Saudi Arabia Fertilizers Co. (SAFCO)
SAFCO Petrochemical Industries Sector SAFCO AB - 2020.SE May 1, 2017
Saudi Arabia Fertilizers Co. (SAFCO) Recommendation
Neutral
05.46
Fair Value (SAR) Price as of May 1, 2017
07.84
Expected Return
-6.2%
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
82.00
52 Week Low (SAR)
58.00
YTD Change
-10%
3-Month Average Volume (Thousand Shares)
149
Market Cap. (SAR Million)
28,648
Market Cap. (USD Million)
7,640
Outstanding Shares (Million Shares)
416.7
Saudi Basic Industries Corp. (SABIC)
42.99%
General Organization for Social Insurance
12.20%
Major Shareholders ( > 5% )
52-week Stock Price Movement SAFCO
125
Q1 2017
Saudi Arabian Fertilizer Company (SAFCO) stated that its bottom line jumped by 60% YoY and 52% QoQ in Q1 2017 hitting. SAR 423.4 million compared to SAR 265 million and SAR 279 million in Q1 2016 and Q4 2016, respectively. The profit margin in Q1 2017 surged to 50% versus 38.3% in Q1 2016 . SAFCO attributed the robust increase in net earnings to urea selling prices and lower sales cost despite a decrease in the sales volume. The company benefited from increased investment income from IBN AL-Baytar that boosted its net profit. The following table depicts the change in ammonia and urea prices in the first quarter of the year. Commodity Prices (US$/Ton) Current price
Q1 2017 Q1 2016 change Q4 2016 change
Ammonia (Middle East)
284
200
233
)%2)
070
%08
UREA (Middle East)
364
302
304
%34
330
%02
As mentioned above urea prices in Q1 2017 mounted 25% compared to the same the period last year and 19% versus Q4 2016.
Tad awu l In dex
Sales in Q1 2017 skyrocketed to SAR 847 million compared to SAR 691.2 million for same period last year; the highest level since beginning of 2015 .
115 105
Operating profit (EBIT) increased 52.82% YoY and 49.61% QoQ hitting SAR 395 million. Likewise, operating profit margin rose 47% versus 37.35% in Q1 2016. Gross profit came in at SAR 480 million in Q1 2017 soaring 35.41% YoY and 30.09% QoQ.
95 85 75
Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales
1,00 0
ROS
70%
800
60%
600
50%
400
40%
200
30%
0
20%
SAFCO’s preliminary profit came higher than our expectation of SAR 353 million. International Fertilizer Association (IFA) stated that world demand for fertilizer products are positive and could grow by 2.9% for 2017. Furthermore, (IFA) forecasted a potential surplus of 8% during next couple years. Which will weigh on fertilizers prices. The company plans to shutdown several plants for maintenance and upgrade reasons. Taking into account Q1 results and global supply/demand projections in 2017, we estimated our fair value of SAFCO at SAR 64.5 per share, with an “Neutral” recommendation.
