1Q15 review: Earnings miss estimates again; Downgrade to Hold
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Sahara Petrochemical Co. (Sahara) KSA Petrochemical Sector | 1Q 2015 Preliminary Results | April 19, 2015
1Q15 review: Earnings miss estimates again; Downgrade to Hold
Rating Summary
1Q15 earnings miss SFC/consensus estimate: Sahara reported a surprising net loss of
Recommendation
Hold
Target price (SAR)
16.0
Upside/ (downside)
6%
SAR50m that has missed SFC/consensus estimate of SAR78m of net profit. Operational performance was also weaker than expected with EBIT of SAR-1m vs. SFC estimate of
Stock Details
SAR96m. In a backdrop of weak product prices (polyethylene/polypropylene c.-17%/-22%
Closing price*
qoq), while softer than expected performance (c.39% revenue miss vs. SFC est) at its mature Al Waha unit (c.35% of Sahara’s equity adjusted 2014 EBITDA) was a key cause of the earnings miss, another reason was SAR40m of refinancing cost. Furthermore, management
SAR
15.1
SAR mn
6,604
Mn
439
52-Week High
SAR
27.3
52-Week Low
SAR
12.8
Market capitalization Shares outstanding
commentary suggested higher than expected losses from its new projects such as
Price chg. (3 months)
SAAC/SAPCO/SAMAPCO that started commercial operations in 3Q14.
Ticker (Reuters/ Bloomberg)
Profits from new projects could be elusive in 2015: Sahara has 6 key assets: Al Waha
*Price as of April 18, 2015
%
-3.5
2260.SE
SPC AB
(c.75% stake), SEPC (c.24.4% stake), SAMCO/SAPCO (c.32.4% stake), SAMAPCO (c.50.0% stake), and Saudi Butanol (c.14.2% stake). Of these, while Al Waha and SEPC are
Key Shareholding (%)
old and mature (produce ethylene, polyethylene, propylene, and polypropylene), bulk of the
Public/Others
volume growth is likely to originate from new projects such as SAMCO, SAPCO, SAMAPCO and Saudi Butanol which are already operational (except Saudi Butanol) since July 2014. While we are reasonably confident of volume growth from new projects, management commentary suggests new projects could take 1-2 years to reach a steady state meaning in
86.1
Zamil Group Holding
7.9
PPA
6.0
Source: Tadawul
2015E
2016E
P/E (x)
33.6
16.1
Reward vs. risk seems unfavourable; Downgrade to Hold: Post publication of 1Q15
EV/EBITDA (x)*
22.5
17.9
results, we have cut our 2015E-16E earnings estimates by c.35% and have incorporated 1Q
Dividend yield (%)
5.6
6.6
losses, potential soft performance in 2Q15 from Al Waha shutdown and lower than expected
Source: Company, Saudi Fransi Capital analysis, * not meaningful due to presence of associate income below the EBITDA line
the current depressed pricing environment, they are likely generate losses in 2015.
performance from new projects in our estimates. On our revised estimates, Sahara is trading
Key Ratios
at 33.6x 2015E P/E (Tadawul Petchem 16.6x, EM 15.1x, global 16.2x) due to potentially depressed earnings in 2015. However, we consider 2016E earnings to be reflective of a normalized environment and as such consider 2016E multiple to be a more relevant metric for comparison. That said, even on our 2016E estimates, the stock trades at 16.1x P/E (Tadawul Petchem 12.0x, EM c.12.6x, Global 13.0x) which we think is unappealing. All in all, post publication of 1Q15 results, we cut our rating on Sahara to Hold (from Buy) with a
Stock price movement vs. TASI 210
190 170 150 130
revised target price of SAR16.0 (from SAR19.5).
