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Najran Cement KSA Cement Sector | 4Q 2014 Preliminary Results | January 20, 2015
4Q14 review: Earnings miss estimates; Maintain Buy
Rating Summary
4Q14 net profit misses SFC/consensus estimates: Najran Cement reported 4Q14 net
Recommendation
Buy
Target price (SAR)
33.0
Upside/ (downside)
14%
profit of SAR64m (55% qoq, +214% yoy) which has missed SFC/consensus estimate by c.8%/11%. Operational performance was also weaker than expected; while cement volume
Stock Details
was c.5% higher than our forecast, gross profit/EBITDA/EBIT was c.2%/7%/9% below. While
Closing price*
no further details are divulged at this stage, management commentary suggested sequentially lower realized prices and higher SG&A meaning the miss may have potentially come from a combination of lower prices and lower margins.
SAR
29.0
SAR mn
4,930
Mn
170
52-Week High
SAR
38.0
52-Week Low
SAR
24.4
%
-12.0
Market capitalization Shares outstanding
We expect another strong year for cement volumes in 2015 after an outperformance in
Price chg. (3 months)
2014: Najran recorded 1.0m tons of cement sales in 4Q14 which would imply c.97%
EPS 2015E
yoy/c.45% qoq (vs. c.27% qoq/c.16% yoy for the sector). Further, for full 2014, the company recorded c.3.4m tons of cement sales, which would mean c.31% yoy (c.+3% yoy for the sector) implying a solid outperformance vs. KSA cement peers. Going forward, given
Ticker (Reuters/ Bloomberg)
SAR
2.12
3002.SE
NAJRAN AB
*Price as of January 19, 2015
structural drivers and potential volume improvement across the sector (SFC est. c.6% yoy in
Key Shareholding (%)
2015) in 2015, we expect Najran to maintain healthy cement sales momentum in 2015 (2014-
Public
68.8
16E cement volume CAGR c.14%).
Khaled Mohammed Al Barrak
13.1
Abdullah A.S Al Rajhi
12.4
Valuation seems undemanding; Maintain Buy: The company completed the construction of its 6,500tpd third clinker line in 3Q13 and increased clinker 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 utilize the new capacity. While refusal to supply fuel is a negative, WHR project (trial
5.7
Mohammed M.S. Aballala Source: Tadawul
Key Ratios
run started in 2Q14) should enable partial utilization of new capacity despite lack of fuel
2015E
2016E
allocation. After a c.12% decline in stock price in the previous three months (c.-12% Tadawul
P/E (x)
13.7
12.6
Cement), on our 2015E estimates (a largely normalized year when WHR benefits would be
EV/EBITDA (x)
11.4
10.7
fully visible), the stock trades at a P/E of 13.7x (KSA Cement 2015E P/E 13.6x, GCC/MEA
Dividend yield (%)
4.8
5.2
12.5x and EM peers 13.6x) which we consider undemanding especially in the context of solid
Source: Company, Saudi Fransi Capital
earnings growth ahead from increasing cement volume. All in all, while we do not like the earnings miss, we focus on Najran’s mid-term potential and maintain our Buy rating with an
Stock price movement vs. TASI
unchanged target price of SAR33.0/share. 210
When and if it happens, fuel allocation to 3rd line can act as a catalyst: We believe the rd
company would continue negotiating with Aramco to secure fuel supply for 3 line, but since
190 170 150
fuel allocation is a sector-wide issue, a concrete solution could take time. If Aramco decides
130
to supply fuel to the new capacity, it could unlock significant value; according to our
110 90 70 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
estimates, in a blue sky scenario, the potential unutilized capacity (c.60-65% of 3rd line and c.25% total capacity) could be worth SAR 13.0/share (c.40% of our target price).
Najran Cement
SAR mn
4Q14A
4Q14E
% diff
Cons*
% dev
3Q14
% qoq
4Q13
Tadawul
% yoy
Source: Tadawul Volume (000tons)
1,037
991
5%
Na
Na
716
45%
526
97%
Revenues
Na
216
Na
168
Na
156
Na
126
Na
Gross Profit
90
92
-2%
Na
Na
62
46%
38
139%
EBITDA (est)**
101
109
-7%
Na
Na
76
34%
57
77%
EBITDA Margin
Na
50%
Na
Na
49%
EBIT
74
82
-9%
Na
Na
50
48%
29
156%
Net Profit
64
70
-8%
72
-11%
41
55%
20
214%
45%
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Source: Company, Saudi Fransi Capital, * 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)
Najran Cement KSA Cement Sector | 4Q 2014 Preliminary Results | January 20, 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.
