ALPEK, SAB DE CV Positive 1Q15 Results Above Our Estimates

Equity Research ALPEK, S.A.B. DE C.V. Petrochemicals April 23, 2015

Positive 1Q15 results above our estimates; BUY for Patient Investors; Increasing TP to MP 22.3 BUY

Last Price: MP 20.06 Figures in millions of pesos ALPEK High Liquidity Target Price 2015: MP 22.3 11% Return 2013 2014 2015e 2016e

■ Positive 1Q15 results above our estimates, we expect in the short-term a Sales 90,061 86,072 71,807 73,958 positive reaction on Alpek’s shares. Notwithstanding that, we project a EBITDA 4,950 5,578 6,559 7,539 Margin 5.5% 6.5% 9.1% 10.2% higher oil average price (Brent) for 2015 of 59 USD/bl from 56 USD/bl. Growth YoY -19% 12.7% 17.6% 14.9% This crude price increment will rise sales and EBITDA. Net Profit 262 801 1,542 2,127 Margin 0.3% 0.9% 2.1% 2.9% ■ The low oil price led the company to report a 16% sales drop to USD 1.3 Growth YoY -92.9% 205.9% 92.5% 38.0% billion in 1Q15 (11% above our estimates). We are increasing our sales EPS MP 0.12 MP 0.38 MP 0.73 MP 1.00 estimates for 2015/2016 by 5%/3% derived from our aforementioned Total Assets 58,128 65,371 69,037 76,707 higher expected oil price. Cash 4,737 5,744 5,460 7,200 Total Liabilities 31,040 35,527 37,217 42,760 ■ EBITDA grew 30% to USD 137 million in 1Q15, excluding the sale of Debt 14,509 15,993 16,642 16,797 Polioles EBITDA would have grown 6% to USD 111 million (14% above Equity 27,088 29,845 31,820 33,947 our projections) mainly due to higher crude prices, because of this, we Majority 24,018 25,949 27,560 29,407 are rising our EBITDA estimates for 2015/2016 by 4%/3%. Multiples EV/Sales 0.6x 0.7x 0.8x 0.8x ■ EPS slightly increased 4% to USD 0.01 mainly due to the contribution of EV/EBITDA 11.2x 10.2x 8.8x 7.5x the sale of Polioles. P/E 162.3x 53.1x 27.6x 20.0x ■ The company has a healthy balance sheet where accounts receivable, ROE 0.9% 2.8% 5.0% 6.5% ROA 0.4% 1.3% 2.3% 2.9% suppliers and inventories are stable and within the historical average. Net Debt/ EBITDA 2.0x 1.8x 1.7x 1.3x Dividend Yield 9.5% 0.2% 1.0% 0.0% Increasing our TP to MP 22.3/ share, from having MP 20.5 Market Data: We are raising our TP to MP 22.3/ share partly based on our new oil price Mkt. Cap (mn) MP 39,500 estimate (Brent) for 2015 of 59 USD/bl from our previous estimate of 56 USD/bl. Firm Value (mn) MP 55, 872 The other reason to the TP incremental is our new higher sales and EBITDA 1yr. High—low MP 15.53—MP 27.04 estimates as explained above. We factored-in the variables into our DCF model to Float 18% get our new TP (please refer to our DCF on page 3). ALPEK vs IPC (Apr. 2014 = 100) In the table below, we present the impact on EBITDA with different oil price assumptions which translates into a target price range from USD 18.50 to 22.50. 110 Oil Price 2015e EBITDA TP Return Rating (USD/bl) (USD) (MP) (%) 90 65 516 $ 22.50 12% Buy 62 506 $ 21.90 9% Buy

Jun

Apr Aug Oct Dec 59 496 $ 21.20 6% Buy Feb

- -

14 14

15 14 56 487 $ 20.50 2% Buy 14 53 477 $ 19.80 -1% Hold 50 467 $ 19.20 -4% Hold ALPEK IPC 47 457 $ 18.50 -8% Sell

ALPEK’s main risks are: i) oil price volatility; ii) Chinese competitors flooding the Federico Robinson Bours PTA/PET market and lowering prices; iii) slower-than-expected synergies from the Enrique Camargo Delgado opening of basic petrochemicals in Mexico. Energy, Petrochemicals & Industrials  [email protected] INCOME STATEMENT (USD million) 1Q15 1Q14 Chg.  [email protected]  +52 (55) 1103 6600 x 4127 x 1836 Sales 1,321 1,576 -16% 137 105 30% Actinver EBITDA Corporate Headquarters EBITDA Margin 10.4% 6.7% Guillermo González Camarena 1200 EPS 0.01 0.01 4% 11th Floor, Centro Ciudad Santa Fe México, D.F. 01210

