by Zacks
Celanese has a strong growth strategy with growth in Asia as a key factor. There is $400 million of free cash flow per year primarily focused on share repurchase. Higher pricing on continued strong global demand for Acetyl Intermediates products, positive currency impacts, growth in Asia supported by the company s new acetic acid unit in Nanjing, China, as well as sales of Industrial Specialties from the acquired Acetate Products Limited are driving the
company sales. In addition, the company has leadership positions in oligopolistic markets that have solid fundamentals. As a result, we rate the shares a Buy with a target of $43.00.
OVERVIEW
Celanese is a large American chemical company based in Dallas, Texas. The company produces chemicals, fibers, pharmaceuticals, and plastics, such as the thermoplastic cellulose acetate used to manufacture cigarette filters. Celanese is the world's largest producer of acetyl products, including acetic acid, vinyl acetate monomer, and polyacetals. Their largest plant in Pasadena, Texas, is home to the world's largest acid production unit. The company concentrates in four different business segments targeting the consumer and industrial products market: Chemical Products, Ticona, Acetate Products and Performance Products. Celanese is one of the lowest-cost producers of key building block chemicals,
such as acetic acid and VAM, in the acetyls chain. Celanese s goal is to grow at 2x GDP. The company continues to enhance its substantial position in Asia by sales expansion, marketing, manufacturing and research capabilities in the region. Asia s contribution
to company profit expects to go up from 30% to more than 50% by 2010. China is responsible for 30 35% of earnings growth. Celanese is one of a very few companies operating a large-scale chemical plant independently. The company will continue to expand its sales in China, adding new capacity in the chemical business and in performance plastics. The company s newly integrated chemical complex in Nanjing, China, will entail an investment of $300 350 million. The company completed more than 80% of the construction at the new chemical complex by the end of 2007. The acetic acid and emulsions units at
the complex are now under operation and commercial sales are underway. The acetic acid facility has a capacity of 600,000 tons, which is expandable to 1.2 million tons with relatively minor investments. The company expects to generate $600 800 million of revenue and $120 150 million of EBITDA profit annually. When fully operational, the Nanjing chemical complex will include production facilities for other acetyl products, acetic anhydride, and vinyl acetate monomer, as well as facilities for emulsions, polymer production and compounding. Recently, the company entered into a long-term supply agreement with Wison to secure availability of a critical raw material, carbon monoxide (CO), to support future expansion
at its Nanjing chemical complex. The agreement, which will double CO supply in Nanjing, is expected to support company growth beyond 2010. Moreover, the company is aligned with China s National Tobacco Company for the production of acetate filter tow for cigarettes. China is one of the few regions in the world exhibiting any real growth (3.0 3.5% per year) in this segment. Although acetic acid, VAM, and acetate tow are all commodity products, Celanese will operate in an environment removed from the many competitive challenges present outside China. At the new European POM facility, the company plans to expand capacities by 40%. About 95% of Celanese s products have a number one or two market position. The commodity chemical segment comprises approximately 70% of sales revenue. CE has 30% of the world s acetic acid production, which uses methanol as a raw material. In acetic acid, Celanese has 25% of the market, and the top 2 players have 50% of the world market. Fundamentals in acetic acid and VAM should be strong through 2009 despite Celanese s start up of the Nanjing chemical complex in China in 2008. Celanese is the world s largest VAM producer, with facilities in NA, Europe and Asia. Celanese forecasts
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