Depressed Prices + Rising Rates = Cash Crunch
Methanol Chemicals Co. (Chemanol) 3Q15 Earnings Review October 21, 2015
Another quarter of big loss from price discounts; Downgrade to Sell
Rating Summary Recommendation
Sell
12-Month Target price (SAR)
9.0
Upside/(Downside)
A weak quarter from price discounts and construction slowdown in KSA
Stock Details
Chemanol reported 3Q15 net loss of SAR43m that included SAR10m one-off charge (inventory revaluation) meaning restated clean net loss was SAR33m and came well short of SFC estimate of SAR9m loss and consensus estimate of SAR11m loss. While revenues of SAR174m (-21% y/y, -11% q/q) was 13% below our estimate, operational loss was SAR36m vs. our estimate of SAR2m loss. Management attributed the weak quarterly performance primarily to soft product prices and increasing competition in company’s key geographies such as GCC/India/China/East Asia that resulted in Chemanol providing discounts to buyers to maintain market share. Interestingly, management commentary also highlighted construction slowdown in KSA (around 35-40% of Chemanol’s sales) resulted in postponement of sales of some products and was one of the reasons for sequentially weak earnings performance.
Last Close Price
Stocks lacks catalysts while competitive pressures to continue; Downgrade to Sell We see Chemanol as a pure play on methanol derivatives and one that‘s devoid of any near term catalyst. While methanol prices are likely to remain subdued in the near term, the stock lacks meaningful growth prospects in the mid-term which in our view could lead to negative investor sentiment. Furthermore, Chemanol is trading at a premium to the sector (12.6x 2015E EV/ EBITDA vs. KSA Peers 11.2x) with a downward earnings bias as pricing weakness is likely to continue from competitive pressures. We downgrade the stock to Sell (from Hold).
-10%
Market Capitalization
SAR
9.9
SAR mln
1,188
Shares Outstanding
mln
121
52-Week High
SAR
16.4
52-Week Low
SAR
8.9
Price Change (YTD)
%
-16%
6-Mth ADTV
mln
35.2
EPS 2015E
SAR
-0.34
2001.SE
CHEMANOL AB
Reuters / Bloomberg Source: Tadawul
Key Shareholders (%) Yusuf Bin Ahmed Kanoo Ltd.
11
Zamil Group Holding Co.
8
Abdulrahman Mohammed Suleiman Lhaidan
5
Mohammed and the Gila's first de Ltd
5
Public SAR mn
Revenues Gross Profit
3Q15A
3Q15E
% dev
Cons
% dev
2Q15
% qoq
3Q14
%yoy
2016E
2017E
174
200
-13%
195
-11%
196
-11%
220
-21%
874
880
11
28
-62%
Na
Na
24
-57%
47
-77%
153
156
-36
-2
Nm
Na
Na
-7
Nm
22
Nm
48
51
71
Source: Tadawul
Price Multiples
P/E EBIT
EV / EBITDA Net Income
-43
-9
Nm
-11
Source: Company, Saudi Fransi Capital, Bloomberg
Na
-21
Nm
10
Nm
17
23
2015E
2016E
Nm
68.4
12.6
10.0
0
5.1%
Dividend Yield Source: SFC
1-Year Share Performance 110 100
90 80 70 60 50 40 S
O
N
D
J
F
Chemanol
M
A
M
J
J
A
S
TASI Petchem
Source: Bloomberg
Dipanjan Ray, CFA [email protected] +966 11 282 6861 AbdulAziz Jawdat [email protected] +966 11 282 6856 PUBLIC
Page 1
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA)
Research and Advisory Department Rating Framework
BUY Shares of the company under coverage in this report are expected to outperform relative to the sector or the broader market.
HOLD Shares of the company under coverage in this report are expected to perform in line with the sector or the broader market.
SELL Shares of the company under coverage in this report are expected to underperform relative to the sector or the broader market.