Equity Research 1 ALPEK, S.A.B. de C.V. EBITDA vs EBITDA margin (Figures in Millions of Pesos) Income Statement 2015E 2016E 2015E 2016E 2,500 12% Sales 71,807 73,958 (17%) 3% 2,000 9% Cost of Sales (65,447) (67,080) (18%) 2% 1,500 Gross Profit 6,360 6,878 1% 8% 1,000 6% Gross Margin 8.9% 9.3% General Expenses (2,835) (2,883) 11% 2% 500 3% Profit Before Other Income and Expenses 3,525 3,995 (7%) 13% 0 Margin 4.9% 5.4% 0%

-500 Operating Profit 4,045 4,155 8% 3%

1Q13 2Q13 3Q13 1Q14 2Q14 4Q14 1Q15 4Q13 3Q14

2Q15e 3Q15e 1Q16e 2Q16e 4Q16e 3Q16e -1,000 4Q15e -3% Operating Margin 5.6% 5.6% Depreciation and Amortization (2,515) (3,385) 37% 35% EBITDA EBITDA Margin EBITDA 6,559 7,539 18% 15% * EBITDA in million pesos EBITDA Margin 9.1% 10.2% Financial Gain 153 151 13% (2%) Financial Cost (1,176) (924) (28%) (21%) EPS Interests Paid (701) (659) (11%) (6%) 0.40 Pre-Tax Profit 2,965 3,324 35% 12% Taxes and Profit Sharing (926) (997) 5% 8% 0.20 Tax and Profit Sharing Rate 31.2% 30.0% Net Profit Before Minorities 2,040 2,327 55% 14% 0.00 Minority Interest (498) (200) (3%) (60%) Net Profit 1,542 2,127 93% 38% -0.20 N° of Shares 2,118 2,118 0% 0% Average N° of Shares 2,118 2,118 0% 0% -0.40 EPS MP 0.73 MP 1.00 93% 38% Balance Sheet 2015E 2016E 2015E 2016E -0.60 TOTAL ASSETS 69,037 76,707 6% 11% Current Assets 30,797 36,472 (0%) 18%

Cash and Temporary Investments 5,460 7,200 (5%) 32%

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 1Q13 4Q14 1Q15

2Q15e 3Q15e 4Q15e 1Q16e 2Q16e 3Q16e 4Q16e Accounts Receivable 9,465 11,036 (3%) 17% * Pesos per share % of Sales 13% 15% 16% 13% Inventories 10,898 11,825 (5%) 9% % of COGS 17% 18% 2.3x Net Debt / EBITDA (x) TOTAL LIABILITIES 37,217 42,760 5% 15% 2.1x Current Liabilities 14,066 16,377 (2%) 16% 1.9x Suppliers 7,616 7,865 (23%) 3% 1.7x % of COGS 12% 12% Long Term Liabilities 23,151 26,383 9% 14% 1.5x Bank Loans 1,875 1,895 3% 1% 1.3x TOTAL DEBT 16,642 16,797 4% 1% 1.1x NET DEBT 11,182 9,597 9% (14%) TOTAL CAPITAL 31,820 33,947 7% 7% 0.9x Shareholder's Equity 27,560 29,407 6% 7% 0.7x Minority Interest 4,260 4,540 9% 7% 0.5x Cash Flow Statement 2015E 2016E 2015E 2016E PRE-TAX PROFIT 2,965 3,324 35% 12%

Investment Activity Related Items 2,278 3,331 (12%) 46%

3Q13 1Q15 4Q12 1Q13 2Q13 4Q13 1Q14 2Q14 3Q14 4Q14 Financing Activities 685 606 (14%) (12%) Pre-Tax Cash Flow 7,420 8,888 37% 20% Working Capital Changes (231) (1,726) (119%) 649% Brent USD/bl Cash Flow from Operations 7,189 7,161 9% (0%) Cash Flow from Investment (6,654) (4,932) 51% (26%) 120 Cash Flow from Financing (873) (490) (42%) (44%) 110 Net Incr. (Decr.) in Cash and T.I. (338) 1,740 (150%) (615%) 100 Net Cash and T.I. Beginning of Period 5,744 5,460 21% (5%) 90 Net Cash and T.I. End of Period 5,460 7,200 (5%) 32% Source: Actinver 80 70 60 50

