Petrochem 21 April 2016 PDF
National Petrochemical Company 1Q2016 First Look
Hold
Miss Estimates
April 21, 2016 Expected Total Return Price as of Apr-20, 2016
SAR 18.54
Upside to Target Price
7.9%
Expected Dividend Yield
N.A
Expected Total Return
7.9%
Market Data 52-Week H/L
SAR 29.71/10.75
Market Capitalization
SAR 8,899 mln
Enterprise Value
SAR 21,417 mln
Shares Outstanding
480.0 mln
Free Float
17.5%
12-Month ADTV (000’s)
566.7
TASI Weight
0.24%
Reuters Code
2002.SE
Bloomberg Symbol
PETROCH AB
1-Year Price Performance 130 120 110 100 90 80 70 60 50 40 30 A M J
J
A S O N D
Petrochem
TASI
J
Apr-20-2016
18.54
TASI 6,512
Total Change
F M
Feedstock spreads did not elevate margins Gross profit of SAR 425 million declined by -3% Y/Y and -22% Q/Q missing our expectations of SAR 472 million. We believe minimal impact of subsidy cuts has taken place as Petrochem has clarified that Aramco will use new pricing effective from 2018 for its major feedstock. Gross margins during the quarter were lower than expected and declined to 26% from 33% in 4Q2015 but improved from 25% in 1Q2015. Feedstock spreads have widened but not reflected in margins.
(15.3%)
Dividend flows unlikely until 2017 Petrochem earlier announced, it will shut its polymers unit for 60 days during 4Q2016 for scheduled maintenance. This is likely to impact 4Q2016 earnings and in fact dividends are TPCHEM unlikely for 2016. We retain our target price of SAR 20.00 but downgrade to Hold on valuation concerns. Stock outperformed sector by +11% YTD basis and +72% from its lows and believe 4,260 rally is overdone. Revise to Hold from Buy.
(20.2%)
1-Year
(27.8%)
(32.1%)
(33.3%)
2-Year
(36.7%)
(32.4%)
(44.9%)
Key Financials
(19.1%)
(SAR mln)
Actual
RC Forecast
Revenue
1,659
1,476
Gross Profit
428
472
Net Income
122
159
EPS (SAR)
0.25
0.33
Santhosh Balakrishnan
Revenue similar to 4Q2015 For 1Q2016, revenues of SAR 1.66 billion were almost flat but declined by -6% Y/Y. Revenue beat our estimate of SAR 1.47 billion and street’s SAR 1.59 billion. Average prices of polypropylene declined by –9% in 1Q2016, while polyethylene resins have declined by -15%. We believe utilization rates across products expected to be slightly lower to average of 2015.
Operating margins decline; some cost cutting impact visible Operating profit of SAR 288 million was lower than expectations and improved by +23% Y/Y but declined by -22% Q/Q. Operating margins declined to 17% in 1Q2016 but improved from 13% in 1Q2015, due to fall in SG&A expenses. SG&A expenses of SAR 273 million this quarter was lower versus SAR 334 million, when compared at same revenue levels. Net income of SAR 122 million missed expectations of SAR 159 million, declining by -31% Y/Y but increased by +20% Q/Q. Such depressed earnings took net margins to 7% in 1Q, lowest since 2Q2015.
6-months
1Q2016
National Petrochemical Company (Petrochem) reported its 1Q2016 results with earnings missing our expectations and consensus. EPS of SAR 0.25 in 1Q increased by +20% Y/Y but declined by -31% Q/Q, lower than our estimate of SAR 0.33 and street’s SAR 0.34. However, revenue beat expectations due to improved product prices; they did not bottom and fell less than oil prices. We believe results gave indications of further pressure for 2016 in addition to 60 days shutdown on polymer plant in 4Q2016 but await clarity and revise estimates gradually. For now, we maintain our estimates and target price of SAR 20.00. An upside of +8% is expected currently, hence revise to Hold as the stock has rallied significantly by +30% since last note. 2016E P/E of 10.3x is cheaper versus sector P/E of 11.7x. Although it appears attractive but risk of earnings decline may not support the valuation range. Revise to Hold.
