4Q14 review: Earnings miss estimates; Maintain Hold
`
National Industrialization Co. (Tasnee) KSA Petrochemical Sector | 4Q 2014 Preliminary Results | January 20, 2015
4Q14 review: Earnings miss estimates; Maintain Hold
Rating Summary
4Q14 net profit misses SFC/consensus estimate: Tasnee reported 4Q14 headline net
Recommendation
Hold
Target price (SAR)
28.0
Upside/ (downside)
7%
profit of SAR161m (-34% qoq, -46% yoy) which was a big miss vs. SFC/consensus (c.-45%/ c.-41%%) estimate. Operational performance was also weaker than expected with gross
Stock Details
profit/EBITDA/EBIT c.38%/27%/43% lower than our expectation. While no further details are
Closing price*
divulged at this stage which prevents us from dissecting segmental (petrochemical/ industrial) earnings performance, management commentary suggests that the miss may have come from lower than expected realized product prices for key petrochemical products
SAR
26.2
SAR mn
17,526
Mn
669
52-Week High
SAR
40.1
52-Week Low
SAR
21.6
%
-22.0
SAR
1.64
2060.SE
NIC AB
Market capitalization Shares outstanding
(polyethylene/polypropylene -10%/-9% qoq tracking decline in crude prices) as well as lower
Price chg. (3 months)
than expected price for titanium dioxide which has largely been in a downward trend.
EPS 2015E
Furthermore, below par 4Q14 results was also a function of lower than expected profitability
Ticker (Reuters/ Bloomberg)
from its new projects such as SAPCO/SAMCO that started commercial operations in 3Q14. New projects (2014-15) hold key to earnings growth in the petrochemical segment: In the petrochemical segment, Tasnee has 5 key assets: Saudi Polyolefin (c.75% stake), SEPC
*Price as of January 19, 2014 Key Shareholding (%)
(c.45% stake), SAMCO/SAPCO (c.39% stake) and Saudi Butanol (c.17% stake). Of these,
Public+Others
while Saudi Polyolefin and SEPC are old and mature (produce ethylene, polyethylene,
Kingdom Holding Co.
6.2
propylene, and polypropylene), bulk of the earnings growth is likely to originate from new
GOSI
8.7
projects such as SAMCO, SAPCO, and Saudi Butanol which are already operational (except
GIC Investment Co.
6.5
Saudi Butanol) since July 2014 and would reach a somewhat steady state in 2015. Overall,
Source: Tadawul
78.6
investors should closely monitor the prospects of new projects as that would account for a Key Ratios
significant portion of the incremental earnings between 2014-16E.
2015E
2016E
P/E (x)
16.3
12.3
Tasnee (c.-22%) performed broadly in-line with Tadawul Petchem (c.-23%) and Tadawul (c.-
EV/EBITDA (x)
10.8
9.4
13%). Furthermore, while we expect lower product prices in 2015 that offsets volume growth
Dividend yield (%)
5.7
6.7
from SAMCO/SAPCO/Saudi Butanol, we believe potential positives from volume growth are
Source: Company, Saudi Fransi Capital analysis
Reward vs. risk not in favourable territory yet; maintain Hold: In the previous 3 months,
largely priced in. On our 2015 numbers, Tasnee is trading at 16.3x P/E (Tadawul Petchem 16.8, EM 13.3, global 13.6) due to potentially depressed earnings. However, we consider
Stock price movement vs. TASI
2016E earnings to be reflective of a normalized environment and as such consider 2016E trades at 12.3x P/E (Tadawul Petchem 12.1, EM c.11.4, Global 11.6) which in our view seems fairly valued. Post publication of 4Q14 results, we maintain our Hold rating. 4Q14A
4Q14E
%diff
Cons*
%dev
3Q14
%qoq
4Q13
%yoy
Na
4,849
Na
4,863
Na
5,613
Na
4,524
Na
Gross Profit
751
1,216
-38%
Na
Na
1185
-37%
1254
-40%
EBITDA (est)**
790
1,082
-27%
1088
-27%
1,069
-26%
1,123
-30%
EBIT
390
682
-43%
699
-44%
648
-40%
752
-48%
Net Profit
161
295
-45%
273
-41%
244
-34%
299
-46%
SAR mn
Revenues
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus**estimated from available disclosure
170 160 150 140 130 120 110 100 90 80 70 Jan-13 Jan-13 Mar-13 Apr-13 May-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
multiple to be a more relevant metric for comparison. On our 2016E estimates, Tasnee
Tasnee
Tadawul
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
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)
National Industrialization Co. (Tasnee) KSA Petrochemical 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)
National Industrialization Co. (Tasnee) KSA Petrochemical 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)
National Industrialization Co. (Tasnee) KSA Petrochemical 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 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 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)
National Industrialization Co. (Tasnee) KSA Petrochemical Sector | 4Q 2014 Preliminary Results | January 20, 2015
4Q14 review: Earnings miss estimates; Maintain Hold
Rating Summary
4Q14 net profit misses SFC/consensus estimate: Tasnee reported 4Q14 headline net
Recommendation
Hold
Target price (SAR)
28.0
Upside/ (downside)
7%
profit of SAR161m (-34% qoq, -46% yoy) which was a big miss vs. SFC/consensus (c.-45%/ c.-41%%) estimate. Operational performance was also weaker than expected with gross
Stock Details
profit/EBITDA/EBIT c.38%/27%/43% lower than our expectation. While no further details are
Closing price*
divulged at this stage which prevents us from dissecting segmental (petrochemical/ industrial) earnings performance, management commentary suggests that the miss may have come from lower than expected realized product prices for key petrochemical products
SAR
26.2
SAR mn
17,526
Mn
669
52-Week High
SAR
40.1
52-Week Low
SAR
21.6
%
-22.0
SAR
1.64
2060.SE
NIC AB
Market capitalization Shares outstanding
(polyethylene/polypropylene -10%/-9% qoq tracking decline in crude prices) as well as lower
Price chg. (3 months)
than expected price for titanium dioxide which has largely been in a downward trend.
