EKH plans to add new 700k-sheet production line in SPREA MISR

Government sources said the Egypt Kuwait Holding (EKH) plans to add another production line in its SPREA MISR company with a capacity of 700,000 sheets towards the end of 2019.

They added that the plant’s exports currently stand at 28% and the company plans to increase this ratio beyond 30% of production.

SPREA MISR was founded in 1989 and acquired by EKH in 2007. It was developed into one of the largest manufacturers and exporters of petrochemicals and plastics in Egypt.

The sources added that EKH is close to expand Kahraba’s power generation capacity to 115MW by 2020.

The company’s main focus will now be on electricity distribution to benefit from excess power generation in Egypt. EKH aims to reach 385MW of distribution capacity by 2022, which should represent just 1% market share.

It is to be noted that electricity distribution is a low-margin business compared to generation. Hence, EKH’s strategy will be more of a volume-play, and blended gross margins for Nat Energy will fall from current levels of 40% to 25-30%.

Pharos Research view that EKH has two options to de-risk the exploration process and maximize value, first (Fast track), that the company can make a partial exit from ONS then use the proceeds to drill an exploratory well in the deep layer.

The second option (Conservative track), The results of an exploratory well drilled at Noor, a neighboring concession, showed gas finds in the same layer where ONS is also hoping to have gas.An appraisal well will now be drilled at Noor, and the results should be announced by March 2020. EKH is opting to wait for the appraisal well results before drilling an exploratory well at ONS. If gas is found, this will increase the probability of recovery at ONS’ deep layer from 30% to at least 60%, enabling the company to sell a stake in ONS at a premium, and mitigate the dilution effect of a partial exit.

Pharos Research expects $21-22m net profits for the company by the end of 2019 (only accounting for the 250 bcf production profile).