2Q15 review: Net profit misses estimates but operational profit ahead
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Saudi International Petrochem (Sipchem) KSA Petrochemical Sector | 2Q 2015 Preliminary Results | July 27, 2015
2Q15 review: Net profit misses estimates but operational profit ahead; Maintain Buy
Rating Summary
Operational profit ahead while net profit misses SFC/consensus estimates: Sipchem
Recommendation
Buy
Target price (SAR)
36.0
Upside/ (downside)
12%
reported 2Q15 preliminary headline net profit of SAR110m (c.+37% qoq, c-55% yoy) that has missed SFC/consensus estimate by c.11%/12%. However, operational performance came in
Stock Details
stronger than expected with revenue/gross profit/EBITDA/EBIT c.15%/9%/8%/4% ahead of
Closing price*
our forecasts which potentially means the EVA/LDPE project had a largely positive start and makes us comfortable on Sipchem’s growth prospects. Although EBITDA margin of c.40% was lower than our estimate of c.43%, we do no read much into this as margins tend to
SAR
32.1
SAR mn
11,771
Mn
367
52-Week High
SAR
43.2
52-Week Low
SAR
22.8
Market capitalization Shares outstanding
remain volatile during start-up phase due to revenue/cost mismatch. Although no further
Price chg. (3 months)
details are divulged at this stage which prevents us from analyzing the operational beat vs.
EPS 2015E
the net profit miss, on the face of it, it seems either non-operating expenses or higher than
Ticker (Reuters/ Bloomberg)
%
-7.3
SAR
1.81
2310.SE
SIPCHEM AB
expected minority interest (the former more likely than latter in the context of a new plant
*Price as of July 26, 2015
start-up) could have caused the earnings miss. Phase III expansion holds key to equity story: Sipchem, in its current form (Phase I and II
Key Shareholding (%)
projects), is primarily a methanol and VAM (and their derivatives) play. While existing
Public/Others
projects are largely stable and mature, investors should monitor the developments related to
Zamil Group Holding
9.7
phase III expansion (higher value products EVA/EA/PBT/cable & wire polymer) of which its
Icarus Petrochemical Holding
8.2
EVA unit has already started commercial operation in end 1Q15 and PBT unit has
PPA
7.7
announced initial startup (commercial start-up to be announced later) in 2Q15. In all,
Source: Tadawul
74.4
earnings from new projects are likely to meaningfully contribute to earnings from 2H15 onwards and investors should closely monitor the progress of those as phase III expansion
Key Ratios 2015E
2016E
P/E (x)
17.7
14.0
Maintain Buy: Ytd, Sipchem (c.21%) outperformed Tadawul Petchem (c.9%) and Tadawul
EV/EBITDA (x)
12.5
10.9
(c.12%) and the stock trades at 17.6x 2015E P/E (Tadawul Petchem 17.4x, EM 16.8x, global
Dividend yield (%)
3.9
4.7
17.0x) primarily due to potentially depressed earnings from weak product prices that to some
Source: Company, Saudi Fransi Capital analysis
should account for c.100% of capacity growth and holds key to Sipchem‘s equity story.
extent offsets volume growth from startup of Phase III. However, we consider 2016E earnings to be reflective of a normalized environment and as such consider 2016E multiple to
Stock price movement vs. TASI
be a more relevant metric for comparison. On our 2016E estimates, Sipchem trades at 14.0x P/E (Tadawul Petchem 14.2x, EM c.15.5x, Global 14.9x) and EV/EBITDA of 10.9x that seem
250
undemanding. All in all, post publication of 2Q15 results, we maintain our Buy rating on
210
Sipchem with an unchanged target price of SAR36.0/share.
