Petrochem 01 August 2016 PDF
August 01, 2016 Rating 12- Month Target Price
Neutral SAR 17.50
NATIONAL PETROCHEMICAL COMPANY (PETROCHEM) 2Q2016 First Look
Marginal Beat
Expected Total Return
National Petrochemical Company (Petrochem) reported its 2Q2016 results last week with a marginal earnings beat. EPS of SAR 0.44 though declined by -32% Y/Y, but grew by +71% Q/Q posting a strong sequential growth. EPS came in higher than our estimate of SAR 0.39 and street’s SAR 0.41. Despite the earnings beat, revenue stood in-line with our estimates. Our initial take on 2Q2016 numbers suggest margin expansion on the back of lower feedstock costs. With planned shutdown in 4Q2016 and impact higher than earlier expected, we revise our estimates and cut target price to SAR 17.50. 2016E P/E of 12.8x is at par versus sector P/E of 13.2x denoting limited valuation opportunity. We maintain our Neutral rating on the stock as valuation upside of +8% is feeble.
SAR 16.20 9 7.7%
Price as on Jul-31, 2016 Upside to Target Price Expected Dividend Yield
0.0%
Expected Total Return
7.7%
Market Data 52 Week H/L
SAR 24.7/10.8
Market Capitalization
SAR 7,800 mln SAR 18,820 mln
Enterprise Value
Revenue matches estimate
480.0 mln
Shares Outstanding
Revenues of SAR 1.64 billion declined by -17% Y/Y and -1% Q/Q, but stood in-line with our expectations. The average prices of Asian benchmarks for PP and PE’s have grown by +15% Q/Q and +10% Q/Q respectively suggesting a strong price growth. We believe the improvement in PE and PP prices have helped Petrochem to achieve price growth but utilization is lower this quarter, evident from its flat growth on sequential basis.
77.4%
Free Float
524.8
12-Month ADTV(000’s)
PETROCH AB
Bloomberg Code
Margins improve on widened spreads
1-Year Price Performance
Gross profit of SAR 572 million declined by -22% Y/Y but increased by +34% Q/Q, while it came close to our estimate of SAR 592 million. We believe lower feedstock prices (propane prices sharply fell in 2Q) and the relative spreads has helped elevate margins. Gross margins improved to 35% but declined from 38% in 2Q2015 though the same increased from 26% in 1Q2016.
110 100 90 80 70 60 50 40 30
Earnings beat estimates
A
S O N D PETROCH
J
Operating profit of SAR 422 million beat estimate of SAR 390 million, rose by +46% Q/Q while it declined by -25% Y/Y. Operating margins improved to 26% in 2Q2016 from 17% in 1Q2016 though it fell slightly lower to 29% in 2Q2015. Net income of SAR 209 million was above our expectations of SAR 185 million and consensus of SAR 188 million. It declined by -32% Y/Y but increased by +71% Q/Q. Net margins stood at 13% this quarter versus 8% in 1Q2016 but still lower to 16% in 2Q2015.
F M A M J J TASI TPCHEM
Source: Bloomberg 6M
1Y
2Y
Cut target price to SAR 17.50 and maintain Neutral
40%
Petrochem’s polymer plant is due for a 60-day shutdown during 4Q2016 for scheduled maintenance. We expect the shutdown impact could be slightly larger than expected, while our revised view leads to an adjustment in our 2016-18 forecasts. Hence we cut our target price to SAR 17.50 from SAR 20.00 but maintain Neutral. Petrochem has announced that dividends will not be paid for 2016. Additionally, stock has underperformed sector with 2Q2016 returns of +2% versus sector’s +9% and TASI‘s +4%. Maintain Neutral.
20% 0% -20% -40% -60% PETROCH
2Q2016 (SAR mln) MlnMMln Revenue
TASI
TPCHEM
RC.Est Estimates 1,645
Actuals 1,642
592
574
EBIT
390
422
Net Income
185
209
EPS (SAR)
0.39
0.44
Gross Profit
Key Financial Ratios
Key Financial Figures FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR) BVPS (SAR)
2015A 7,304 2,434 907 1.89 NA 11.62
2016E 5,550 2,109 611 1.27 NA 12.42
Santhosh Balakrishnan
Yasser Bin Ahmed
[email protected] +966-11-203-6809
[email protected] +966-11-203-6805
2017E 7,520 2,782 902 1.88 0.50 13.63
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA EV/Sales
2015A 4% 17% 8.6x 1.4x 7.7x 2.6x
2016E 3% 13% 12.8x 1.3x 8.9x 3.4x
2017E 4% 16% 8.6x 1.2x 6.8x 2.5x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
NATIONAL PETROCHEMICAL COMPANY (PETROCHEM) 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
Neutral SAR 17.50
NATIONAL PETROCHEMICAL COMPANY (PETROCHEM) 2Q2016 First Look
Marginal Beat
Expected Total Return
National Petrochemical Company (Petrochem) reported its 2Q2016 results last week with a marginal earnings beat. EPS of SAR 0.44 though declined by -32% Y/Y, but grew by +71% Q/Q posting a strong sequential growth. EPS came in higher than our estimate of SAR 0.39 and street’s SAR 0.41. Despite the earnings beat, revenue stood in-line with our estimates. Our initial take on 2Q2016 numbers suggest margin expansion on the back of lower feedstock costs. With planned shutdown in 4Q2016 and impact higher than earlier expected, we revise our estimates and cut target price to SAR 17.50. 2016E P/E of 12.8x is at par versus sector P/E of 13.2x denoting limited valuation opportunity. We maintain our Neutral rating on the stock as valuation upside of +8% is feeble.
