 as prices have already recovered by 5-6% and demand has improved substantially, which should drive a recovery in volumes next quarter. We are more wary of 2H2016, when the majority of PE supply due to come on this year will hit the market, although any price pressure from this could be offset by improved oil prices if the market reaches balance before the end of the year.

Yousef Husseini