Gaining Market Share
May 01, 2018 Rating 12- Month Target Price
Neutral SAR 52.00
SAUDI CEMENT COMPANY (SACCO) 1Q2018 First Look
Gaining Market Share
Expected Total Return SAR 50.87 9 2.2%
Price as on Apr-30, 2018 Upside to Target Price Expected Dividend Yield
5.9%
Expected Total Return
8.1%
Market Data SAR 60.4/37.2
52 Week H/L Market Capitalization
SAR 7,783 million
Enterprise Value
SAR 8,213 million 153 million
Shares Outstanding
81.1%
Free Float
134.6
12-Month ADTV(000’s)
SACCO AB
Bloomberg Code 1-Year Price Performance
Saudi Cement Company’s (SACCO) 1Q2018 results were reported in-line with our expectations. Revenue has increased by +4% Q/Q but declined by -4% Y/Y to SAR 331 million, close to our SAR 341 million forecast. Revenues have increased Q/Q on the back of higher sales volume as the company managed to sell 1.4 million tons in 1Q compared to 1.3 million tons in 4Q2017, an improvement of +9% on a quarterly basis. Net income is down -14% Y/Y but up +33% Q/Q to SAR 142 million, in-line with our SAR 150 million estimate. The stock is trading at a 2018E P/E of 16.0x, in median range, as valuations of most operators range between 15x to 16x in the sector; at a premium to TASI’s 15.1x. A dividend yield of 5.9% for 2018E is not as attractive when compared to peers. We maintain our Neutral recommendation and our SAR 52.00 target price.
Sales volume improve by +9% Q/Q Revenues of SAR 331 million were in-line with our SAR 341 million estimate; declined by -4% Y/Y but increased by +4% Q/Q on the back of higher sales volume. Sales volumes have increased by +9% Q/Q to 1.428k tons whereas selling prices have declined by -1% Y/Y and -5% Q/Q to SAR 232/ton. Additionally, Saudi’s market share has improved by 100 bps sequentially to 12.0% in 1Q2018. We believe that SACCO managed to acquire Eastern’s market share as its share has declined by 60 bps as well as Yamama’s (-94 bps to 6.3%), assuming its reachability to the central region. SACCO’s adjusted inventory levels of 5.6 million tons remains an issue as it is considered to be among the highest in the sector. Nonetheless, following the government’s decision to lift export bans on cement, SACCO managed to export 22,000 tons of cement to in March with total Eastern producers exporting 60,000 tons to Bahrain from mid-March to mid-April. Moreover, it is expected that export volumes would reach 70,000 tons per month by the end of 2018, hence, easing some of the inventory pressure seen.
Margins expand across the board Gross margins expanded by 700 bps Q/Q to 51% in 1Q2018 on the back of cost control as revenues have grown by +4% Q/Q whereas gross profit of SAR 169 million has increased by +20% Q/Q. Cost of sales has declined by -16% Q/Q to SAR 113/ton with the increase of cement production by +21% Q/Q to 1.5 million. The increase in cement production has taken utilization rates to 71% in 1Q2018 from 4Q2017 levels at 58%. Operating margins expanded by +10% from the preceding quarter to 45% as operating expenses declined by -29% Q/Q to SAR 20 million. Net income was also in-line with our forecasts, coming in at SAR 142 million. Net income has risen by +33% Q/Q. Another contributing factor to the rise in net income is the increase in share in net results of associates. EPS for the period was reported at SAR 0.93, close to our SAR 0.98 estimates.
Source: Bloomberg
6M
1Y
2Y
40% 30% 20% 10% 0%
Maintain Neutral A dividend yield of 5.9% for 2018E is not as attractive as peers particularly given a modest growth in demand outlook in the Eastern region. Therefore, we maintain our Neutral recommendation and our SAR 52.00 target price. 2018E P/E of 16.0x is at a premium to the market and in the median range among peers.