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 | 4Q 2014 Preliminary Results | January 20, 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)
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 | 4Q 2014 Preliminary Results | January 20, 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 c ompany 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 stat ements 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)
Najran Cement KSA Cement Sector | 4Q 2014 Preliminary Results | January 20, 2015
4Q14 review: Earnings miss estimates; Maintain Buy
Rating Summary
4Q14 net profit misses SFC/consensus estimates: Najran Cement reported 4Q14 net
Recommendation
Buy
Target price (SAR)
33.0
Upside/ (downside)
14%
profit of SAR64m (55% qoq, +214% yoy) which has missed SFC/consensus estimate by c.8%/11%. Operational performance was also weaker than expected; while cement volume
Stock Details
was c.5% higher than our forecast, gross profit/EBITDA/EBIT was c.2%/7%/9% below. While
Closing price*
no further details are divulged at this stage, management commentary suggested sequentially lower realized prices and higher SG&A meaning the miss may have potentially come from a combination of lower prices and lower margins.
SAR
29.0
SAR mn
4,930
Mn
170
52-Week High
SAR
38.0
52-Week Low
SAR
24.4
%
-12.0
Market capitalization Shares outstanding
We expect another strong year for cement volumes in 2015 after an outperformance in
Price chg. (3 months)
2014: Najran recorded 1.0m tons of cement sales in 4Q14 which would imply c.97%
EPS 2015E
yoy/c.45% qoq (vs. c.27% qoq/c.16% yoy for the sector). Further, for full 2014, the company recorded c.3.4m tons of cement sales, which would mean c.31% yoy (c.+3% yoy for the sector) implying a solid outperformance vs. KSA cement peers. Going forward, given
Ticker (Reuters/ Bloomberg)
SAR
2.12
3002.SE
NAJRAN AB
*Price as of January 19, 2015
structural drivers and potential volume improvement across the sector (SFC est. c.6% yoy in
Key Shareholding (%)
2015) in 2015, we expect Najran to maintain healthy cement sales momentum in 2015 (2014-
Public
68.8
16E cement volume CAGR c.14%).
Khaled Mohammed Al Barrak
13.1
Abdullah A.S Al Rajhi
12.4
Valuation seems undemanding; Maintain Buy: The company completed the construction of its 6,500tpd third clinker line in 3Q13 and increased clinker 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 utilize the new capacity. While refusal to supply fuel is a negative, WHR project (trial
5.7
Mohammed M.S. Aballala Source: Tadawul
Key Ratios
run started in 2Q14) should enable partial utilization of new capacity despite lack of fuel
2015E
2016E
allocation. After a c.12% decline in stock price in the previous three months (c.-12% Tadawul
P/E (x)
13.7
12.6
Cement), on our 2015E estimates (a largely normalized year when WHR benefits would be
EV/EBITDA (x)
11.4
10.7
fully visible), the stock trades at a P/E of 13.7x (KSA Cement 2015E P/E 13.6x, GCC/MEA
Dividend yield (%)
4.8
5.2
12.5x and EM peers 13.6x) which we consider undemanding especially in the context of solid
Source: Company, Saudi Fransi Capital
earnings growth ahead from increasing cement volume. All in all, while we do not like the earnings miss, we focus on Najran’s mid-term potential and maintain our Buy rating with an
Stock price movement vs. TASI
unchanged target price of SAR33.0/share. 210
When and if it happens, fuel allocation to 3rd line can act as a catalyst: We believe the rd
company would continue negotiating with Aramco to secure fuel supply for 3 line, but since
190 170 150
fuel allocation is a sector-wide issue, a concrete solution could take time. If Aramco decides
130
to supply fuel to the new capacity, it could unlock significant value; according to our
110 90 70 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
estimates, in a blue sky scenario, the potential unutilized capacity (c.60-65% of 3rd line and c.25% total capacity) could be worth SAR 13.0/share (c.40% of our target price).
Najran Cement
SAR mn
4Q14A
4Q14E
% diff
Cons*
% dev
3Q14
% qoq
4Q13
Tadawul
% yoy
Source: Tadawul Volume (000tons)
1,037
991
5%
Na
Na
716
45%
526
97%
Revenues
Na
216
Na
168
Na
156
Na
126
Na
Gross Profit
90
92
-2%
Na
Na
62
46%
38
139%
EBITDA (est)**
101
109
-7%
Na
Na
76
34%
57
77%
EBITDA Margin
Na
50%
Na
Na
49%
EBIT
74
82
-9%
Na
Na
50
48%
29
156%
Net Profit
64
70
-8%
72
-11%
41
55%
20
214%
45%
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Source: Company, Saudi Fransi Capital, * 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)
Najran Cement KSA Cement Sector | 4Q 2014 Preliminary Results | January 20, 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.
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 | 4Q 2014 Preliminary Results | January 20, 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)
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 | 4Q 2014 Preliminary Results | January 20, 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 c ompany 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 stat ements 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)