TPCHEM
Source: Bloomberg PETRO
12 Month Target Price SAR 20.00
[email protected] +966-11-203-6809
FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
7,304
7,691
8,348
8,857
EBITDA
2,434
2,351
2,570
2,546
Net Profit
907
863
984
1,075
EPS (SAR)
1.89
1.80
2.05
2.24
DPS (SAR) BVPS (SAR)
NA
NA
0.50
1.00
11.62
12.42
12.97
13.71
ROAA
4%
4%
4%
5%
ROAE
17%
14%
16%
16%
P/E
9.8x
10.3x
9.0x
8.3x
P/B
1.6x
1.5x
1.4x
1.4x
P/S
1.2x
1.2x
1.1x
1.0x
EV/ EBITDA
8.8x
9.1x
8.3x
8.4x
EV/ Sales
2.9x
2.8x
2.6x
2.4x
Yasser Bin Ahmed
[email protected] Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37) +966-11-203-6005
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
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 (“KSA”). Website: www.riyadcapital.com
Hold
Miss Estimates
April 21, 2016 Expected Total Return Price as of Apr-20, 2016
SAR 18.54
Upside to Target Price
7.9%
Expected Dividend Yield
N.A
Expected Total Return
7.9%
Market Data 52-Week H/L
SAR 29.71/10.75
Market Capitalization
SAR 8,899 mln
Enterprise Value
SAR 21,417 mln
Shares Outstanding
480.0 mln
Free Float
17.5%
12-Month ADTV (000’s)
566.7
TASI Weight
0.24%
Reuters Code
2002.SE
Bloomberg Symbol
PETROCH AB
1-Year Price Performance 130 120 110 100 90 80 70 60 50 40 30 A M J
J
A S O N D
Petrochem
TASI
J
Apr-20-2016
18.54
TASI 6,512
Total Change
F M
Feedstock spreads did not elevate margins Gross profit of SAR 425 million declined by -3% Y/Y and -22% Q/Q missing our expectations of SAR 472 million. We believe minimal impact of subsidy cuts has taken place as Petrochem has clarified that Aramco will use new pricing effective from 2018 for its major feedstock. Gross margins during the quarter were lower than expected and declined to 26% from 33% in 4Q2015 but improved from 25% in 1Q2015. Feedstock spreads have widened but not reflected in margins.
(15.3%)
Dividend flows unlikely until 2017 Petrochem earlier announced, it will shut its polymers unit for 60 days during 4Q2016 for scheduled maintenance. This is likely to impact 4Q2016 earnings and in fact dividends are TPCHEM unlikely for 2016. We retain our target price of SAR 20.00 but downgrade to Hold on valuation concerns. Stock outperformed sector by +11% YTD basis and +72% from its lows and believe 4,260 rally is overdone. Revise to Hold from Buy.
(20.2%)
1-Year
(27.8%)
(32.1%)
(33.3%)
2-Year
(36.7%)
(32.4%)
(44.9%)
Key Financials
(19.1%)
(SAR mln)
Actual
RC Forecast
Revenue
1,659
1,476
Gross Profit
428
472
Net Income
122
159
EPS (SAR)
0.25
0.33
Santhosh Balakrishnan
Revenue similar to 4Q2015 For 1Q2016, revenues of SAR 1.66 billion were almost flat but declined by -6% Y/Y. Revenue beat our estimate of SAR 1.47 billion and street’s SAR 1.59 billion. Average prices of polypropylene declined by –9% in 1Q2016, while polyethylene resins have declined by -15%. We believe utilization rates across products expected to be slightly lower to average of 2015.
Operating margins decline; some cost cutting impact visible Operating profit of SAR 288 million was lower than expectations and improved by +23% Y/Y but declined by -22% Q/Q. Operating margins declined to 17% in 1Q2016 but improved from 13% in 1Q2015, due to fall in SG&A expenses. SG&A expenses of SAR 273 million this quarter was lower versus SAR 334 million, when compared at same revenue levels. Net income of SAR 122 million missed expectations of SAR 159 million, declining by -31% Y/Y but increased by +20% Q/Q. Such depressed earnings took net margins to 7% in 1Q, lowest since 2Q2015.
6-months
1Q2016
National Petrochemical Company (Petrochem) reported its 1Q2016 results with earnings missing our expectations and consensus. EPS of SAR 0.25 in 1Q increased by +20% Y/Y but declined by -31% Q/Q, lower than our estimate of SAR 0.33 and street’s SAR 0.34. However, revenue beat expectations due to improved product prices; they did not bottom and fell less than oil prices. We believe results gave indications of further pressure for 2016 in addition to 60 days shutdown on polymer plant in 4Q2016 but await clarity and revise estimates gradually. For now, we maintain our estimates and target price of SAR 20.00. An upside of +8% is expected currently, hence revise to Hold as the stock has rallied significantly by +30% since last note. 2016E P/E of 10.3x is cheaper versus sector P/E of 11.7x. Although it appears attractive but risk of earnings decline may not support the valuation range. Revise to Hold.
TPCHEM
Source: Bloomberg PETRO
12 Month Target Price SAR 20.00
[email protected] +966-11-203-6809
FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
7,304
7,691
8,348
8,857
EBITDA
2,434
2,351
2,570
2,546
Net Profit
907
863
984
1,075
EPS (SAR)
1.89
1.80
2.05
2.24
DPS (SAR) BVPS (SAR)
NA
NA
0.50
1.00
11.62
12.42
12.97
13.71
ROAA
4%
4%
4%
5%
ROAE
17%
14%
16%
16%
P/E
9.8x
10.3x
9.0x
8.3x
P/B
1.6x
1.5x
1.4x
1.4x
P/S
1.2x
1.2x
1.1x
1.0x
EV/ EBITDA
8.8x
9.1x
8.3x
8.4x
EV/ Sales
2.9x
2.8x
2.6x
2.4x
Yasser Bin Ahmed
[email protected] Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37) +966-11-203-6005
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
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 (“KSA”). Website: www.riyadcapital.com
