1Q14 review: Earnings in line with our estimate; Maintain Hold
`
Jouf Cement KSA Cement Sector | 1Q 2014 Preliminary Results | April 21, 2014
1Q14 review: Earnings in line with our estimate; Maintain Hold
Rating Summary Recommendation
1Q14 net profit in line with our estimate: Jouf Cement reported 1Q14 net profit of
HOLD
Target price (SAR)
18.2
Upside/ (downside)
2%
SAR15m (+144% qoq, -40% yoy) which is bang in line with our estimate and c.15% higher than consensus. However, operational performance is slightly better than expected; while
Stock Details
cement volume was c.4% ahead and revenues c.5% lower, gross profit/operational profit
Closing price*
(EBIT) was c.5%/3% ahead of our expectation primarily on stronger EBITDA margins (c.50% vs. 60-67% for mature KSA peers).
Market capitalization
SAR
17.8
SAR mn
2,319
Mn
130
Shares outstanding 52-Week High
SAR
19.4
Volume recovery partial but could take longer than peers to reach normalized levels:
52-Week Low
SAR
16.9
The company recorded a monthly run rate of 110k tons of cement sales in 1Q14 which would
Price chg. (3 months)
mean c.+38% from Nov low and c.+15% qoq (1Q14 sector wide monthly volume run rate
EPS 2014E
+32% from Nov low, +14% qoq) implying partial volume recovery. Going forward, while we
Ticker (Reuters/ Bloomberg)
expect cement volumes to improve over the coming quarters, Jouf‟s volume recovery could
*Price as of April 20, 2014
take longer than peers as cement volume is still down c.26% yoy (vs. -8% yoy for the sector).
Key Shareholding (%)
Financial profile not as attractive as peers; dividends could be under pressure: Unlike
%
1.4
SAR
0.68
3091.SE
JOUF AB
Public
52.6 5.0
KSB Capital
many KSA peers, Jouf does not have a strong B/S with Net Debt at SAR696m (51% gearing)
Other investors
and Net Debt/EBITDA at 5.8x (KSA peers 0.5x). While it does not have ST debt repayment
Source: Tadawul
42.4
issue (ST debt SAR64m, cash SAR144m), the key issue is weak cash flows in 2014–15E that could pressurize dividend payments (no dividend in 2013). Between 2014–15E, annual
Key Ratios
operational cash flow is estimated at c.SAR204m, while capex and debt repayment is
2014E
2015E
estimated at c. SAR190m and c.SAR130m, respectively. This implies even after using its
P/E (x)
26.4
17.3
cash reserves of SAR144m, the company would hardly have spare cash to pay dividends.
EV/EBITDA (x)
18.6
13.1
0.0
0.0
Most expensive in KSA cement space; trades at 2014E P/E of 26.4x (vs. peers 14.6x); Maintain Hold: Jouf Cement is the most expensive stock in the KSA cement space, trading
Dividend yield (%)
Source: Company, Saudi Fransi Capital analysis
at 2014E P/E of 26.4x (vs. peers 14.6x). Furthermore, the current price implies close to full utilization of current capacity (SAR14.0/share) and capex (c.SAR4.2/share, already incurred) for Line 2 for which the company has not yet received fuel allocation.
Stock price movement vs. TASI 150 140
90
80
Jouf Cement
Apr-14
Mar-14
Jan-14
Feb-14
Dec-13
Oct-13
Nov-13
Sep-13
Jul-13
Aug-13
70 Jun-13
improvement in financial profile. At a steady state, it could generate an additional cash flow of
100
Apr-13
capacity could be worth SAR11.1/share (+c.60% to our TP), it would also lead to a significant
110
May-13
allocated, substantial value could be unlocked. In a blue sky scenario, not only the new
120
Mar-13
which should start by the end of 2014. While fuel has not been allocated yet, in case it is
130
Jan-13
Cement‟s equity story lies in fuel allocation to the new capacity (1.6mtpa, c.100% of current)
Feb-13
Fuel allocation to new capacity could unlock value and improve financial profile: Jouf
TASI
SAR230mn/year which could be used for paying dividends or expansions. Source: Tadawul SAR mn
Volume („000 tons)
1Q14A
1Q14E
%diff
Cons*
%dev
4Q13
%qoq
1Q13
%yoy
330
317
4%
Na
Na
287
15%
448
-26%
Revenues
69
73
-5%
76
-8%
60
15%
100
-31%
Gross Profit
26
25
5%
Na
Na
17
51%
36
-28%
EBITDA (est)**
35
32
9%
Na
Na
15
131%
44
-22%
EBITDA Margin
50%
43%
EBIT
18
18
3%
Na
Na
8
116%
29
-37%
Net Profit
15
15
1%
13
15%
6
144%
25
-40%
25%
44%
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus**estimated from available disclosure
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Jouf Cement KSA Cement Sector | 1Q 2014 Preliminary Results | April 21, 2014
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Jouf Cement KSA Cement Sector | 1Q 2014 Preliminary Results | April 21, 2014
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Jouf Cement KSA Cement Sector | 1Q 2014 Preliminary Results | April 21, 2014
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the company that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC‟s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Jouf Cement KSA Cement Sector | 1Q 2014 Preliminary Results | April 21, 2014
1Q14 review: Earnings in line with our estimate; Maintain Hold
Rating Summary Recommendation
1Q14 net profit in line with our estimate: Jouf Cement reported 1Q14 net profit of
HOLD
Target price (SAR)
18.2
Upside/ (downside)
2%
SAR15m (+144% qoq, -40% yoy) which is bang in line with our estimate and c.15% higher than consensus. However, operational performance is slightly better than expected; while
Stock Details
cement volume was c.4% ahead and revenues c.5% lower, gross profit/operational profit
Closing price*
(EBIT) was c.5%/3% ahead of our expectation primarily on stronger EBITDA margins (c.50% vs. 60-67% for mature KSA peers).