170
230 190 150 130
2Q15A
2Q15E
%diff
Cons*
%dev
1Q15
%qoq
2Q14
%yoy
1,007
874
15%
909
11%
826
22%
1,159
-13%
Gross Profit
287
264
9%
Na
Na
234
23%
522
-45%
EBITDA
402
373
8%
Na
Na
329
22%
615
-35%
40%
43%
EBIT
228
219
4%
236
-4%
177
29%
460
-51%
Net Profit
110
124
-11%
125
-12%
81
37%
245
-55%
SAR mn
110 90
EBITDA Margin**
Na
40%
Sipchem
Jul-15
Jun-15
Apr-15
Feb-15
Dec-14
Nov-14
Jul-14
Sep-14
Jun-14
Apr-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Revenues
Tadawul Petchem
Source: Tadawul
53%
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus, ** calculated 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)
Saudi International Petrochem (Sipchem) KSA Petrochemical 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)
Saudi International Petrochem (Sipchem) KSA Petrochemical 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)
Saudi International Petrochem (Sipchem) KSA Petrochemical 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)
Saudi International Petrochem (Sipchem) KSA Petrochemical Sector | 2Q 2015 Preliminary Results | July 27, 2015
2Q15 review: Net profit misses estimates but operational profit ahead; Maintain Buy
Rating Summary
Operational profit ahead while net profit misses SFC/consensus estimates: Sipchem
Recommendation
Buy
Target price (SAR)
36.0
Upside/ (downside)
12%
reported 2Q15 preliminary headline net profit of SAR110m (c.+37% qoq, c-55% yoy) that has missed SFC/consensus estimate by c.11%/12%. However, operational performance came in
Stock Details
stronger than expected with revenue/gross profit/EBITDA/EBIT c.15%/9%/8%/4% ahead of
Closing price*
our forecasts which potentially means the EVA/LDPE project had a largely positive start and makes us comfortable on Sipchem’s growth prospects. Although EBITDA margin of c.40% was lower than our estimate of c.43%, we do no read much into this as margins tend to
SAR
32.1
SAR mn
11,771
Mn
367
52-Week High
SAR
43.2
52-Week Low
SAR
22.8
Market capitalization Shares outstanding
remain volatile during start-up phase due to revenue/cost mismatch. Although no further
Price chg. (3 months)
details are divulged at this stage which prevents us from analyzing the operational beat vs.
EPS 2015E
the net profit miss, on the face of it, it seems either non-operating expenses or higher than
Ticker (Reuters/ Bloomberg)
%
-7.3
SAR
1.81
2310.SE
SIPCHEM AB
expected minority interest (the former more likely than latter in the context of a new plant
*Price as of July 26, 2015
start-up) could have caused the earnings miss. Phase III expansion holds key to equity story: Sipchem, in its current form (Phase I and II
Key Shareholding (%)
projects), is primarily a methanol and VAM (and their derivatives) play. While existing
Public/Others
projects are largely stable and mature, investors should monitor the developments related to
Zamil Group Holding
9.7
phase III expansion (higher value products EVA/EA/PBT/cable & wire polymer) of which its
Icarus Petrochemical Holding
8.2
EVA unit has already started commercial operation in end 1Q15 and PBT unit has
PPA
7.7
announced initial startup (commercial start-up to be announced later) in 2Q15. In all,
Source: Tadawul
74.4
earnings from new projects are likely to meaningfully contribute to earnings from 2H15 onwards and investors should closely monitor the progress of those as phase III expansion
Key Ratios 2015E
2016E
P/E (x)
17.7
14.0
Maintain Buy: Ytd, Sipchem (c.21%) outperformed Tadawul Petchem (c.9%) and Tadawul
EV/EBITDA (x)
12.5
10.9
(c.12%) and the stock trades at 17.6x 2015E P/E (Tadawul Petchem 17.4x, EM 16.8x, global
Dividend yield (%)
3.9
4.7
17.0x) primarily due to potentially depressed earnings from weak product prices that to some
Source: Company, Saudi Fransi Capital analysis
should account for c.100% of capacity growth and holds key to Sipchem‘s equity story.
extent offsets volume growth from startup of Phase III. However, we consider 2016E earnings to be reflective of a normalized environment and as such consider 2016E multiple to
Stock price movement vs. TASI
be a more relevant metric for comparison. On our 2016E estimates, Sipchem trades at 14.0x P/E (Tadawul Petchem 14.2x, EM c.15.5x, Global 14.9x) and EV/EBITDA of 10.9x that seem
250
undemanding. All in all, post publication of 2Q15 results, we maintain our Buy rating on
210
Sipchem with an unchanged target price of SAR36.0/share.
170
230 190 150 130
2Q15A
2Q15E
%diff
Cons*
%dev
1Q15
%qoq
2Q14
%yoy
1,007
874
15%
909
11%
826
22%
1,159
-13%
Gross Profit
287
264
9%
Na
Na
234
23%
522
-45%
EBITDA
402
373
8%
Na
Na
329
22%
615
-35%
40%
43%
EBIT
228
219
4%
236
-4%
177
29%
460
-51%
Net Profit
110
124
-11%
125
-12%
81
37%
245
-55%
SAR mn
110 90
EBITDA Margin**
Na
40%
Sipchem
Jul-15
Jun-15
Apr-15
Feb-15
Dec-14
Nov-14
Jul-14
Sep-14
Jun-14
Apr-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Revenues
Tadawul Petchem
Source: Tadawul
53%
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus, ** calculated 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)
Saudi International Petrochem (Sipchem) KSA Petrochemical 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)
Saudi International Petrochem (Sipchem) KSA Petrochemical 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)
Saudi International Petrochem (Sipchem) KSA Petrochemical 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)