110 90
321
-18%
1,559
1,839
Gross Profit
24
138
-83%
Na
Na
177
-87%
57
-59%
269
371
EBIT
-1
96
-101%
Na
Na
137
-101%
18
-107%
191
279
-50
78
-164%
78
-163%
92
-154%
100
-150%
196
411
Sahara
Jan-15
-48%
Mar-15
504
Dec-14
-36%
Jul-14
411
Oct-14
-39%
Jun-14
428
Sep-14
262
Revenues
70
Apr-14
2016E
Jan-14
2015E
Feb-14
%yoy
Oct-13
1Q14
Nov-13
%qoq
Jul-13
4Q14
Aug-13
%dev
Apr-13
Cons*
May-13
%diff
Jan-13
1Q15E
Feb-13
1Q15A
SAR mn
Tadawul Petrochem
Source: Tadawul
Net Profit
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
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)
Sahara Petrochemical Co. (Sahara) KSA Petrochemical 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)
Sahara Petrochemical Co. (Sahara) KSA Petrochemical 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)
Sahara Petrochemical Co. (Sahara) KSA Petrochemical 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 complete, 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)
Sahara Petrochemical Co. (Sahara) KSA Petrochemical Sector | 1Q 2015 Preliminary Results | April 19, 2015
1Q15 review: Earnings miss estimates again; Downgrade to Hold
Rating Summary
1Q15 earnings miss SFC/consensus estimate: Sahara reported a surprising net loss of
Recommendation
Hold
Target price (SAR)
16.0
Upside/ (downside)
6%
SAR50m that has missed SFC/consensus estimate of SAR78m of net profit. Operational performance was also weaker than expected with EBIT of SAR-1m vs. SFC estimate of
Stock Details
SAR96m. In a backdrop of weak product prices (polyethylene/polypropylene c.-17%/-22%
Closing price*
qoq), while softer than expected performance (c.39% revenue miss vs. SFC est) at its mature Al Waha unit (c.35% of Sahara’s equity adjusted 2014 EBITDA) was a key cause of the earnings miss, another reason was SAR40m of refinancing cost. Furthermore, management
SAR
15.1
SAR mn
6,604
Mn
439
52-Week High
SAR
27.3
52-Week Low
SAR
12.8
Market capitalization Shares outstanding
commentary suggested higher than expected losses from its new projects such as
Price chg. (3 months)
SAAC/SAPCO/SAMAPCO that started commercial operations in 3Q14.
Ticker (Reuters/ Bloomberg)
Profits from new projects could be elusive in 2015: Sahara has 6 key assets: Al Waha
*Price as of April 18, 2015
%
-3.5
2260.SE
SPC AB
(c.75% stake), SEPC (c.24.4% stake), SAMCO/SAPCO (c.32.4% stake), SAMAPCO (c.50.0% stake), and Saudi Butanol (c.14.2% stake). Of these, while Al Waha and SEPC are
Key Shareholding (%)
old and mature (produce ethylene, polyethylene, propylene, and polypropylene), bulk of the
Public/Others
volume growth is likely to originate from new projects such as SAMCO, SAPCO, SAMAPCO and Saudi Butanol which are already operational (except Saudi Butanol) since July 2014. While we are reasonably confident of volume growth from new projects, management commentary suggests new projects could take 1-2 years to reach a steady state meaning in
86.1
Zamil Group Holding
7.9
PPA
6.0
Source: Tadawul
2015E
2016E
P/E (x)
33.6
16.1
Reward vs. risk seems unfavourable; Downgrade to Hold: Post publication of 1Q15
EV/EBITDA (x)*
22.5
17.9
results, we have cut our 2015E-16E earnings estimates by c.35% and have incorporated 1Q
Dividend yield (%)
5.6
6.6
losses, potential soft performance in 2Q15 from Al Waha shutdown and lower than expected
Source: Company, Saudi Fransi Capital analysis, * not meaningful due to presence of associate income below the EBITDA line
the current depressed pricing environment, they are likely generate losses in 2015.
performance from new projects in our estimates. On our revised estimates, Sahara is trading
Key Ratios
at 33.6x 2015E P/E (Tadawul Petchem 16.6x, EM 15.1x, global 16.2x) due to potentially depressed earnings in 2015. However, we consider 2016E earnings to be reflective of a normalized environment and as such consider 2016E multiple to be a more relevant metric for comparison. That said, even on our 2016E estimates, the stock trades at 16.1x P/E (Tadawul Petchem 12.0x, EM c.12.6x, Global 13.0x) which we think is unappealing. All in all, post publication of 1Q15 results, we cut our rating on Sahara to Hold (from Buy) with a
Stock price movement vs. TASI 210
190 170 150 130
revised target price of SAR16.0 (from SAR19.5).
110 90
321
-18%
1,559
1,839
Gross Profit
24
138
-83%
Na
Na
177
-87%
57
-59%
269
371
EBIT
-1
96
-101%
Na
Na
137
-101%
18
-107%
191
279
-50
78
-164%
78
-163%
92
-154%
100
-150%
196
411
Sahara
Jan-15
-48%
Mar-15
504
Dec-14
-36%
Jul-14
411
Oct-14
-39%
Jun-14
428
Sep-14
262
Revenues
70
Apr-14
2016E
Jan-14
2015E
Feb-14
%yoy
Oct-13
1Q14
Nov-13
%qoq
Jul-13
4Q14
Aug-13
%dev
Apr-13
Cons*
May-13
%diff
Jan-13
1Q15E
Feb-13
1Q15A
SAR mn
Tadawul Petrochem
Source: Tadawul
Net Profit
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
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)
Sahara Petrochemical Co. (Sahara) KSA Petrochemical 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)
Sahara Petrochemical Co. (Sahara) KSA Petrochemical 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)
Sahara Petrochemical Co. (Sahara) KSA Petrochemical 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 complete, 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)
