2Q15 review: Earnings miss SFC and consensus; Maintain Buy
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Najran Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 15, 2015
2Q15 review: Earnings miss SFC and consensus; Maintain Buy
Rating Summary
2Q15 net profit misses SFC/consensus estimates from higher SG&A expenses: Najran
Recommendation
Buy
Target price (SAR)
33.0
Upside/ (downside)
25%
Cement reported 2Q15 net profit of SAR78m (-15% qoq, -7% yoy) which has missed SFC/consensus estimate by c.16%/15%. While cement volume of 1.2mn tons (+26% yoy, -
Stock Details
3% qoq, 1H15 volume of c.2.5mn tons is c.+48% yoy and far exceeds industry average
Closing price*
growth of c.7% yoy) was c.4% lower than our estimate primarily due to an early Ramadan, EBIT came in c.12% lower. This was potentially due to higher SG&A expenses as the company provided cement transportation incentives, which we do not find surprising
SAR
26.2
SAR mn
4,454
Mn
170
52-Week High
SAR
38.0
52-Week Low
SAR
24.7
Market capitalization Shares outstanding
especially in the context of its geographical location (close to the KSA border with Yemen).
Price chg. (3 months)
Valuation seems undemanding; Maintain Buy: The company completed the construction
EPS 2015E
of 6,500tpd 3rd clinker line in 3Q13 and increased capacity by c.72% to c.5mtpa. However,
Ticker (Reuters/ Bloomberg)
%
-1.5
SAR
2.12
3002.SE
NAJRAN AB
rd
Aramco‟s refusal to supply fuel to the 3 line implies the company would be unable to fully
*Price as of July 14, 2015
utilize the new capacity. While refusal to supply fuel is a negative, WHR project should enable partial utilization (c.40%) of new capacity despite lack of fuel allocation. Ytd, after a
Key Shareholding (%)
flat stock performance (c.-1% Tadawul Cement), on our 2015E estimates, the stock trades at
Public
68.8
a P/E of 12.4x (KSA Cement 2015E P/E 13.4x, GCC/MEA 13.3x and EM peers 14.7x) which
Khaled Mohammed Al Barrak
13.1
we consider undemanding considering the earnings growth potential. All in all, post
Abdullah A.S Al Rajhi
12.4
publication of 2Q15 results, we maintain our Buy rating with an unchanged target price of
Mohammed M.S. Aballala
SAR33.0/share.
Source: Tadawul
When and if it happens, fuel allocation to 3rd line can act as a catalyst: We believe the
Key Ratios
5.7
company would continue negotiating with Aramco to secure fuel supply for 3rd line, but since
2015E
2016E
fuel allocation is a sector-wide issue, a concrete solution could take time. If Aramco decides
P/E (x)
12.4
11.4
to supply fuel to the new capacity, it could unlock significant value; according to our
EV/EBITDA (x)
10.4
9.9
estimates, in a blue sky scenario, the potential unutilized capacity (c.60-65% of 3rd line and
Dividend yield (%)
3.8
4.8
c.25% total capacity) could be worth SAR 13.0/share (c.40% of our target price).
Source: Company, Saudi Fransi Capital
SAR mn
Volume (000tons)
2Q15A
2Q15E
% diff
Cons*
% dev
1Q15
% qoq
2Q14
% yoy
1,208
1,256
-4%
Na
Na
1,245
-3%
959
26%
Na
301
Na
299
Na
304
Na
218
Na
Gross Profit
151
144
5%
Na
Na
160
-6%
120
26%
EBITDA (est)**
123
136
-9%
Na
Na
136
-9%
124
-1%
EBITDA Margin
Na
45%
Na
Na
45%
EBIT
91
104
-12%
104
-12%
105
-13%
93
-2%
Net Profit
78
93
-16%
92
-15%
92
-15%
84
-7%
Stock price movement vs. TASI 210
Revenues
190 170
150 130 110 90
57%
Najran Cement
May-15
Feb-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Apr-14
May-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Tadawul Cement
Source: Tadawul Source: Company, Saudi Fransi Capital, * Bloomberg consensus, **estimated from available disclosure
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)
Najran Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 15, 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 | 2Q 2015 Preliminary Results | July 15, 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 | 2Q 2015 Preliminary Results | July 15, 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)
Najran Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 15, 2015
2Q15 review: Earnings miss SFC and consensus; Maintain Buy
Rating Summary
2Q15 net profit misses SFC/consensus estimates from higher SG&A expenses: Najran
Recommendation
Buy
Target price (SAR)
33.0
Upside/ (downside)
25%
Cement reported 2Q15 net profit of SAR78m (-15% qoq, -7% yoy) which has missed SFC/consensus estimate by c.16%/15%. While cement volume of 1.2mn tons (+26% yoy, -
Stock Details
3% qoq, 1H15 volume of c.2.5mn tons is c.+48% yoy and far exceeds industry average
Closing price*
growth of c.7% yoy) was c.4% lower than our estimate primarily due to an early Ramadan, EBIT came in c.12% lower. This was potentially due to higher SG&A expenses as the company provided cement transportation incentives, which we do not find surprising
SAR
26.2
SAR mn
4,454
Mn
170
52-Week High
SAR
38.0
52-Week Low
SAR
24.7
Market capitalization Shares outstanding
especially in the context of its geographical location (close to the KSA border with Yemen).