SAR 16.20 9 7.7%
Price as on Jul-31, 2016 Upside to Target Price Expected Dividend Yield
0.0%
Expected Total Return
7.7%
Market Data 52 Week H/L
SAR 24.7/10.8
Market Capitalization
SAR 7,800 mln SAR 18,820 mln
Enterprise Value
Revenue matches estimate
480.0 mln
Shares Outstanding
Revenues of SAR 1.64 billion declined by -17% Y/Y and -1% Q/Q, but stood in-line with our expectations. The average prices of Asian benchmarks for PP and PE’s have grown by +15% Q/Q and +10% Q/Q respectively suggesting a strong price growth. We believe the improvement in PE and PP prices have helped Petrochem to achieve price growth but utilization is lower this quarter, evident from its flat growth on sequential basis.
77.4%
Free Float
524.8
12-Month ADTV(000’s)
PETROCH AB
Bloomberg Code
Margins improve on widened spreads
1-Year Price Performance
Gross profit of SAR 572 million declined by -22% Y/Y but increased by +34% Q/Q, while it came close to our estimate of SAR 592 million. We believe lower feedstock prices (propane prices sharply fell in 2Q) and the relative spreads has helped elevate margins. Gross margins improved to 35% but declined from 38% in 2Q2015 though the same increased from 26% in 1Q2016.
110 100 90 80 70 60 50 40 30
Earnings beat estimates
A
S O N D PETROCH
J
Operating profit of SAR 422 million beat estimate of SAR 390 million, rose by +46% Q/Q while it declined by -25% Y/Y. Operating margins improved to 26% in 2Q2016 from 17% in 1Q2016 though it fell slightly lower to 29% in 2Q2015. Net income of SAR 209 million was above our expectations of SAR 185 million and consensus of SAR 188 million. It declined by -32% Y/Y but increased by +71% Q/Q. Net margins stood at 13% this quarter versus 8% in 1Q2016 but still lower to 16% in 2Q2015.
F M A M J J TASI TPCHEM
Source: Bloomberg 6M
1Y
2Y
Cut target price to SAR 17.50 and maintain Neutral
40%
Petrochem’s polymer plant is due for a 60-day shutdown during 4Q2016 for scheduled maintenance. We expect the shutdown impact could be slightly larger than expected, while our revised view leads to an adjustment in our 2016-18 forecasts. Hence we cut our target price to SAR 17.50 from SAR 20.00 but maintain Neutral. Petrochem has announced that dividends will not be paid for 2016. Additionally, stock has underperformed sector with 2Q2016 returns of +2% versus sector’s +9% and TASI‘s +4%. Maintain Neutral.
20% 0% -20% -40% -60% PETROCH
2Q2016 (SAR mln) MlnMMln Revenue
TASI
TPCHEM
RC.Est Estimates 1,645
Actuals 1,642
592
574
EBIT
390
422
Net Income
185
209
EPS (SAR)
0.39
0.44
Gross Profit
Key Financial Ratios
Key Financial Figures FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR) BVPS (SAR)
2015A 7,304 2,434 907 1.89 NA 11.62
2016E 5,550 2,109 611 1.27 NA 12.42
Santhosh Balakrishnan
Yasser Bin Ahmed
[email protected] +966-11-203-6809
[email protected] +966-11-203-6805
2017E 7,520 2,782 902 1.88 0.50 13.63
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA EV/Sales
2015A 4% 17% 8.6x 1.4x 7.7x 2.6x
2016E 3% 13% 12.8x 1.3x 8.9x 3.4x
2017E 4% 16% 8.6x 1.2x 6.8x 2.5x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
NATIONAL PETROCHEMICAL COMPANY (PETROCHEM) 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
