EUR 52.22 For Business Accounts Only

Stretched valuation; remain Underweight

Expensive; maintain Underweight. We raise our TP by c31% to reflect: i) c21% higher USD:EGP forecasts (average of 18.8 over 2018-22e), ii) c11% higher oil price estimates (average of cUSD62/bbl over 2018-22e), iii) c6% higher volume assumptions, and iv) rolling over our DCF. Against this, we raise: i) non-feedstock cash cost estimates by 2.5% and SG&A by 9.1%, and ii) WACC estimate by 45bps. AMOC’s share price rallied by c32% over 4Q17, which we find unjustified. AMOC trades on a FY18/19e EV/EBITDA of 7.1x, c24% above global peers despite the high capital costs in Egypt.

Cautious on mega investment plans. AMOC is due to announce its decision on the mega brownfield expansion in 1Q18, which aims to raise its refining ratio to 100% vs. the current c45%. We are cautious that, at the planned USD700-1,000mn capex spending, the project can hardly be value-accretive, unless it carries a cost saving potential or raises AMOC’s capacity. While the technical details have yet to be revealed, we estimate value accretion (an IRR of 15% or above, measured in EGP terms) from the new project to require a final output price that is c7-15% above the current selling price of AMOC’s value-added products. AMOC’s dividend potential could also be hit by the funding needs of the new mega investments.

Robust FY17/18e performance; sector developments may continue to drive positive sentiment in the short-run. Three factors can continue to keep sentiment positive and support the stock in the short-run: i) we expect AMOC’s FY17/18 EBITDA to jump by c65% y-o-y, driven by a combination of higher USD:EGP (+19.4% y-o-y) and oil price (+24% y-o-y). Meanwhile, operating performance should start to weaken only in 1Q18/19, ii) the government is undergoing sector-wide reforms, including: i) the liberalisation of the natural gas market, ii) repayments of late dues to IOCs, iii) plans to attract FDI and iv) offering stakes in oil companies, including AMOC, to the public, as well as v) an attractive dividend yield (9.1% in FY17/18e). Otherwise, every 5% higher/lower-than-expected USD:EGP, oil price and operating rate (base case is 107% over 5 years) assumptions p.a. increase/ reduce our TP by 9%, 7% and 9%, respectively, all else constant.