Saudi Ceramics Company 20 January 2016 PDF
Saudi Ceramics Company 4Q2015 – First Look
Buy
EPS Down -7% Y/Y
January 20, 2016 Expected Total Return Price as of Jan 19th , 2016
SAR 36.67
Upside to Target Price
74.5%
Expected Dividend Yield
6.0%
Expected Total Return
80.5%
Market Data 52 Week H/L
89.5/32.3SAR
Market Capitalization
SAR 1,740 mln
Shares Outstanding
50.0mln
Free Float
72.0%
12-Month ADTV (000’s)
337,031
TASI Weight
0.25%
Reuters Code
2040.SE
Bloomberg Symbol
SCERCO AB
Saudi Ceramics Company, the industry leader in building materials, announced its preliminary 4Q2015 results with an EPS of SAR 1.12 (-7% Y/Y and -10% Q/Q), below our estimate and consensus of SAR 1.40. For the full year, the company reported EPS at SAR 5.68 (-8% Y/Y) below our estimate of SAR 5.95 and market consensus of SAR 6.85. We believe that the company encountered pressure due to market conditions in addition to rising imports following China’s Yuan devaluation. The company is expected to face a lull phase in the short term following the slowdown in the construction sector with subsidy cuts impacting margins. With such expectations, we have revised our target price to SAR 64 from SAR 74. Despite earnings revision, Saudi Ceramics still trades at an attractive forward P/E of 7.3x versus the TASI’s 10.3x in addition to dividend yield of 6%. Hence, we maintain our Buy recommendation. Growth assisted by expansions Though revenues are yet to be announced, we expect topline to be close to SAR 305 million for 4Q2015 pushing full year’s revenue north of SAR 1.6 billion. Despite slowdown in the construction sector, we expect top line growth to persist with the assistance of the 2nd expansion in the Heaters plant, which is expected to commence commercial production by the end of 1Q2016. Moreover, the company has announced that it has started trial production of the red-bricks plants, which is expected to start commercial production during the year. Gross profit in-line, higher opex pressure operating profits Gross profit came at SAR 136 million, near our estimate of SAR 134 million, recording an increase of +9% both Y/Y and Q/Q, leading gross profits for the year to SAR 582 million marginally missing our estimate of SAR 580 million. Higher production volumes, despite lower prices, is believed to be the main reason for sustainable gross profits. Operating profits stood at SAR 65 million (+14% Y/Y and -3% Q/Q). As part of their announcement, the company explained that it has encountered an increase in opex, which we believe is due to higher marketing expenses in light of lower import prices.
1-Year Price Performance
Source: Bloomberg
Jan-19-2016
12-Month Target Price SAR 64.00
SCC
TASI
TBMCI
36.67
5,746
1,757
Stock nears 5-year low, down -54% over the last 12 months Stock price has fallen near its 5-year low with an aggressive correction that exceeded -54%, whereas the sector has corrected by -48% in the last 12 months. We believe that the market has priced-in the operational conditions surrounding the sector and the company. 2016E P/E for Saudi Ceramics is at 7.3x (TASI at 10.3x) with an expected dividend yield of 6%, which makes the opportunity further attractive. We maintain our Buy recommendation on Saudi Ceramics. Key Financials (*preliminary announced figures)
Total Change 6-months
(53.3%)
(38.5%)
(50.9%)
FY December 31 (SAR mln)
2014A
2015E
2016E
2017E
1-Year
(51.7%)
(32.3%)
(48.8%)
Revenue
1,621
1,630
1,636
1,796
(51.4%)
EBITDA
441
298
237
287
Net Profit
310
284*
237
287
EPS (SAR)
6.2
5.68*
4.74
5.73
DPS (SAR)
2.00
2.25
2.25
2.75
34
38
40
43
ROAE
10%
10%
7%
9%
P/E
9.0x
9.0x
11.0x
9.0x
P/B
2.0x
1.4x
1.3x
1.2x
10.8x
7.5x
8.2x
7.1x
2-Year
(57.5%)
(34.2%)
4Q2015 (SAR mln)
Actual
RC Forecast
Gross profit
136
134
Operating proft
65
74
Net profit
56
70
EPS
1.12
1.4
BVPS (SAR)
EV/ EBITDA
Abdulaziz A. Bin Zaraah [email protected] +966-11-203-6816
Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37)