EPS 2015E
Furthermore, below par 4Q14 results was also a function of lower than expected profitability
Ticker (Reuters/ Bloomberg)
from its new projects such as SAPCO/SAMCO that started commercial operations in 3Q14. New projects (2014-15) hold key to earnings growth in the petrochemical segment: In the petrochemical segment, Tasnee has 5 key assets: Saudi Polyolefin (c.75% stake), SEPC
*Price as of January 19, 2014 Key Shareholding (%)
(c.45% stake), SAMCO/SAPCO (c.39% stake) and Saudi Butanol (c.17% stake). Of these,
Public+Others
while Saudi Polyolefin and SEPC are old and mature (produce ethylene, polyethylene,
Kingdom Holding Co.
6.2
propylene, and polypropylene), bulk of the earnings growth is likely to originate from new
GOSI
8.7
projects such as SAMCO, SAPCO, and Saudi Butanol which are already operational (except
GIC Investment Co.
6.5
Saudi Butanol) since July 2014 and would reach a somewhat steady state in 2015. Overall,
Source: Tadawul
78.6
investors should closely monitor the prospects of new projects as that would account for a Key Ratios
significant portion of the incremental earnings between 2014-16E.
2015E
2016E
P/E (x)
16.3
12.3
Tasnee (c.-22%) performed broadly in-line with Tadawul Petchem (c.-23%) and Tadawul (c.-
EV/EBITDA (x)
10.8
9.4
13%). Furthermore, while we expect lower product prices in 2015 that offsets volume growth
Dividend yield (%)
5.7
6.7
from SAMCO/SAPCO/Saudi Butanol, we believe potential positives from volume growth are
Source: Company, Saudi Fransi Capital analysis
Reward vs. risk not in favourable territory yet; maintain Hold: In the previous 3 months,
largely priced in. On our 2015 numbers, Tasnee is trading at 16.3x P/E (Tadawul Petchem 16.8, EM 13.3, global 13.6) due to potentially depressed earnings. However, we consider
Stock price movement vs. TASI
2016E earnings to be reflective of a normalized environment and as such consider 2016E trades at 12.3x P/E (Tadawul Petchem 12.1, EM c.11.4, Global 11.6) which in our view seems fairly valued. Post publication of 4Q14 results, we maintain our Hold rating. 4Q14A
4Q14E
%diff
Cons*
%dev
3Q14
%qoq
4Q13
%yoy
Na
4,849
Na
4,863
Na
5,613
Na
4,524
Na
Gross Profit
751
1,216
-38%
Na
Na
1185
-37%
1254
-40%
EBITDA (est)**
790
1,082
-27%
1088
-27%
1,069
-26%
1,123
-30%
EBIT
390
682
-43%
699
-44%
648
-40%
752
-48%
Net Profit
161
295
-45%
273
-41%
244
-34%
299
-46%
SAR mn
Revenues
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus**estimated from available disclosure
170 160 150 140 130 120 110 100 90 80 70 Jan-13 Jan-13 Mar-13 Apr-13 May-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
multiple to be a more relevant metric for comparison. On our 2016E estimates, Tasnee
Tasnee
Tadawul
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
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)
National Industrialization Co. (Tasnee) KSA Petrochemical 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)
National Industrialization Co. (Tasnee) KSA Petrochemical 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)
National Industrialization Co. (Tasnee) KSA Petrochemical 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 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 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)
