Sidpec just reported its 1Q18 results highlights with operational earnings seeing a massive drop (gross profit -37% Q-o-Q) and coming in below our expectations. The decline in operational earnings was mainly driven by a shutdown at the company’s PE plant which commenced around mid-March till the beginning of April, according to ChemOrbis.  We highlight that our forecasts did not account for the shutdown as it was not announced by the company, though we did highlight to investors last week (see attached) that we saw downside risks to our numbers after reading about a possible shut down from ChemOrbis (we were unable to reach management for conformation at the time).

Despite the noticeable improvement in product prices (HDPE: +7% Q-o-Q, ethylene: +3% Q-o-Q), the company was not able to capitalize on that due to the shutdown. The company Y-o-Y numbers looks better, but we note that this is due to: i) base effect as the company was operating at very low utilisation rates in 1Q17; and ii) stronger prices across the board (HDPE: +14%, Ethylene: +11% Y-o-Y). 

Overall, a weak performance by Sidpec’s core operations with the plant appearing to operate at a 70-75% utilisation rates during 1Q18, which was far below expectations (EFGe: 100%), but we expect operating rates will return back to normal during 2Q18. We have a Neutral rating on Sidpec as valuation looks full on our numbers (2018 P/E of 10.6x, on the higher end of its historical range) but we note that we do see some potential upside to our forecasts if oil prices sustained above USD75/bbl. 

Sidi Kerir: EGP31.84 as of 9 May. 2018, Rating: Neutral, TP: EGP30.00/share, MCap: USD940mn, SKPC EY/SKPC.CA


Yousef Husseini