MENA Petrochemicals: BGIger is better (upgrading Borouge to BUY and downgrading Sipchem to HOLD)

We have upgraded Borouge to BUY (from Hold), with an updated price target (PT) of AED 3.05 (from AED 2.69), and downgraded Sipchem to HOLD (from Buy), with an updated PT of SAR 19.6 (from SAR 45.1). Petrochemicals margins have remained resolutely depressed since the glory days of 2022 and we are not predicting a swift recovery. Global capacity expansions have created oversupply, but investment has slowed down and we expect growing demand to catch up in two-to-three years’ time. Borouge has agreed to a merger with Borealis and the acquisition of Nova, which will see the resultant company, Borouge Group International (BGI), become the fourth-largest polyolefins company worldwide. Meanwhile, both Borouge and Sipchem are investing heavily in expansions, which will see their leverage jump in the medium term, before delivering benefits later on. Even in times of low margins, both companies are consistent dividend payers. Based on our forecasts, Borouge is trading at a 2025E P/E of 18.4x and Sipchem at 21.2x, while the peer group median is 27.7x. We prefer Borouge, on more rapid growth, product differentiation and the benefits of the merger.