SK Advanced, Advanced Petrochemical's 30%-owned project, signed a JV agreement with PolyMirae Company to set up a polypropylene (PP) plant in South Korea. The plant PP design capacity is expected to come at 400 ktpa. Based on the release, the total cost of the project is estimated at USD420mn, which will be financed with 60% debt and 40% equity. It is worth noting that the new JV is expected to: i) begin construction in Jan 2019, which is subject to a final investment decision; and ii) start commercial operations by 2021. Regarding the feedstock of the plant, SK Advanced is expected to supply propylene (core feedstock of the project) on a long-term basis. Finally, we highlight that SK Advanced will have a 49.99% ownership in the new project.
 
We are positive on the announcement, given a very healthy operating environment for PP producers globally, with the market expected to tighten over the coming two years as demand growth outpaces supply additions. With that said, Advanced's effective ownership in the PP plant will be only c15%, implying that the project would boost the company's current PP production by less than 10%. As such, we do not expect the project to have a major impact on our target price, especially as margins in Asia are lower than those in Saudi Arabia, so returns for the project will be lower than has been the case for the Saudi Arabian assets. 

Yousef Husseini

  
Advanced: SAR52.70 as of 21 Jun. 2018, Rating: Buy, TP: SAR50.50/share, MCap: USD2,766mn, APPC AB/2330.SE