CEO of Chemopetrol commented the company's outlook for 2006 and 2007. According to him Chemopetrol should reach total revenues of CZK 33.11bn this year, up 11.9% in 2005, while net profit is seen at CZK 2.11bn this year, 17.1% decline y/y. This guidance doesn't count with the potential shutdown of the ethylene cracker in October. Long-term shutdown of main production units next year will also have negative impact on profits, however, they are needed ahead of planned capacity extensions. The CEO said, Chemopetrol plans CAPEX of CZK 6.76bn in the period of 2007-2010, mainly in petchem division. The major investment would be the increase of ethylene capacity from of 485,000 tons to 544,000 tons planned for September 2007, which could boost revenues and profits going forward.
Our view: In our model on Chemopetrol we have expected CZK 34.17bn revenues and CZK 2.56bn net profit from the company. Since Chemopetrol's own figures are 3.1% and 17.6% lower, respectively, we tend to consider the news negatively. Although we can imagine that the CEO revealed a conservative guideline in order to provide some room to exceed, the difference to our net profit forecast and the company's expectation is quite significant. Although we cannot rule out that the difference in forecasts is due to our different ethylene and polymer price scenarios for 2H06, we have a suspicion that another factor could cause it. As crude oil prices seemingly stabilized in the US$ 70-76 per barrel range, Chemopetrol will likely lose its cost advantage due to a two months time lag in raw material purchases. Although we have calculated this impact, we might have underestimated its importance. We expect slight negative market reaction to the news.