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

4Q15e 4Q16e 2Q15e 3Q15e 1Q16e 2Q16e 3Q16e

Equity Research 2 ALPEK, S.A.B. de C.V. Discounted Cash Flow Model (2016 - 2020E) Millions of Pesos 2016E 2017E 2018E 2019E 2020E Perp. EBIT 4,155 4,446 4,699 4,840 4,937 5,036 Effective Tax rate 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Tax Effect On EBIT (1,246) (1,334) (1,410) (1,452) (1,481) (1,511) NOPLAT 2,908 3,112 3,289 3,388 3,456 3,525 Depreciation 3,385 3,892 4,437 5,014 5,616 6,177 Working Capital Changes (1,726) (1,761) (1,796) (1,832) (1,869) (1,887) CAPEX (3,324) (2,659) (2,766) (2,876) (2,962) (3,051) FCFE 1,243 2,584 3,165 3,694 4,240 4,763 Perpetuity Growth Rate 3.0% Present Value of Explicit Period (2015 - 2019E) 11,258 Perpetuity Value 84,590 Present Value of Perpetuity Value 51,475 Theoretical Firm Value 62,732 Net Debt 11,182 Minority Interest 4,260 Theoretical Market Value 47,290 Number of shares (Mn) 2,118 Theoretical Price / Share $ 22.3 Current Market Price $ 20.06 Potential Return 11% Average Cost of Debt 5% Long Term Tax Rate 30.0% After-Tax Cost of Debt 3.5% Cost of Capital 11.2% Market Risk Premium 5.5% Risk Free Rate + Country Risk Premium 6.0% Beta 0.94 % Total Debt 33% % Capital 67% WACC 9% Source: Actinver

Equity Research 3 Equity, Economic, Quantitative and Fixed Income Research Departments

Equity Research

Gustavo Terán Durazo, Head of Equity Research (52) 55 1103-6600 x1193 [email protected] CFA Senior Analysts Telecommunications, Media and Martín Lara (52) 55 1103-6600 x1840 [email protected] Financials

Carlos Hermosillo Bernal Consumption (52) 55 1103-6600 x4134 [email protected]

Pablo Duarte de León FIBRAs (REITs) (52) 55 1103-6600 x4334 [email protected]

Mining, Metals, Paper and Pablo Abraham Peregrina (52) 55 1103-6600 x1395 [email protected] Conglomerates

Ramón Ortiz Reyes Cement, Construction and Concessions (52) 55 1103-6600 x1835 [email protected]

Federico Robinson Bours Energy, Chemicals and Industrial (52) 55 1103-6600 x4127 [email protected] Carrillo Junior Analysts Telecommunications, Media and Juan Enrique Ponce Luiña (52) 55 1103-6600 x1693 jponce@actinver,com.mx Financials

Enrique Octavio Camargo Energy, Chemicals and Industrial (52) 55 1103-6600 x1836 [email protected] Delgado

José Antonio Cebeira Consumption (52) 55 1103-6600 x1394 [email protected] González

Mining, Metals, Paper Conglomerates, Mauricio Arellano Sampson (52) 55 1103-6600 x1835 [email protected] Cement, Construction and Concessions

Laura Elena Bosch Ramírez FIBRAs (REITs) (52) 55 1103-6600 x4136 [email protected]

Economic and Quantitative Research

Head of Economic and Quantitative Ismael Capistrán Bolio [email protected] Research (52) 55 1103-6600 x6636

Jaime Ascencio Aguirre Economy and Markets (52) 55 1103-6600 x1100 [email protected]

Santiago Hernández Morales Quantitative Research (52) 55 1103-6600 x4133 [email protected]

Roberto Galvan González Technical Research (52) 55 1103-6600 x5039 [email protected]

Fixed Income Research

Araceli Espinosa Elguea Head of Fixed Income Research (52) 55 1103-6600 x6641 [email protected]

Roberto Ramírez Ramírez Fixed Income Research (52) 55 1103-6600 x1672 [email protected]

Jesús Viveros Hernández Fixed Income Research (52) 55 1103-6600 x6649 [email protected]

Raúl Márquez Pardinas Fixed Income Research (52) 55 1103 6600 x1110 [email protected]

Equity Research 4 Disclaimer

Guide for recommendations on investment in the companies under coverage included or not, in the Mexican Stock Exchange main Price Index (IPC)

 Buy. The stock’s total return is expected to exceed the total return of the IPC index in the current year.  Neutral. The stock’s total return is expected to be in line with the total return of the IPC index in the current year.  Sell. The stock’s total return is expected to be below the total return of the IPC index in the current year.

