2Q15 review: Earnings miss estimates; Downgrade to
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Tabuk Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 27, 2015
2Q15 review: Earnings miss estimates; Downgrade to Hold
Rating Summary
2Q15 net profit misses SFC/consensus estimate: Tabuk Cement reported 2Q15 net profit
Recommendation
Hold
Target price (SAR)
26.5
Upside/ (downside)
6%
of SAR27m (c.-17% qoq, c-37% yoy) which missed SFC/consensus estimate by c.11%/15%. Operational performance was also weaker than expected with gross profit/EBITDA/EBIT
Stock Details
c.6%/9%/11% lower than our estimates. While realized price of SAR212/ton came in line
Closing price*
with our estimate but remains depressed in the overall context, volume of 358k tons (c.-9% qoq, c.-11% yoy) was c.5% lower and explains a major part of the earnings miss. The remainder of the miss could be attributed to higher SG&A leading to lower margin (c.56% vs.
SAR
25.0
SAR mn
2,250
Mn
90
52-Week High
SAR
33.3
52-Week Low
SAR
22.4
Market capitalization Shares outstanding
SFC est. of c.59%) coupled with lower than expected other income.
Price chg. (3 months)
Mid-term challenges to continue; Downgrade to Hold: In our view, Tabuk Cement suffers
EPS 2015E
from locational disadvantage especially in an environment where industry wide stock is high
Ticker (Reuters/ Bloomberg)
(c.20mn tons of clinker, equivalent to c.135 days of sales) and competitors (especially the
*Price as of July 26, 2015
%
2.6
SAR
1.17
3090.SE
TACCO AB
ones not based in demand centres) are undercutting prices to increase volumes. In our view, this is unlikely to change in the mid-term meaning Tabuk’s pricing, volume and margins
Key Shareholding (%)
would continue to be impacted that could result in reduced dividends. Keeping in mind
Public
82.6
Tabuk’s mid-term challenges, we have cut 2015-17E earnings estimates by c.22%. Ytd, after
Khaled S.A. Al Shithry
12.4
Public Pension Agency
5.0
a broadly flat stock price performance (Tadawul c.12%, Tadawul Cement c.-1%), on our revised estimates, the stock trades at 2015E P/E of 21.4x (KSA Cement 2015E P/E 13.4x, GCC/MEA 13.3x and EM peers 14.7x) which we think is unappealing. All in all, post
Source: Tadawul
Key Ratios 2015E
2016E
P/E (x)
21.4
19.1
EV/EBITDA (x)
15.3
13.4
4.8
4.8
publication of 2Q15 result, we downgrade our rating to Hold (from Buy) with a revised target price of SAR26.5/share (from SAR31/share). 2Q15A
2Q15E
Cons*
% dev
Volume (000tons)
358
375
-5%
Na
Na
392
-9%
Revenues
76
80
-5%
80
-5%
84
Gross Profit
34
36
-6%
Na
Na
EBITDA (est)**
43
47
-9%
Na
56%
59%
EBIT
28
31
Net Profit
27
31
SAR mn
% diff
1Q15
% qoq
2Q14
% yoy
2015E
2016E
402
-11%
1,327
1,517
-10%
91
-17%
285
326
38
-12%
49
-31%
126
150
Na
49
-13%
60
-29%
166
190
Na
Na
58%
58%
58%
-11%
31
-11%
33
-17%
44
-37%
106
130
-11%
32
-15%
33
-17%
43
-37%
105
118
Dividend yield (%)
Source: Company, Saudi Fransi Capital analysis
Stock price movement vs. TASI 150 140 130 120
EBITDA Margin
66%
110 100 90 80
Tabuk Cement
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus, **estimated from available disclosure
Jun-15
Apr-15
Feb-15
Dec-14
Jul-14
Nov-14
Jun-14
Sep-14
Apr-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Tadawul Cement
Source: Tadawul
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)
Tabuk Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 27, 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)
Tabuk Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 27, 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)
Tabuk Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 27, 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)
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)
Tabuk Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 27, 2015
2Q15 review: Earnings miss estimates; Downgrade to Hold
Rating Summary
2Q15 net profit misses SFC/consensus estimate: Tabuk Cement reported 2Q15 net profit
Recommendation
Hold
Target price (SAR)
26.5
Upside/ (downside)
6%
of SAR27m (c.-17% qoq, c-37% yoy) which missed SFC/consensus estimate by c.11%/15%. Operational performance was also weaker than expected with gross profit/EBITDA/EBIT
Stock Details
c.6%/9%/11% lower than our estimates. While realized price of SAR212/ton came in line
Closing price*
with our estimate but remains depressed in the overall context, volume of 358k tons (c.-9% qoq, c.-11% yoy) was c.5% lower and explains a major part of the earnings miss. The remainder of the miss could be attributed to higher SG&A leading to lower margin (c.56% vs.
