1Q15 review: Earnings ahead of SFC and consensus; Maintain Buy
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Najran Cement KSA Cement Sector | 1Q 2015 Preliminary Results | April 19, 2015
1Q15 review: Earnings ahead of SFC and consensus; Maintain Buy
Rating Summary
1Q15 net profit beats SFC/consensus estimates: Najran Cement reported 1Q15 net profit
Recommendation
Buy
Target price (SAR)
33.0
Upside/ (downside)
20%
of SAR92m (44% qoq, 71% yoy) which has beaten both SFC/consensus estimate by c.18%. Operational performance was also stronger than expected; while cement volume was c.6%
Stock Details
higher than our forecast, EBITDA/EBIT was c.14%/19% ahead. While no further details are
Closing price*
divulged at this stage, this potentially means either realized price or margin (or a combination of both) came in higher than our forecasts which we view positively. Management commentary also suggests that 1Q15 was devoid of any one-off charges unlike 4Q14 that
SAR
27.4
SAR mn
4,658
Mn
170
52-Week High
SAR
38.0
52-Week Low
SAR
24.7
Market capitalization Shares outstanding
was affected by organizational restructuring charges and 1Q14 that was affected by high cost
Price chg. (3 months)
of production from imported clinker.
EPS 2015E
We expect another strong year for cement volume in 2015 after an outperformance in
Ticker (Reuters/ Bloomberg)
2014: Najran recorded 1.2m tons of cement sales in 1Q15 which would imply c.79% yoy/c.20% qoq (vs. c.12% qoq/c.10% yoy for the sector) meaning Najran’s volume is trending
%
-5.6
SAR
2.12
3002.SE
NAJRAN AB
*Price as of April 18, 2015
ahead of sector average. Furthermore, while key consumption drivers (acute housing
Key Shareholding (%)
shortage, infrastructure deficiency and government initiatives) remain intact and given
Public
68.8
potential volume improvement across the sector (SFC est. c.6% yoy in 2015). we expect
Khaled Mohammed Al Barrak
13.1
Najran to maintain healthy sales momentum in 2015 (2014-16E volume CAGR c.14%).
Abdullah A.S Al Rajhi
12.4
Valuation seems undemanding; Maintain Buy: The company completed the construction of 6,500tpd 3rd clinker line in 3Q13 and increased capacity by c.72% to c.5mtpa. However, Aramco‟s refusal to supply fuel to the 3rd line implies the company would be unable to fully
5.7
Mohammed M.S. Aballala Source: Tadawul
Key Ratios
utilize the new capacity. While refusal to supply fuel is a negative, WHR project should
2015E
2016E
enable partial utilization of new capacity despite lack of fuel allocation. Ytd, after a c.2%
P/E (x)
12.9
11.9
decline in stock price (c.-3% Tadawul Cement), on our 2015E estimates (a largely
EV/EBITDA (x)
10.8
10.2
normalized year when WHR benefits would be fully visible), the stock trades at a P/E of 12.9x
Dividend yield (%)
3.6
4.6
(KSA Cement 2015E P/E 13.2x, GCC/MEA 13.4x and EM peers 13.7x) which we consider
Source: Company, Saudi Fransi Capital
undemanding especially in the context of earnings growth from increasing volumes. All in all, we maintain our Buy rating with an unchanged target price of SAR33.0/share.
Stock price movement vs. TASI
When and if it happens, fuel allocation to 3rd line can act as a catalyst: We believe the
210
company would continue negotiating with Aramco to secure fuel supply for 3rd line, but since
190
fuel allocation is a sector-wide issue, a concrete solution could take time. If Aramco decides to supply fuel to the new capacity, it could unlock significant value; according to our estimates, in a blue sky scenario, the potential unutilized capacity (c.60-65% of 3rd line and
170 150 130
110 90
c.25% total capacity) could be worth SAR 13.0/share (c.40% of our target price).
Volume (000tons)
1Q15A
1Q15E
% diff
Cons*
% dev
4Q14
% qoq
1Q14
1,177
6%
Na
Na
1,039
20%
696
79%
Na
247
Na
250
Na
219
Na
164
Na
Gross Profit
160
101
58%
Na
Na
90
77%
75
113%
EBITDA (est)**
138
121
14%
Na
Na
107
29%
90
53%
EBITDA Margin
Na
49%
Na
Na
49%
105
88
19%
85
24%
74
41%
62
70%
92
78
18%
78
18%
64
44%
54
71%
EBIT Net Profit
Najran
Jan-15
Mar-15
Dec-14
Jul-14
Oct-14
Jun-14
Sep-14
Apr-14
Jan-14
Feb-14
Oct-13
Nov-13
Jul-13
Aug-13
Apr-13
% yoy
1,245
Revenues
May-13
Jan-13
SAR mn
Feb-13
70
Tadawul Cement
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861
55%
AbdulAziz Jawdat [email protected] +966-11-2826856
Source: Company, Saudi Fransi Capital, * Bloomberg consensus, **estimated from available disclosure CONFIDENTIAL
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)
Najran Cement KSA Cement Sector | 1Q 2015 Preliminary Results | April 19, 2015
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.