Important Statements a) Of theAnalysts:

“The analysts in charge of producing the Analysis Reports: Jaime Ascencio Aguirre; Mauricio Arellano Sampson; Laura Elena Bosch Ramírez; Enrique Octavio Camargo Delgado; Ismael Capistrán Bolio; José Antonio Cebeira González, Pablo Enrique Duarte de León; Araceli Espinosa Elguea; Roberto Galván González; Carlos Hermosillo Bernal; Santiago Hernández Morales; Martín Roberto Lara Poo; Raúl Márquez Pardinas; Ramón Ortiz Reyes; Pablo Abraham Peregrina; Juan Enrique Ponce Luiña; Federico Robinson Bours Carrillo; Gustavo Adolfo Terán Durazo; Jesús Viveros Hernández, declare”:

1. "All points of view about the issuers under coverage correspond exclusively to the responsible analyst and authentically reflect his vision. All recommendations made by analysts are prepared independently of any institution, including the institution where the services are provided or companies belonging to the same financial or business group. The compensation scheme is not based or related, directly or indirectly, with any specific recommendation and the remunerationis only received from the entity which the analysts provide their services. 2. "None of the analysts with coverage of the issuers mentioned in this report holds any office, position or commission at issuer’s under his coverage, or any of the people who are part of the Business Group or consortium to which they belong. They have neither held any position during the twelve months prior to the preparation of this report. " 3. "Recommendations on issuers, made by the analyst who covers them, are based on public information and there is no guarantee of their assertiveness regarding the performance that is actually observed in the values object of the recommendation" 4. "Analysts maintain investments subject to their analysis reports on the following issuers: AC, ACTINVR, AEROMEX, ALFA, ALPEK, ALSEA, AMX, ARA, ASUR, AUTLAN, AXTEL, AZTECA, BACHOCO, BOLSA, CEMEX, CHDRAUI, COMER, FEMSA, FINDEP, GAP, GSANBO, GFINTER, GFNORTE,, GFREGIO, GISSA, GMEXICO, GRUMA, HCITY, HERDEZ, ICA, ICH, IENOVA, KOF, LALA, LAMOSA, LIVEPOL, MASECA, MAXCOM, MEGACABLE, MEXCHEM, OHLMEX, OMA, POCHTEC, QUALITAS, SANMEX, SIMEC, SORIANA, SPORTS, TLEVI and WALMEX..

b) On Actinver Casa de Bolsa, S.A. de C.V. Grupo Financiero Actinver

1. Actinver Casa de Bolsa, S.A. de C.V. GrupoFinanciero Actinver, under any circumstance shall ensure the sense of the recommendations contained in the reports of analysis to ensure future business relationship.

2. All Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver business units can explore and do business with any company mentioned in documents of analysis. All compensation for services given in the past or in the future, received by Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver by any company mentioned in this report has not had and will not have any effect on the compensation paid to the analysts. However, just like any other employee of Actinver Group and its subsidiaries, the compensation being enjoyed by our analysts will be affected by the profitability gained by Actinver Group and its subsidiaries. 3. At the end of each of the previous three months, Actinver Casa de Bolsa, SA de C.V. Actinver Financial Group, has not held any investments directly or indirectly in securities or financial derivatives, whose underlying are Securities subject of the analysis reports, representing one percent or more of its portfolio of securities, investment portfolio, outstanding of the Securities or the underlying value of the question, except for the following: * AMXL, AEROMEX, BOLSA A, FINN 13, FSHOP 13, SMARTRC14. 4. Certain directors and officers of Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver occupy a similar position at the following issuers: AEROMEX, MASECA, AZTECA, ALSEA, FINN, MAXCOM, SPORTS, FSHOP, and FUNO. This report will be distributed to all persons who meet the profile to acquire the type of values that is recommended in its content.

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Equity Research 5