Erste rates Turkey’s Petkim ‘Accumulate’ on investment plans

22 April 2013 14:21  [Source: ICIS news]

LONDON (ICIS)--Erste Group Bank has reinitiated coverage of sole major Turkish petrochemical producer Petkim with an ‘Accumulate’ recommendation, citing the major ‘supersite’ investment plans of the company that should drive earnings, the bank said on Monday.

Petkim, owned by the State Oil Company of the Azerbaijan Republic (SOCAR), is investing approximately $10bn (€7.6bn) in creating a petrochemical supersite, complete with its own 10m tonne/year refinery for feedstock and container port to complement ambitious export plans, on a peninsula in Aliaga, near Izmir on western Turkey’s Aegean coast.

In an analysis of the company’s prospects, Erste analyst Tamas Pletser said: “Petkim is moving away from being a volatile petrochemical producer. We believe that due to the investments, Petkim will lower its costs and could generate positive earnings even at the bottom of the cycle.

“Moreover, the [container port project named] Petlim changes the profile of the group, making the earnings less volatile and increasing the exposure towards Turkey’s GDP performance,” he added.

The planned refinery could produce higher-quality naphtha feedstock, with lower sulphur and more stable paraffin content, for Petkim, with savings on freight and insurance cutting the company’s feedstock costs by $25/tonne, said Pletser.

The container port facility, named the Aegean Gateway Terminal and to be operated by APM Terminals, the port operating arm of Danish oil and shipping group A P Moller-Maersk, would allow Petkim to utilise its primary location, he added.

It would also enable Petkim to diversify into new business with APM, thus adding an estimated $90-100m to its annual earnings before interest, tax, amortisation and depreciation (EBITDA) after 2016, Pletser said.

The petrochemical complex, which across the next decade should more than triple Petkim’s petrochemical capacity to 10m/tonnes a year by 2023, would allow Petkim to produce more higher-value added products to offset competition from producers who use ethane as feedstock, Pletser also noted.

($1 = €0.76)

By: Will Conroy
+44 20 8652 3214

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