Price chg. (3 months)
Valuation seems undemanding; Maintain Buy: The company completed the construction
EPS 2015E
of 6,500tpd 3rd clinker line in 3Q13 and increased capacity by c.72% to c.5mtpa. However,
Ticker (Reuters/ Bloomberg)
%
-1.5
SAR
2.12
3002.SE
NAJRAN AB
rd
Aramco‟s refusal to supply fuel to the 3 line implies the company would be unable to fully
*Price as of July 14, 2015
utilize the new capacity. While refusal to supply fuel is a negative, WHR project should enable partial utilization (c.40%) of new capacity despite lack of fuel allocation. Ytd, after a
Key Shareholding (%)
flat stock performance (c.-1% Tadawul Cement), on our 2015E estimates, the stock trades at
Public
68.8
a P/E of 12.4x (KSA Cement 2015E P/E 13.4x, GCC/MEA 13.3x and EM peers 14.7x) which
Khaled Mohammed Al Barrak
13.1
we consider undemanding considering the earnings growth potential. All in all, post
Abdullah A.S Al Rajhi
12.4
publication of 2Q15 results, we maintain our Buy rating with an unchanged target price of
Mohammed M.S. Aballala
SAR33.0/share.
Source: Tadawul
When and if it happens, fuel allocation to 3rd line can act as a catalyst: We believe the
Key Ratios
5.7
company would continue negotiating with Aramco to secure fuel supply for 3rd line, but since
2015E
2016E
fuel allocation is a sector-wide issue, a concrete solution could take time. If Aramco decides
P/E (x)
12.4
11.4
to supply fuel to the new capacity, it could unlock significant value; according to our
EV/EBITDA (x)
10.4
9.9
estimates, in a blue sky scenario, the potential unutilized capacity (c.60-65% of 3rd line and
Dividend yield (%)
3.8
4.8
c.25% total capacity) could be worth SAR 13.0/share (c.40% of our target price).
Source: Company, Saudi Fransi Capital
SAR mn
Volume (000tons)
2Q15A
2Q15E
% diff
Cons*
% dev
1Q15
% qoq
2Q14
% yoy
1,208
1,256
-4%
Na
Na
1,245
-3%
959
26%
Na
301
Na
299
Na
304
Na
218
Na
Gross Profit
151
144
5%
Na
Na
160
-6%
120
26%
EBITDA (est)**
123
136
-9%
Na
Na
136
-9%
124
-1%
EBITDA Margin
Na
45%
Na
Na
45%
EBIT
91
104
-12%
104
-12%
105
-13%
93
-2%
Net Profit
78
93
-16%
92
-15%
92
-15%
84
-7%
Stock price movement vs. TASI 210
Revenues
190 170
150 130 110 90
57%
Najran Cement
May-15
Feb-15
Mar-15
Oct-14
Dec-14
Jul-14
Sep-14
Apr-14
May-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Tadawul Cement
Source: Tadawul Source: Company, Saudi Fransi Capital, * Bloomberg consensus, **estimated from available disclosure
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)
Najran Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 15, 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 | 2Q 2015 Preliminary Results | July 15, 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 | 2Q 2015 Preliminary Results | July 15, 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)
