EMEA Petrochemicals: a better neighbourhood in a tough market (initiating on Sipchem with a BUY and Borouge with a HOLD)

We initiate coverage of two Middle Eastern petrochemicals companies: Sahara International Petrochemical Company (Sipchem), from Saudi Arabia, with a BUY rating and a price target (PT) of SAR 45.1; and Borouge, from Abu Dhabi, with a HOLD rating and a PT of AED 2.69. The markets are in a slump after the record high margins in 2021, but these companies stand out from many of their peers through having access to cheap feedstock and low-cost energy. They also both make a higher-value mix of products than many of their peers. They are well placed to expand, based on the growing production of feedstock in their home markets, and the Borouge 4 project should be completed in in 2025E. Possible overinvestment in the industry and the war on plastics are clouds on the horizon, but the current margins may slow investments and these markets are among the least impacted. We prefer Sipchem on valuation grounds and its higher dividend yield, while Borouge needs a sector recovery, in our view.