Saudi Fransi Capital Call Center | 800 125 9999 www.sfc.sa Commercial Registration | 1010231217
Research and Advisory P.O. Box 23454 Riyadh 11426 Saudi Arabia Head Office | Riyadh [email protected]
PUBLIC
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. 11153-37
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 company 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 statements 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
PUBLIC
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. 11153-37
Another quarter of big loss from price discounts; Downgrade to Sell
Rating Summary Recommendation
Sell
12-Month Target price (SAR)
9.0
Upside/(Downside)
A weak quarter from price discounts and construction slowdown in KSA
Stock Details
Chemanol reported 3Q15 net loss of SAR43m that included SAR10m one-off charge (inventory revaluation) meaning restated clean net loss was SAR33m and came well short of SFC estimate of SAR9m loss and consensus estimate of SAR11m loss. While revenues of SAR174m (-21% y/y, -11% q/q) was 13% below our estimate, operational loss was SAR36m vs. our estimate of SAR2m loss. Management attributed the weak quarterly performance primarily to soft product prices and increasing competition in company’s key geographies such as GCC/India/China/East Asia that resulted in Chemanol providing discounts to buyers to maintain market share. Interestingly, management commentary also highlighted construction slowdown in KSA (around 35-40% of Chemanol’s sales) resulted in postponement of sales of some products and was one of the reasons for sequentially weak earnings performance.
Last Close Price
Stocks lacks catalysts while competitive pressures to continue; Downgrade to Sell We see Chemanol as a pure play on methanol derivatives and one that‘s devoid of any near term catalyst. While methanol prices are likely to remain subdued in the near term, the stock lacks meaningful growth prospects in the mid-term which in our view could lead to negative investor sentiment. Furthermore, Chemanol is trading at a premium to the sector (12.6x 2015E EV/ EBITDA vs. KSA Peers 11.2x) with a downward earnings bias as pricing weakness is likely to continue from competitive pressures. We downgrade the stock to Sell (from Hold).
-10%
Market Capitalization
SAR
9.9
SAR mln
1,188
Shares Outstanding
mln
121
52-Week High
SAR
16.4
52-Week Low
SAR
8.9
Price Change (YTD)
%
-16%
6-Mth ADTV
mln
35.2
EPS 2015E
SAR
-0.34
2001.SE
CHEMANOL AB
Reuters / Bloomberg Source: Tadawul
Key Shareholders (%) Yusuf Bin Ahmed Kanoo Ltd.
11
Zamil Group Holding Co.
8
Abdulrahman Mohammed Suleiman Lhaidan
5
Mohammed and the Gila's first de Ltd
5
Public SAR mn
Revenues Gross Profit
3Q15A
3Q15E
% dev
Cons
% dev
2Q15
% qoq
3Q14
%yoy
2016E
2017E
174
200
-13%
195
-11%
196
-11%
220
-21%
874
880
11
28
-62%
Na
Na
24
-57%
47
-77%
153
156
-36
-2
Nm
Na
Na
-7
Nm
22
Nm
48
51
71
Source: Tadawul
Price Multiples
P/E EBIT
EV / EBITDA Net Income
-43
-9
Nm
-11
Source: Company, Saudi Fransi Capital, Bloomberg
Na
-21
Nm
10
Nm
17
23
2015E
2016E
Nm
68.4
12.6
10.0
0
5.1%
Dividend Yield Source: SFC
1-Year Share Performance 110 100
90 80 70 60 50 40 S
O
N
D
J
F
Chemanol
M
A
M
J
J
A
S
TASI Petchem
Source: Bloomberg
Dipanjan Ray, CFA [email protected] +966 11 282 6861 AbdulAziz Jawdat [email protected] +966 11 282 6856 PUBLIC
Page 1
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA)
Research and Advisory Department Rating Framework
BUY Shares of the company under coverage in this report are expected to outperform relative to the sector or the broader market.
HOLD Shares of the company under coverage in this report are expected to perform in line with the sector or the broader market.
SELL Shares of the company under coverage in this report are expected to underperform relative to the sector or the broader market.
Saudi Fransi Capital Call Center | 800 125 9999 www.sfc.sa Commercial Registration | 1010231217
Research and Advisory P.O. Box 23454 Riyadh 11426 Saudi Arabia Head Office | Riyadh [email protected]
PUBLIC
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. 11153-37
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 company 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 statements 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
PUBLIC
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. 11153-37