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
Buy
EPS Down -7% Y/Y
January 20, 2016 Expected Total Return Price as of Jan 19th , 2016
SAR 36.67
Upside to Target Price
74.5%
Expected Dividend Yield
6.0%
Expected Total Return
80.5%
Market Data 52 Week H/L
89.5/32.3SAR
Market Capitalization
SAR 1,740 mln
Shares Outstanding
50.0mln
Free Float
72.0%
12-Month ADTV (000’s)
337,031
TASI Weight
0.25%
Reuters Code
2040.SE
Bloomberg Symbol
SCERCO AB
Saudi Ceramics Company, the industry leader in building materials, announced its preliminary 4Q2015 results with an EPS of SAR 1.12 (-7% Y/Y and -10% Q/Q), below our estimate and consensus of SAR 1.40. For the full year, the company reported EPS at SAR 5.68 (-8% Y/Y) below our estimate of SAR 5.95 and market consensus of SAR 6.85. We believe that the company encountered pressure due to market conditions in addition to rising imports following China’s Yuan devaluation. The company is expected to face a lull phase in the short term following the slowdown in the construction sector with subsidy cuts impacting margins. With such expectations, we have revised our target price to SAR 64 from SAR 74. Despite earnings revision, Saudi Ceramics still trades at an attractive forward P/E of 7.3x versus the TASI’s 10.3x in addition to dividend yield of 6%. Hence, we maintain our Buy recommendation. Growth assisted by expansions Though revenues are yet to be announced, we expect topline to be close to SAR 305 million for 4Q2015 pushing full year’s revenue north of SAR 1.6 billion. Despite slowdown in the construction sector, we expect top line growth to persist with the assistance of the 2nd expansion in the Heaters plant, which is expected to commence commercial production by the end of 1Q2016. Moreover, the company has announced that it has started trial production of the red-bricks plants, which is expected to start commercial production during the year. Gross profit in-line, higher opex pressure operating profits Gross profit came at SAR 136 million, near our estimate of SAR 134 million, recording an increase of +9% both Y/Y and Q/Q, leading gross profits for the year to SAR 582 million marginally missing our estimate of SAR 580 million. Higher production volumes, despite lower prices, is believed to be the main reason for sustainable gross profits. Operating profits stood at SAR 65 million (+14% Y/Y and -3% Q/Q). As part of their announcement, the company explained that it has encountered an increase in opex, which we believe is due to higher marketing expenses in light of lower import prices.
1-Year Price Performance
Source: Bloomberg
Jan-19-2016
12-Month Target Price SAR 64.00
SCC
TASI
TBMCI
36.67
5,746
1,757
Stock nears 5-year low, down -54% over the last 12 months Stock price has fallen near its 5-year low with an aggressive correction that exceeded -54%, whereas the sector has corrected by -48% in the last 12 months. We believe that the market has priced-in the operational conditions surrounding the sector and the company. 2016E P/E for Saudi Ceramics is at 7.3x (TASI at 10.3x) with an expected dividend yield of 6%, which makes the opportunity further attractive. We maintain our Buy recommendation on Saudi Ceramics. Key Financials (*preliminary announced figures)
Total Change 6-months
(53.3%)
(38.5%)
(50.9%)
FY December 31 (SAR mln)
2014A
2015E
2016E
2017E
1-Year
(51.7%)
(32.3%)
(48.8%)
Revenue
1,621
1,630
1,636
1,796
(51.4%)
EBITDA
441
298
237
287
Net Profit
310
284*
237
287
EPS (SAR)
6.2
5.68*
4.74
5.73
DPS (SAR)
2.00
2.25
2.25
2.75
34
38
40
43
ROAE
10%
10%
7%
9%
P/E
9.0x
9.0x
11.0x
9.0x
P/B
2.0x
1.4x
1.3x
1.2x
10.8x
7.5x
8.2x
7.1x
2-Year
(57.5%)
(34.2%)
4Q2015 (SAR mln)
Actual
RC Forecast
Gross profit
136
134
Operating proft
65
74
Net profit
56
70
EPS
1.12
1.4
BVPS (SAR)
EV/ EBITDA
Abdulaziz A. Bin Zaraah [email protected] +966-11-203-6816
Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37)
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
