Turning more positive on strong earnings momentum expected this year. We are updating our estimates for Petkim to reflect strong pricing seen across all petrochemicals space in 1Q’2021. Platts petrochemical price index registered 27% increase in 1Q and its current level level is 47% above 4Q’2020 average. Meanwhile, Petkim’s feedstock price (naphtha) is also up c.30% YTD on the back of higher crude oil prices, but we still estimate nominal spreads and unit margins to be very strong especially in 1H’2021. Global markets, Europe in particular, are facing tight supply due to higher planned and unplanned outages and logistic bottlenecks with rising freight costs restricting trade volume from Asia to Europe, which also alleviates supply shortage. Under this outlook, Turkish prices are likely to stay firm as competitive threat from importers remain under control.
Naturally hedged against TL weakness. We believe Petkim would be a beneficiary of recent weakness in Turkish Lira with FX-denominated pricing and ability to export in case of weakness in domestic demand. Given already strong demand for healthcare and packaging material and cyclical rebound in global industrial activity, Petkim is likely to continue to operate at full capacity with no major maintenance planned in the near term. We therefore view c.12% decline in USD stock price since March 19 as an opportunity.
Estimate revisions and 1Q Preview: In 1Q’2021, we estimate Petkim to report TL916mn EBITDA (+20% q/q and almost +500% y/y on weak base) and TL563mn net income (vs. TL-13mn loss a year ago). We revised up our full-year EBITDA and Net Income estimates by 38% and 79% for 2021E, respectively. Our EBITDA estimate is now at the level of USD357mn, slightly higher than the company’s guidance of USD330-350mn range.
TP revised to TL7.50/share (previous: TL5.50/share). We set our new Target Price based on a target EV/EBITDA multiple of 6.5x for Petkim (vs. the stock’s historical average of 7.5x). We think the market could assign a lower multiple to the company for this year in anticipation of normalization in margins and we reflect this to our multiple-based valuation. We adjust net debt for pre-payments (about USD480mn) related to pending acquisition of Star Refinery stake, which is not currently finalized. We also include investment real estate assets at 30% discount to book value and arrive at a TP of TL7.50/share, which offers 25% upside as of last close. We upgrade our rating from Market Perform to Outperform.
Source: Y. F. Securities Research