Beats Estimates
July 25, 2016 Rating 12-Month Target Price
Buy SAR 88.00
SOUTHERN PROVINCE CEMENT COMPANY (SPCC) 2Q2016 First Look
Beats Estimates
Expected Total Return
Price as on Jul-24, 2016 Upside to Target Price Expected Dividend
SAR 72.25 9 21.8% 8.3%
Yield Expected Total Return
30.1%
Market Data
SAR 95.7/55.3
52 Week H/L Market Capitalization
SAR 10,115 million
Enterprise Value
SAR 10,136 million 140.0 million
Shares Outstanding
46.8%
Free Float
39.4
12-Month ADTV(000)
SOCCO AB
Bloomberg Code 1-Year Price Performance
Southern Cement Company (SPCC) announced 2Q2016 results today with numbers beating our expectations. EPS of SAR 1.91 (-1% Y/Y and -5% Q/Q) was above our estimate of SAR 1.66 and consensus of SAR 1.78. Earnings beat is driven by one-off zakat adjustment and further by higher than expected revenue growth. SPCC is the largest player in KSA and commands a larger market share of 14% in addition to better pricing power. We revise estimates for 2016-18E and increase our target price to SAR 88.00 on strong earnings and better outlook. 2016E P/E of 9.7x and dividend yield of 8.3% is attractive versus large cap peers 10.7x and 7.8% respectively. Maintain Buy with an upside of +22%.
Realization continues to be strong Sales are not reported, but expected to be above 5-7% to our estimate of SAR 466 million. Cement dispatches of 2.05 MT is recorded in 2Q2016 but declined by -7% Y/Y and -10% Q/Q due to partial impact of Ramadan. Clinker inventory of 0.88 MT increased by +20% Q/Q though not a concern. SPCC has the lowest clinker inventory in the industry and on a relative basis accounts for 12% of clinker production in 2015. We believe the new lines (Tihama and Bisha) are relatively running on decent utilization rates. Realization of SAR 241/ton in 1Q2016 is set to stand firm in the coming quarters.
One-off zakat adjustment surprises estimates
110 100 90 80 70 60 50 40 30 J
Gross profit of SAR 266 million beats our estimate of SAR 243 million, declined by -6% Y/Y and -12% Q/Q. We believe utilization across production lines was reasonable despite impact of Ramadan. Cement production volumes of 2.05 MT equaled 100% of sold volumes, marking fewer chances of high inventory balances in the coming quarters. This has led to lower operating costs, suggesting utilization was high when compared to similar period last year. Operating profit of SAR 256 million declined by 6% Y/Y and -11% Q/Q and above our estimate of SAR 238 million. Net income of SAR 268 million surprised due to one-off zakat provision adjustment. As a result, it came above our estimate of SAR 233 million and consensus of SAR 250 million. We believe adjusting such impact; our earnings would have come closer. Earnings declined by -1% Y/Y and -5% Q/Q.
A S O N D J F M A M J SPCC TASI TCEM Source: Bloomberg
Upgrade target price to SAR 88.00 6M
1Y
2Y
We revise our 2016-18E estimates due to strong set of numbers and upgrade target price to SAR 88.00. DPS of SAR 2.50 is announced for 1H2016 being consistent; hence expect 2016E DPS of SAR 6.00, yields 8.3%. 2016E P/E of 9.7x is below sector’s large cap P/E of 10.7x and TASI’s 13.8x. With higher dividend yields and cheaper valuations, SPCC is one of the attractive stocks in our cement universe. With an upside of +22% from current levels, we maintain our Buy rating.