FY - Ending December
3602A
3605A
3600A
3608E
EV/EBITDA
8.02
11.17
19.55
16.33
EV/Sales
5.98
7.61
9.78
7.91
For more information, please contact:
P/E
9.06
13.49
27.23
21.80
Turki Fadaak Research & Advisory Manager [email protected]
Dividend Yield
8.1%
8.7%
3.6%
4.3%
P/BV
3.66
3.78
4.12
4.03
P/Revenue
6.45
8.10
10.07
8.31
Revenue Growth
5.1%
-20.4%
-19.5%
21.1%
Source: Company Filings, Albilad Capital Research Estimates
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector May 1, 2017
SAFCO AB - 2020.SE
Urea and Ammonia Prices
UREA Middle East Spot Price (US$/Ton) 290
270 250 230
210 190 170
150
Ammonia Middle East Spot Price (US$/Ton) 500 450 400 350 300 250
200 150
Source: Bloomberg
2
SAFCO Petrochemical Industries Sector May 1, 2017
SAFCO AB - 2020.SE Income Statement (SAR mn)
2013A
2014A
2015A
2016A
2017E
Sales
4,240.4
4,456.1
3,547.3
2,855.9
3,459.3
COGS
987.8
1,034.2
1,061.5
1,358.5
1,684.0
SG&A
81.1
97.4
71.2
69.4
100.4
EBITDA
3,171.4
3,324.5
2,414.5
1,428.0
1,675.0
EBITA Margin
74.8%
74.6%
68.1%
50.0%
48.4%
Depreciation and amortization
373.9
368.0
400.7
447.8
483.2
EBIT
2,797.5
2,956.5
2,013.8
980.3
1,191.8
Investment Income
392.53
241.58
137.15
71.55
122.78
Others Pre-Tax and Zakat Income Tax and Zakat
82.94
55.97
45.45
26.34
32.40
3,272.9
3,254.0
2,196.4
1,078.2
1,346.9
112.5
80.0
66.0
22.5
28.1
Net Income
3,160.5
3,174.0
2,130.4
1,055.7
1,318.8
ROS
74.5%
71.2%
60.1%
37.0%
38.1%
Balance Sheet (SAR mn)
2013A
2014A
2015A
2016A
2017E
Cash and Marketable securities
2,139.7
1,640.1
1,460.0
316.8
885.5
Inventory
342.3
386.9
434.6
505.3
464.5
Others
886.1
754.5
920.6
737.0
893.1
Total ST Assets
3,368.1
2,781.4
2,815.3
1,559.0
2,243.1
Net Fixed Assets
4,320.5
4,896.5
5,173.2
5,485.9
5,068.1
Long Term Investments
1,527.7
1,193.0
916.6
1,179.2
1,181.5
243.6
53.8
107.2
149.6
96.1
Total LT Assets
6,091.8
6,143.3
6,197.0
6,814.7
6,345.7
Total Assets
9,459.9
8,924.7
9,012.3
8,373.8
8,588.8
Accrued Expenses
309.6
159.0
415.1
386.9
468.6
Dividends Payable
155.7
175.7
185.5
178.7
178.7
Others
222.3
175.6
219.5
281.3
332.1
Total ST Liabilities
687.6
510.2
820.2
846.9
979.4
Other Non-Current Liabilities
503.47
552.79
595.96
546.17
476.54
Equity
8,268.8
7,861.7
7,596.2
6,980.7
7,132.9
Total Liabilities and Equity
9,459.9
8,924.7
9,012.3
8,373.8
8,588.8
Cash Flow (SAR mn)
2013A
2014A
2015A
2016A
2017E
Cash flow from Operations
3,277.8
3,256.6
2,695.8
1,558.2
1,611.1
Cash flow from Financing
(4,015.0)
(3,313.3)
(2,241.5)
(1,883.2)
(1,166.7)
Change in Cash
(1,454.4)
(499.6)
(180.1)
(1,143.3)
568.8
Ending Cash
2,139.7
1,640.1
1,460.0
316.8
885.5
Others
Cash flow from Investing
(717.1)
(442.8)
(634.3)
(818.3)
124.3
Source: Company Filings, Albilad Capital Research Estimates
Presentation of financial statements may differ from the company’s presentation. However, there is no impact on the final results.
3
SAFCO Petrochemical Industries Sector May 1, 2017
SAFCO AB - 2020.SE
Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight:
The Target share price exceeds the current share price by ≥ 10%.
Neutral:
The Target share price is either more or less than the current share price by < 10%.
Underweight:
The Target share price is less than the current share price by ≥ 10%.
To be Revised:
No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research.
Albilad Capital Client Services E-mail: Tel:
[email protected] +966-11-203-9888
Research & Advisory
Toll-free: 800-116-0001
E-mail: [email protected] Tel: +966-11-290-6250 Website: www.albilad-capital.com/en/research
Asset Management
Brokerage
Custody
Investment Banking
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6280
[email protected] +966-11-290-6259
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6230
[email protected] +966-11-290-6256
Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital Co., its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Capital. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools. AlBilad Capital preserves all rights associated with this report.