CONFIDENTIAL
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)
Najran Cement KSA Cement Sector | 1Q 2015 Preliminary Results | April 19, 2015
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)
CONFIDENTIAL
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)
Najran Cement KSA Cement Sector | 1Q 2015 Preliminary Results | April 19, 2015
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)
CONFIDENTIAL
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)
Najran Cement KSA Cement Sector | 1Q 2015 Preliminary Results | April 19, 2015
1Q15 review: Earnings ahead of SFC and consensus; Maintain Buy
Rating Summary
1Q15 net profit beats SFC/consensus estimates: Najran Cement reported 1Q15 net profit
Recommendation
Buy
Target price (SAR)
33.0
Upside/ (downside)
20%
of SAR92m (44% qoq, 71% yoy) which has beaten both SFC/consensus estimate by c.18%. Operational performance was also stronger than expected; while cement volume was c.6%
Stock Details
higher than our forecast, EBITDA/EBIT was c.14%/19% ahead. While no further details are
Closing price*
divulged at this stage, this potentially means either realized price or margin (or a combination of both) came in higher than our forecasts which we view positively. Management commentary also suggests that 1Q15 was devoid of any one-off charges unlike 4Q14 that
SAR
27.4
SAR mn
4,658
Mn
170
52-Week High
SAR
38.0
52-Week Low
SAR
24.7
Market capitalization Shares outstanding
was affected by organizational restructuring charges and 1Q14 that was affected by high cost
Price chg. (3 months)
of production from imported clinker.
EPS 2015E
We expect another strong year for cement volume in 2015 after an outperformance in
Ticker (Reuters/ Bloomberg)
2014: Najran recorded 1.2m tons of cement sales in 1Q15 which would imply c.79% yoy/c.20% qoq (vs. c.12% qoq/c.10% yoy for the sector) meaning Najran’s volume is trending
%
-5.6
SAR
2.12
3002.SE
NAJRAN AB
*Price as of April 18, 2015
ahead of sector average. Furthermore, while key consumption drivers (acute housing
Key Shareholding (%)
shortage, infrastructure deficiency and government initiatives) remain intact and given
Public
68.8
potential volume improvement across the sector (SFC est. c.6% yoy in 2015). we expect
Khaled Mohammed Al Barrak
13.1
Najran to maintain healthy sales momentum in 2015 (2014-16E volume CAGR c.14%).
Abdullah A.S Al Rajhi
12.4
Valuation seems undemanding; Maintain Buy: The company completed the construction of 6,500tpd 3rd clinker line in 3Q13 and increased capacity by c.72% to c.5mtpa. However, Aramco‟s refusal to supply fuel to the 3rd line implies the company would be unable to fully
5.7
Mohammed M.S. Aballala Source: Tadawul
Key Ratios
utilize the new capacity. While refusal to supply fuel is a negative, WHR project should
2015E
2016E
enable partial utilization of new capacity despite lack of fuel allocation. Ytd, after a c.2%
P/E (x)
12.9
11.9
decline in stock price (c.-3% Tadawul Cement), on our 2015E estimates (a largely
EV/EBITDA (x)
10.8
10.2
normalized year when WHR benefits would be fully visible), the stock trades at a P/E of 12.9x
Dividend yield (%)
3.6
4.6
(KSA Cement 2015E P/E 13.2x, GCC/MEA 13.4x and EM peers 13.7x) which we consider
Source: Company, Saudi Fransi Capital
undemanding especially in the context of earnings growth from increasing volumes. All in all, we maintain our Buy rating with an unchanged target price of SAR33.0/share.
Stock price movement vs. TASI
When and if it happens, fuel allocation to 3rd line can act as a catalyst: We believe the
210
company would continue negotiating with Aramco to secure fuel supply for 3rd line, but since
190
fuel allocation is a sector-wide issue, a concrete solution could take time. If Aramco decides to supply fuel to the new capacity, it could unlock significant value; according to our estimates, in a blue sky scenario, the potential unutilized capacity (c.60-65% of 3rd line and
170 150 130
110 90
c.25% total capacity) could be worth SAR 13.0/share (c.40% of our target price).
Volume (000tons)
1Q15A
1Q15E
% diff
Cons*
% dev
4Q14
% qoq
1Q14
1,177
6%
Na
Na
1,039
20%
696
79%
Na
247
Na
250
Na
219
Na
164
Na
Gross Profit
160
101
58%
Na
Na
90
77%
75
113%
EBITDA (est)**
138
121
14%
Na
Na
107
29%
90
53%
EBITDA Margin
Na
49%
Na
Na
49%
105
88
19%
85
24%
74
41%
62
70%
92
78
18%
78
18%
64
44%
54
71%
EBIT Net Profit
Najran
Jan-15
Mar-15
Dec-14
Jul-14
Oct-14
Jun-14
Sep-14
Apr-14
Jan-14
Feb-14
Oct-13
Nov-13
Jul-13
Aug-13
Apr-13
% yoy
1,245
Revenues
May-13
Jan-13
SAR mn
Feb-13
70
Tadawul Cement
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861
55%
AbdulAziz Jawdat [email protected] +966-11-2826856
Source: Company, Saudi Fransi Capital, * Bloomberg consensus, **estimated from available disclosure CONFIDENTIAL
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)
Najran Cement KSA Cement Sector | 1Q 2015 Preliminary Results | April 19, 2015
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.
CONFIDENTIAL
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)
Najran Cement KSA Cement Sector | 1Q 2015 Preliminary Results | April 19, 2015
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)
CONFIDENTIAL
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)
Najran Cement KSA Cement Sector | 1Q 2015 Preliminary Results | April 19, 2015
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)
CONFIDENTIAL
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)
