KEY THEMES
Abu Qir Fertilizers [ABUK] landed the shareholders agreement between ABUK as well as Helwan Fertilizers, and Al-Ahly Capital to inaugurate Misr Methanol & Petrochemicals with a nameplate capacity of 1mtpa of methanol in addition to 0.4mtpa of ammonia. The agreement dictates that ABUK’s stake in the project will be 35%. However, we note that ABUK owns already 17% in Helwan Fertilizers. We note that, Misr Methanol & Petrochemicals will have an authorized capital of USD200mn, and a paid-in capital of USD20mn. The project’s investment cost will be around USD2.6bn. Phase I of the project would cost alone USD1.6bn, with a target capacity of 1mtpa of methanol and 0.4mtpa of ammonia – all exportable. Phase II, on the other hand, would target capacity upgrades and potential involvement in methanol downstream activities.
The capital structure of the project suggests 70% of the investment cost would be financed through debt. The plant will be built over an area of c.1.6mn sqm in the Economic Zone of El-Sokhna Port. Management said the amount of natural gas required for operation has been approved by the Ministry of Petroleum. There’s a great possibility that Misr Methanol & Petrochemicals will obtain natural gas prices at USD4.5 per MMBtu, same as ABUK itself.
We note that, Methanex Egypt—the other main local methanol producer—pays for natural gas based on a pricing formula linked to global methanol prices. By way of background, Canada’s Methanex Corporation, back in 2008, decided to set up a methanol factory located in Damietta, Egypt with a production capacity of 1.3mtpa, primarily for supplying domestic and European markets using an approximate of 1.5mn cubic meters of natural gas annually, which implies an average consumption of natural gas per a methanol ton at c.33MMBtu. We will be keeping an eye out for any updates on the technical and financial feasibility for Misr Methanol & Petrochemicals to further assess the project potential.
ABUK is currently traded at 2021/22e P/E of 6.8x and EV/EBITDA of 8.2x. We remind you that we have an overweight recommendation on the name, with 12-month price target (12M PT) of EGP26/share, implying an upside potential of +36%. Key catalysts are: (1) liberalization of local urea prices, and (2) ABUK qualifying for the free zone status, and (3) any cut in natural gas prices by the Egyptian government, as a cut of USD1.0/MMBtu will add a 20% upside to our 12M PT.