CMA Authorization Number 08100-37
4
Saudi Arabia Fertilizers Co. (SAFCO) Recommendation
Neutral
05.46
Fair Value (SAR) Price as of May 1, 2017
07.84
Expected Return
-6.2%
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
82.00
52 Week Low (SAR)
58.00
YTD Change
-10%
3-Month Average Volume (Thousand Shares)
149
Market Cap. (SAR Million)
28,648
Market Cap. (USD Million)
7,640
Outstanding Shares (Million Shares)
416.7
Saudi Basic Industries Corp. (SABIC)
42.99%
General Organization for Social Insurance
12.20%
Major Shareholders ( > 5% )
52-week Stock Price Movement SAFCO
125
Q1 2017
Saudi Arabian Fertilizer Company (SAFCO) stated that its bottom line jumped by 60% YoY and 52% QoQ in Q1 2017 hitting. SAR 423.4 million compared to SAR 265 million and SAR 279 million in Q1 2016 and Q4 2016, respectively. The profit margin in Q1 2017 surged to 50% versus 38.3% in Q1 2016 . SAFCO attributed the robust increase in net earnings to urea selling prices and lower sales cost despite a decrease in the sales volume. The company benefited from increased investment income from IBN AL-Baytar that boosted its net profit. The following table depicts the change in ammonia and urea prices in the first quarter of the year. Commodity Prices (US$/Ton) Current price
Q1 2017 Q1 2016 change Q4 2016 change
Ammonia (Middle East)
284
200
233
)%2)
070
%08
UREA (Middle East)
364
302
304
%34
330
%02
As mentioned above urea prices in Q1 2017 mounted 25% compared to the same the period last year and 19% versus Q4 2016.
Tad awu l In dex
Sales in Q1 2017 skyrocketed to SAR 847 million compared to SAR 691.2 million for same period last year; the highest level since beginning of 2015 .
115 105
Operating profit (EBIT) increased 52.82% YoY and 49.61% QoQ hitting SAR 395 million. Likewise, operating profit margin rose 47% versus 37.35% in Q1 2016. Gross profit came in at SAR 480 million in Q1 2017 soaring 35.41% YoY and 30.09% QoQ.
95 85 75
Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales
1,00 0
ROS
70%
800
60%
600
50%
400
40%
200
30%
0
20%
SAFCO’s preliminary profit came higher than our expectation of SAR 353 million. International Fertilizer Association (IFA) stated that world demand for fertilizer products are positive and could grow by 2.9% for 2017. Furthermore, (IFA) forecasted a potential surplus of 8% during next couple years. Which will weigh on fertilizers prices. The company plans to shutdown several plants for maintenance and upgrade reasons. Taking into account Q1 results and global supply/demand projections in 2017, we estimated our fair value of SAFCO at SAR 64.5 per share, with an “Neutral” recommendation.