Market capitalization
SAR
17.8
SAR mn
2,319
Mn
130
Shares outstanding 52-Week High
SAR
19.4
Volume recovery partial but could take longer than peers to reach normalized levels:
52-Week Low
SAR
16.9
The company recorded a monthly run rate of 110k tons of cement sales in 1Q14 which would
Price chg. (3 months)
mean c.+38% from Nov low and c.+15% qoq (1Q14 sector wide monthly volume run rate
EPS 2014E
+32% from Nov low, +14% qoq) implying partial volume recovery. Going forward, while we
Ticker (Reuters/ Bloomberg)
expect cement volumes to improve over the coming quarters, Jouf‟s volume recovery could
*Price as of April 20, 2014
take longer than peers as cement volume is still down c.26% yoy (vs. -8% yoy for the sector).
Key Shareholding (%)
Financial profile not as attractive as peers; dividends could be under pressure: Unlike
%
1.4
SAR
0.68
3091.SE
JOUF AB
Public
52.6 5.0
KSB Capital
many KSA peers, Jouf does not have a strong B/S with Net Debt at SAR696m (51% gearing)
Other investors
and Net Debt/EBITDA at 5.8x (KSA peers 0.5x). While it does not have ST debt repayment
Source: Tadawul
42.4
issue (ST debt SAR64m, cash SAR144m), the key issue is weak cash flows in 2014–15E that could pressurize dividend payments (no dividend in 2013). Between 2014–15E, annual
Key Ratios
operational cash flow is estimated at c.SAR204m, while capex and debt repayment is
2014E
2015E
estimated at c. SAR190m and c.SAR130m, respectively. This implies even after using its
P/E (x)
26.4
17.3
cash reserves of SAR144m, the company would hardly have spare cash to pay dividends.
EV/EBITDA (x)
18.6
13.1
0.0
0.0
Most expensive in KSA cement space; trades at 2014E P/E of 26.4x (vs. peers 14.6x); Maintain Hold: Jouf Cement is the most expensive stock in the KSA cement space, trading
Dividend yield (%)
Source: Company, Saudi Fransi Capital analysis
at 2014E P/E of 26.4x (vs. peers 14.6x). Furthermore, the current price implies close to full utilization of current capacity (SAR14.0/share) and capex (c.SAR4.2/share, already incurred) for Line 2 for which the company has not yet received fuel allocation.
Stock price movement vs. TASI 150 140
90
80
Jouf Cement
Apr-14
Mar-14
Jan-14
Feb-14
Dec-13
Oct-13
Nov-13
Sep-13
Jul-13
Aug-13
70 Jun-13
improvement in financial profile. At a steady state, it could generate an additional cash flow of
100
Apr-13
capacity could be worth SAR11.1/share (+c.60% to our TP), it would also lead to a significant
110
May-13
allocated, substantial value could be unlocked. In a blue sky scenario, not only the new
120
Mar-13
which should start by the end of 2014. While fuel has not been allocated yet, in case it is
130
Jan-13
Cement‟s equity story lies in fuel allocation to the new capacity (1.6mtpa, c.100% of current)
Feb-13
Fuel allocation to new capacity could unlock value and improve financial profile: Jouf
TASI
SAR230mn/year which could be used for paying dividends or expansions. Source: Tadawul SAR mn
Volume („000 tons)
1Q14A
1Q14E
%diff
Cons*
%dev
4Q13
%qoq
1Q13
%yoy
330
317
4%
Na
Na
287
15%
448
-26%
Revenues
69
73
-5%
76
-8%
60
15%
100
-31%
Gross Profit
26
25
5%
Na
Na
17
51%
36
-28%
EBITDA (est)**
35
32
9%
Na
Na
15
131%
44
-22%
EBITDA Margin
50%
43%
EBIT
18
18
3%
Na
Na
8
116%
29
-37%
Net Profit
15
15
1%
13
15%
6
144%
25
-40%
25%
44%
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus**estimated from available disclosure
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Jouf Cement KSA Cement Sector | 1Q 2014 Preliminary Results | April 21, 2014
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Jouf Cement KSA Cement Sector | 1Q 2014 Preliminary Results | April 21, 2014
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Jouf Cement KSA Cement Sector | 1Q 2014 Preliminary Results | April 21, 2014
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the company that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC‟s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