-10% SACCO
Fig in SAR Mln MlnMMln Revenue
TASI
Actuals 331
Gross Profit
RC.Est Estimat 341 es 187
Net Income
150
142
EPS (SAR)
0.98
0.93
169
Key Financial Figures FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR) BVPS (SAR)
2017A 1,185 694 453 2.96 4.00 18.81
Key Financial Ratios 2018E 1,238 672 485 3.17 3.00 18.98
2019E 1,301 702 524 3.42 3.00 19.40
Muhammad Faisal Potrik
Alanoud K AlMoammar
[email protected] +966-11-203-6807
[email protected] +966-11-203-6833
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA EV/Sales
2017A 16% 16% 17.2x 2.7x 11.8x 6.9x
2018E 17% 17% 16.0x 2.7x 12.2x 6.6x
2019E 5% 18% 14.9x 2.6x 11.7x 6.3x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI CEMENT COMPANY (SACCO) 1Q2018 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 closed joint stock 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 (“KSA”). Website: www.riyadcapital.com Page 2 of 4
Neutral SAR 52.00
SAUDI CEMENT COMPANY (SACCO) 1Q2018 First Look
Gaining Market Share
Expected Total Return SAR 50.87 9 2.2%
Price as on Apr-30, 2018 Upside to Target Price Expected Dividend Yield
5.9%
Expected Total Return
8.1%
Market Data SAR 60.4/37.2
52 Week H/L Market Capitalization
SAR 7,783 million
Enterprise Value
SAR 8,213 million 153 million
Shares Outstanding
81.1%
Free Float
134.6
12-Month ADTV(000’s)
SACCO AB
Bloomberg Code 1-Year Price Performance
Saudi Cement Company’s (SACCO) 1Q2018 results were reported in-line with our expectations. Revenue has increased by +4% Q/Q but declined by -4% Y/Y to SAR 331 million, close to our SAR 341 million forecast. Revenues have increased Q/Q on the back of higher sales volume as the company managed to sell 1.4 million tons in 1Q compared to 1.3 million tons in 4Q2017, an improvement of +9% on a quarterly basis. Net income is down -14% Y/Y but up +33% Q/Q to SAR 142 million, in-line with our SAR 150 million estimate. The stock is trading at a 2018E P/E of 16.0x, in median range, as valuations of most operators range between 15x to 16x in the sector; at a premium to TASI’s 15.1x. A dividend yield of 5.9% for 2018E is not as attractive when compared to peers. We maintain our Neutral recommendation and our SAR 52.00 target price.
Sales volume improve by +9% Q/Q Revenues of SAR 331 million were in-line with our SAR 341 million estimate; declined by -4% Y/Y but increased by +4% Q/Q on the back of higher sales volume. Sales volumes have increased by +9% Q/Q to 1.428k tons whereas selling prices have declined by -1% Y/Y and -5% Q/Q to SAR 232/ton. Additionally, Saudi’s market share has improved by 100 bps sequentially to 12.0% in 1Q2018. We believe that SACCO managed to acquire Eastern’s market share as its share has declined by 60 bps as well as Yamama’s (-94 bps to 6.3%), assuming its reachability to the central region. SACCO’s adjusted inventory levels of 5.6 million tons remains an issue as it is considered to be among the highest in the sector. Nonetheless, following the government’s decision to lift export bans on cement, SACCO managed to export 22,000 tons of cement to in March with total Eastern producers exporting 60,000 tons to Bahrain from mid-March to mid-April. Moreover, it is expected that export volumes would reach 70,000 tons per month by the end of 2018, hence, easing some of the inventory pressure seen.
Margins expand across the board Gross margins expanded by 700 bps Q/Q to 51% in 1Q2018 on the back of cost control as revenues have grown by +4% Q/Q whereas gross profit of SAR 169 million has increased by +20% Q/Q. Cost of sales has declined by -16% Q/Q to SAR 113/ton with the increase of cement production by +21% Q/Q to 1.5 million. The increase in cement production has taken utilization rates to 71% in 1Q2018 from 4Q2017 levels at 58%. Operating margins expanded by +10% from the preceding quarter to 45% as operating expenses declined by -29% Q/Q to SAR 20 million. Net income was also in-line with our forecasts, coming in at SAR 142 million. Net income has risen by +33% Q/Q. Another contributing factor to the rise in net income is the increase in share in net results of associates. EPS for the period was reported at SAR 0.93, close to our SAR 0.98 estimates.
Source: Bloomberg
6M
1Y
2Y
40% 30% 20% 10% 0%
Maintain Neutral A dividend yield of 5.9% for 2018E is not as attractive as peers particularly given a modest growth in demand outlook in the Eastern region. Therefore, we maintain our Neutral recommendation and our SAR 52.00 target price. 2018E P/E of 16.0x is at a premium to the market and in the median range among peers.
-10% SACCO
Fig in SAR Mln MlnMMln Revenue
TASI
Actuals 331
Gross Profit
RC.Est Estimat 341 es 187
Net Income
150
142
EPS (SAR)
0.98
0.93
169
Key Financial Figures FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR) BVPS (SAR)
2017A 1,185 694 453 2.96 4.00 18.81
Key Financial Ratios 2018E 1,238 672 485 3.17 3.00 18.98
2019E 1,301 702 524 3.42 3.00 19.40
Muhammad Faisal Potrik
Alanoud K AlMoammar
[email protected] +966-11-203-6807
[email protected] +966-11-203-6833
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA EV/Sales
2017A 16% 16% 17.2x 2.7x 11.8x 6.9x
2018E 17% 17% 16.0x 2.7x 12.2x 6.6x
2019E 5% 18% 14.9x 2.6x 11.7x 6.3x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI CEMENT COMPANY (SACCO) 1Q2018 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 closed joint stock 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 (“KSA”). Website: www.riyadcapital.com Page 2 of 4
