Braskem: Unlocking Value in a Petrochemical Powerhouse

A Compelling Turnaround Story (ref BAK $4.14)

In the wake of our comprehensive analysis on Brazil, we turn our attention to a select group of stocks that have repeatedly tested investor patience, leading many to abandon hope. At the forefront of this discussion stands Braskem, aptly dubbed the "King of them All" in the Brazilian corporate landscape. This petrochemical giant embodies both the challenges and potential of Brazil's industrial sector.

Braskem's story is one of resilience amidst adversity, a narrative that mirrors Brazil's own economic journey. Despite facing numerous headwinds, from industry cyclicality to environmental concerns, Braskem remains a cornerstone of South American industry, with global reach and influence.

Before delving into Braskem's intricacies, it's worth noting that we won't rehash the Brazilian Real (BRL) risk for foreign investors in this analysis. We've previously addressed the BRL's valuation in depth here. To summarize succinctly: the BRL is currently undervalued and unlikely to pose a significant drag on investment returns.

Lets first start with the 60 seconds pitch.

We want to talk to you about Braskem. We think it's a buy for the following five reasons:

• Market leader in petrochemicals with dominant positions in key markets.

• Turnaround story with new management implementing cost reduction and efficiency initiatives.

• World leader in bio-based polyethylene, positioned to capitalize on growing demand for sustainable materials.

• Trading at a significant discount to both intrinsic value and industry peers.

• Petrochemical spreads expected to improve in 2025, benefiting Braskem's profitability.

The stock is trading at $4.14. We think, in the next 2-3 years, it will trade at $13 in our base case, representing over 300% upside. This valuation is based on a conservative 5x EV/EBITDA multiple applied to 2026/2027 EBITDA estimates.

The key risks are:

• Environmental liabilities related to the Alagoas geological disaster.

• Commodity price volatility impacting margins.

• Complex ownership structure, political and regulatory environment creating uncertainty.

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Executive Summary

Braskem, the largest petrochemical company in the Americas and a global leader in biopolymers, presents a compelling investment opportunity despite facing significant challenges. As a dominant player in key markets with a diversified product portfolio and global presence, Braskem is well-positioned to capitalize on industry recovery and emerging trends in sustainable materials.

Key Investment Highlights:

• Market Leadership: Braskem's dominant position provides significant scale advantages, enhancing bargaining power, operational efficiencies, and innovation capabilities.

• Diversified Portfolio: A broad product range spanning polyethylene, polypropylene, PVC, and bio-based resins, combined with global operations across Brazil, USA, Mexico, and Europe, offers resilience against regional fluctuations.

• Operational Turnaround: Under new management led by CEO Roberto Prisco Paraiso Ramos, Braskem is implementing cost reduction initiatives, operational efficiency improvements, and strategic investments in high-return projects.

• Sustainability Pioneer: As a world leader in bio-based polyethylene production, Braskem is at the forefront of the growing demand for sustainable materials, with plans to expand its green product offerings and production capacity.

• Industry Recovery: Petrochemical spreads are expected to improve in 2025, benefiting Braskem's profitability as demand growth outpaces supply additions and capacity rationalization occurs globally.

• Financial Flexibility: Despite high debt levels, Braskem maintains a strong liquidity position with proactive debt management strategies and cash reserves covering debt maturities for the next 52 months.

• Attractive Valuation: Trading at a significant discount to both intrinsic value and industry peers, Braskem offers substantial upside potential for investors.

Key Risks:

• Environmental Liabilities: Ongoing challenges related to the Alagoas geological disaster, requiring significant provisions and remediation efforts.

• Commodity Price Volatility: High sensitivity to fluctuations in oil prices and petrochemical spreads, impacting profitability.

• Complex Ownership Structure: Uncertainty surrounding the potential sale of Novonor's controlling stake and Petrobras' future role in the company.

• Political and Regulatory Risks: Exposure to evolving regulations across multiple jurisdictions, particularly in Brazil.

Growth Strategies:

• Traditional Business Optimization: Selective high-return investments in capacity expansion and decarbonization initiatives.

• Leveraging Leadership in Green Polyethylene: Expanding bio-based production globally and diversifying the sustainable product portfolio.

• Recycling Value Chain Development: Targeting 1 million tons of products with recycled content per year by 2030 through investments in mechanical and chemical recycling facilities.

Target Price (2026-2027):
Base case of $13 per ADR (>300% upside), with a bull case of $25 per ADR (600% upside).

Braskem offers asymmetric upside potential for investors willing to navigate short-term volatility and industry challenges. The company's strategic positioning, operational improvements, and commitment to sustainability create a unique opportunity to invest in a global leader at a compelling valuation. With multiple catalysts on the horizon, including industry recovery, successful turnaround execution, and potential strategic partnerships, Braskem is well-positioned to deliver substantial returns to patient shareholders.