FY - Ending December
3602A
3605A
3600A
3608E
EV/EBITDA
8.02
11.17
19.55
16.33
EV/Sales
5.98
7.61
9.78
7.91
For more information, please contact:
P/E
9.06
13.49
27.23
21.80
Turki Fadaak Research & Advisory Manager [email protected]
Dividend Yield
8.1%
8.7%
3.6%
4.3%
P/BV
3.66
3.78
4.12
4.03
P/Revenue
6.45
8.10
10.07
8.31
Revenue Growth
5.1%
-20.4%
-19.5%
21.1%
Source: Company Filings, Albilad Capital Research Estimates
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector May 1, 2017
SAFCO AB - 2020.SE
Urea and Ammonia Prices
UREA Middle East Spot Price (US$/Ton) 290
270 250 230
210 190 170
150
Ammonia Middle East Spot Price (US$/Ton) 500 450 400 350 300 250
200 150
Source: Bloomberg
2
SAFCO Petrochemical Industries Sector May 1, 2017
SAFCO AB - 2020.SE Income Statement (SAR mn)
2013A
2014A
2015A
2016A
2017E
Sales
4,240.4
4,456.1
3,547.3
2,855.9
3,459.3
COGS
987.8
1,034.2
1,061.5
1,358.5
1,684.0
SG&A
81.1
97.4
71.2
69.4
100.4
EBITDA
3,171.4
3,324.5
2,414.5
1,428.0
1,675.0
EBITA Margin
74.8%
74.6%
68.1%
50.0%
48.4%
Depreciation and amortization
373.9
368.0
400.7
447.8
483.2
EBIT
2,797.5
2,956.5
2,013.8
980.3
1,191.8
Investment Income
392.53
241.58
137.15
71.55
122.78
Others Pre-Tax and Zakat Income Tax and Zakat
82.94
55.97
45.45
26.34
32.40
3,272.9
3,254.0
2,196.4
1,078.2
1,346.9
112.5
80.0
66.0
22.5
28.1
Net Income
3,160.5
3,174.0
2,130.4
1,055.7
1,318.8
ROS
74.5%
71.2%
60.1%
37.0%
38.1%
Balance Sheet (SAR mn)
2013A
2014A
2015A
2016A
2017E
Cash and Marketable securities
2,139.7
1,640.1
1,460.0
316.8
885.5
Inventory
342.3
386.9
434.6
505.3
464.5
Others
886.1
754.5
920.6
737.0
893.1
Total ST Assets
3,368.1
2,781.4
2,815.3
1,559.0
2,243.1
Net Fixed Assets
4,320.5
4,896.5
5,173.2
5,485.9
5,068.1
Long Term Investments
1,527.7
1,193.0
916.6
1,179.2
1,181.5
243.6
53.8
107.2
149.6
96.1
Total LT Assets
6,091.8
6,143.3
6,197.0
6,814.7
6,345.7
Total Assets
9,459.9
8,924.7
9,012.3
8,373.8
8,588.8
Accrued Expenses
309.6
159.0
415.1
386.9
468.6
Dividends Payable
155.7
175.7
185.5
178.7
178.7
Others
222.3
175.6
219.5
281.3
332.1
Total ST Liabilities
687.6
510.2
820.2
846.9
979.4
Other Non-Current Liabilities
503.47
552.79
595.96
546.17
476.54
Equity
8,268.8
7,861.7
7,596.2
6,980.7
7,132.9
Total Liabilities and Equity
9,459.9
8,924.7
9,012.3
8,373.8
8,588.8
Cash Flow (SAR mn)
2013A
2014A
2015A
2016A
2017E
Cash flow from Operations
3,277.8
3,256.6
2,695.8
1,558.2
1,611.1
Cash flow from Financing
(4,015.0)
(3,313.3)
(2,241.5)
(1,883.2)
(1,166.7)
Change in Cash
(1,454.4)
(499.6)
(180.1)
(1,143.3)
568.8
Ending Cash
2,139.7
1,640.1
1,460.0
316.8
885.5
Others
Cash flow from Investing
(717.1)
(442.8)
(634.3)
(818.3)
124.3
Source: Company Filings, Albilad Capital Research Estimates
Presentation of financial statements may differ from the company’s presentation. However, there is no impact on the final results.
3
SAFCO Petrochemical Industries Sector May 1, 2017
SAFCO AB - 2020.SE
Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight:
The Target share price exceeds the current share price by ≥ 10%.
Neutral:
The Target share price is either more or less than the current share price by < 10%.
Underweight:
The Target share price is less than the current share price by ≥ 10%.
To be Revised:
No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research.
Albilad Capital Client Services E-mail: Tel:
[email protected] +966-11-203-9888
Research & Advisory
Toll-free: 800-116-0001
E-mail: [email protected] Tel: +966-11-290-6250 Website: www.albilad-capital.com/en/research
Asset Management
Brokerage
Custody
Investment Banking
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6280
[email protected] +966-11-290-6259
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6230
[email protected] +966-11-290-6256
Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital Co., its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Capital. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools. AlBilad Capital preserves all rights associated with this report.
CMA Authorization Number 08100-37
4