20% 10% 0% -10% -20% -30% -40% SPCC
Fig in SAR Mln MlnMMln Gross Profit
TASI
RC.Est Estimates 243
EBIT
238
Net Income
233
EPS (SAR)
Key Financial Figures
TCEM
Actuals
266 256 256
1.66
FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2015A 1,940 1,197 979 6.99 6.00
Key Financial Ratios 2016E 2,093 1,278 1,042 7.44 6.00
2017E 2,157 1,321 1,074 7.67 6.00
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA
2015A 26% 32% 10.3x 3.3x 8.5x
2016E 24% 30% 9.7x 3.1x 7.9x
2017E 24% 29% 9.4x 2.9x 7.7x
268 1.91
Santhosh Balakrishnan
Khalid Al Madhyan
[email protected] +966-11-203-6809
[email protected] +966-11-203-6813
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SOUTHERN PROVINCE CEMENT COMPANY (SPCC) 2Q2016 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
Buy SAR 88.00
SOUTHERN PROVINCE CEMENT COMPANY (SPCC) 2Q2016 First Look
Beats Estimates
Expected Total Return
Price as on Jul-24, 2016 Upside to Target Price Expected Dividend
SAR 72.25 9 21.8% 8.3%
Yield Expected Total Return
30.1%
Market Data
SAR 95.7/55.3
52 Week H/L Market Capitalization
SAR 10,115 million
Enterprise Value
SAR 10,136 million 140.0 million
Shares Outstanding
46.8%
Free Float
39.4
12-Month ADTV(000)
SOCCO AB
Bloomberg Code 1-Year Price Performance
Southern Cement Company (SPCC) announced 2Q2016 results today with numbers beating our expectations. EPS of SAR 1.91 (-1% Y/Y and -5% Q/Q) was above our estimate of SAR 1.66 and consensus of SAR 1.78. Earnings beat is driven by one-off zakat adjustment and further by higher than expected revenue growth. SPCC is the largest player in KSA and commands a larger market share of 14% in addition to better pricing power. We revise estimates for 2016-18E and increase our target price to SAR 88.00 on strong earnings and better outlook. 2016E P/E of 9.7x and dividend yield of 8.3% is attractive versus large cap peers 10.7x and 7.8% respectively. Maintain Buy with an upside of +22%.
Realization continues to be strong Sales are not reported, but expected to be above 5-7% to our estimate of SAR 466 million. Cement dispatches of 2.05 MT is recorded in 2Q2016 but declined by -7% Y/Y and -10% Q/Q due to partial impact of Ramadan. Clinker inventory of 0.88 MT increased by +20% Q/Q though not a concern. SPCC has the lowest clinker inventory in the industry and on a relative basis accounts for 12% of clinker production in 2015. We believe the new lines (Tihama and Bisha) are relatively running on decent utilization rates. Realization of SAR 241/ton in 1Q2016 is set to stand firm in the coming quarters.
One-off zakat adjustment surprises estimates
110 100 90 80 70 60 50 40 30 J
Gross profit of SAR 266 million beats our estimate of SAR 243 million, declined by -6% Y/Y and -12% Q/Q. We believe utilization across production lines was reasonable despite impact of Ramadan. Cement production volumes of 2.05 MT equaled 100% of sold volumes, marking fewer chances of high inventory balances in the coming quarters. This has led to lower operating costs, suggesting utilization was high when compared to similar period last year. Operating profit of SAR 256 million declined by 6% Y/Y and -11% Q/Q and above our estimate of SAR 238 million. Net income of SAR 268 million surprised due to one-off zakat provision adjustment. As a result, it came above our estimate of SAR 233 million and consensus of SAR 250 million. We believe adjusting such impact; our earnings would have come closer. Earnings declined by -1% Y/Y and -5% Q/Q.
A S O N D J F M A M J SPCC TASI TCEM Source: Bloomberg
Upgrade target price to SAR 88.00 6M
1Y
2Y
We revise our 2016-18E estimates due to strong set of numbers and upgrade target price to SAR 88.00. DPS of SAR 2.50 is announced for 1H2016 being consistent; hence expect 2016E DPS of SAR 6.00, yields 8.3%. 2016E P/E of 9.7x is below sector’s large cap P/E of 10.7x and TASI’s 13.8x. With higher dividend yields and cheaper valuations, SPCC is one of the attractive stocks in our cement universe. With an upside of +22% from current levels, we maintain our Buy rating.
20% 10% 0% -10% -20% -30% -40% SPCC
Fig in SAR Mln MlnMMln Gross Profit
TASI
RC.Est Estimates 243
EBIT
238
Net Income
233
EPS (SAR)
Key Financial Figures
TCEM
Actuals
266 256 256
1.66
FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2015A 1,940 1,197 979 6.99 6.00
Key Financial Ratios 2016E 2,093 1,278 1,042 7.44 6.00
2017E 2,157 1,321 1,074 7.67 6.00
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA
2015A 26% 32% 10.3x 3.3x 8.5x
2016E 24% 30% 9.7x 3.1x 7.9x
2017E 24% 29% 9.4x 2.9x 7.7x
268 1.91
Santhosh Balakrishnan
Khalid Al Madhyan
[email protected] +966-11-203-6809
[email protected] +966-11-203-6813
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SOUTHERN PROVINCE CEMENT COMPANY (SPCC) 2Q2016 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