SAR
25.0
SAR mn
2,250
Mn
90
52-Week High
SAR
33.3
52-Week Low
SAR
22.4
Market capitalization Shares outstanding
SFC est. of c.59%) coupled with lower than expected other income.
Price chg. (3 months)
Mid-term challenges to continue; Downgrade to Hold: In our view, Tabuk Cement suffers
EPS 2015E
from locational disadvantage especially in an environment where industry wide stock is high
Ticker (Reuters/ Bloomberg)
(c.20mn tons of clinker, equivalent to c.135 days of sales) and competitors (especially the
*Price as of July 26, 2015
%
2.6
SAR
1.17
3090.SE
TACCO AB
ones not based in demand centres) are undercutting prices to increase volumes. In our view, this is unlikely to change in the mid-term meaning Tabuk’s pricing, volume and margins
Key Shareholding (%)
would continue to be impacted that could result in reduced dividends. Keeping in mind
Public
82.6
Tabuk’s mid-term challenges, we have cut 2015-17E earnings estimates by c.22%. Ytd, after
Khaled S.A. Al Shithry
12.4
Public Pension Agency
5.0
a broadly flat stock price performance (Tadawul c.12%, Tadawul Cement c.-1%), on our revised estimates, the stock trades at 2015E P/E of 21.4x (KSA Cement 2015E P/E 13.4x, GCC/MEA 13.3x and EM peers 14.7x) which we think is unappealing. All in all, post
Source: Tadawul
Key Ratios 2015E
2016E
P/E (x)
21.4
19.1
EV/EBITDA (x)
15.3
13.4
4.8
4.8
publication of 2Q15 result, we downgrade our rating to Hold (from Buy) with a revised target price of SAR26.5/share (from SAR31/share). 2Q15A
2Q15E
Cons*
% dev
Volume (000tons)
358
375
-5%
Na
Na
392
-9%
Revenues
76
80
-5%
80
-5%
84
Gross Profit
34
36
-6%
Na
Na
EBITDA (est)**
43
47
-9%
Na
56%
59%
EBIT
28
31
Net Profit
27
31
SAR mn
% diff
1Q15
% qoq
2Q14
% yoy
2015E
2016E
402
-11%
1,327
1,517
-10%
91
-17%
285
326
38
-12%
49
-31%
126
150
Na
49
-13%
60
-29%
166
190
Na
Na
58%
58%
58%
-11%
31
-11%
33
-17%
44
-37%
106
130
-11%
32
-15%
33
-17%
43
-37%
105
118
Dividend yield (%)
Source: Company, Saudi Fransi Capital analysis
Stock price movement vs. TASI 150 140 130 120
EBITDA Margin
66%
110 100 90 80
Tabuk Cement
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus, **estimated from available disclosure
Jun-15
Apr-15
Feb-15
Dec-14
Jul-14
Nov-14
Jun-14
Sep-14
Apr-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Tadawul Cement
Source: Tadawul
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)
Tabuk Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 27, 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)
Tabuk Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 27, 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)
Tabuk Cement KSA Cement Sector | 2Q 2015 Preliminary Results | July 27, 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)
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)
