Saudi Industrial Investment Group 03 August 2016 PDF
August 03, 2016 Rating 12- Month Target Price
Neutral SAR 14.50
SAUDI INDUSTRIAL INVESTMENT COMPANY (SIIG) 2Q2016 First Look
Associates Outperform
Expected Total Return SAR 13.20 9.8%9
Price as on Aug-02, 2016 Upside to Target Price Expected Dividend Yield
0.0%
Expected Total Return
9.8%
Market Data SAR 25.4/9.8
52 Week H/L
SAR 5,940 mln
Market Capitalization
SAR 20,802 mln
Enterprise Value
450.0 mln
Shares Outstanding
82.1%
Free Float
1,314
12-Month ADTV(000’s)
SIIG AB
Bloomberg Code
Saudi Industrial Investment Group (SIIG) reported its 2Q2016 results with a strong set of numbers. EPS grew by +145% Q/Q with a positive surprise though declined by -36% Y/Y. An upbeat quarter was led by strong performance from its key associate JCP, while its major subsidiary, Petrochem reported a marginal beat in estimates. EPS of SAR 0.48 in 2Q2016 beat our estimates of SAR 0.23 and street’s SAR 0.28. Despite the surprise, our view remains wary on associate performance in the coming quarters. Hence, we revise our estimates and cut target price to SAR 14.50 from SAR 16.00. We maintain our Neutral rating due to limited valuation upside of +10%.
Revenue in-line with estimate We believe a robust improvement in product prices has helped SIIG achieve a reasonable price growth through Petrochem. Revenues of SAR 1.64 billion in 2Q2016 were in-line with our estimates, though the same declined by -17% Y/Y and -1% Q/Q. Nevertheless, product prices growth was decent with average PP and PE prices growing by +15% Q/Q and +10% Q/Q respectively.
Costs decline on falling feedstock costs Gross profit of SAR 574 million came close to our estimate of SAR 592 million. It declined by -22% Y/Y but increased by +35% Q/Q. We reiterate that fall in feedstock prices has helped to expand its margins. Gross margins of 35% have improved from 26% in 1Q2016. However, it was lower from 38% reported in 2Q2015.
1-Year Price Performance 100 90
Positive surprises from associates
80 70 60 50 40 30 A
S O N D SIIG
J
F M A M J TASI
J
A
TPCHEM
Source: Bloomberg
6M
1Y
Operating profit of SAR 546 million beat estimates of SAR 420 million, declined by -28% Y/Y, while it rose by +67% Q/Q. Operating margins improved to 33% in 2Q2016 from 20% in 1Q2016 and 29% in 2Q2015. Associates (JCP and SCP) on a combined basis reported SAR 178 million, growth of +90% Q/Q, but declined by -20% Y/Y. Strong earnings from JCP in 2Q2016 led to superior performance. It also reported its best quarter with earnings of SAR 132 million, which increased by +48% Y/Y and +448% Q/Q. SCP reported SAR 46 million in 2Q2016, the same declined by -65% Y/Y and -34% Q/Q.
Record growth in margins Net income of SAR 216 million was reported which surprised consensus by a wide margin. Earnings declined by -36% Y/Y, but increased by +145% Q/Q and came above our expectations of SAR 103 million. Net margins stood at 13% this quarter versus 5% in 1Q2016 and 17% in 2Q2015.
2Y
40% 20% 0%
Cut target price to SAR 14.50, maintain Neutral
-20%
We expect the shutdown impact from Petrochem in 4Q2016 and volatile earnings from associates has led to a bearish view. Hence adjust our 2016-18 estimates downwards and cut target price to SAR 14.50. We believe dividends are unlikely for 2016. SIIG trades at 2016E P/E of 12.0x versus sector’s 12.7x and TASI’s 13.0x, though slightly cheaper but outlook for 2016 is weak. Hence, continue to maintain Neutral.
-40% -60% SIIG
2Q2016 (SAR mln) MlnMMln Revenue
TASI
TPCHEM
RC. Est Estimates 1,645
Actuals 1,642
Gross Profit
592
574
EBIT
420
546
Net Income
103
216
EPS (SAR)
0.23
0.48
Key Financial Ratios
Key Financial Figures FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR) BVPS (SAR)
2015A 7,304 2,434 727 1.62 NA 7.09
2016E 5,550 2,109 495 1.10 NA 7.98
Santhosh Balakrishnan
Yasser Bin Ahmed
[email protected] +966-11-203-6809
[email protected] +966-11-203-6805
2017E 7,520 2,782 673 1.50 1.00 9.45
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA EV/Sales
2015A 6% 14% 8.2x 1.9x 8.5x 2.8x
2016E 4% 10% 12.0x 1.7x 9.9x 3.7x
2017E 6% 9% 8.8x 1.4x 7.5x 2.8x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI INDUSTRIAL INVESTMENT GROUP (SIIG) 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 14.50
SAUDI INDUSTRIAL INVESTMENT COMPANY (SIIG) 2Q2016 First Look
Associates Outperform
Expected Total Return SAR 13.20 9.8%9
Price as on Aug-02, 2016 Upside to Target Price Expected Dividend Yield
0.0%
Expected Total Return
9.8%
Market Data SAR 25.4/9.8
52 Week H/L
SAR 5,940 mln
Market Capitalization
SAR 20,802 mln
Enterprise Value
450.0 mln
Shares Outstanding
82.1%
Free Float
1,314
12-Month ADTV(000’s)
SIIG AB
Bloomberg Code
Saudi Industrial Investment Group (SIIG) reported its 2Q2016 results with a strong set of numbers. EPS grew by +145% Q/Q with a positive surprise though declined by -36% Y/Y. An upbeat quarter was led by strong performance from its key associate JCP, while its major subsidiary, Petrochem reported a marginal beat in estimates. EPS of SAR 0.48 in 2Q2016 beat our estimates of SAR 0.23 and street’s SAR 0.28. Despite the surprise, our view remains wary on associate performance in the coming quarters. Hence, we revise our estimates and cut target price to SAR 14.50 from SAR 16.00. We maintain our Neutral rating due to limited valuation upside of +10%.
Revenue in-line with estimate We believe a robust improvement in product prices has helped SIIG achieve a reasonable price growth through Petrochem. Revenues of SAR 1.64 billion in 2Q2016 were in-line with our estimates, though the same declined by -17% Y/Y and -1% Q/Q. Nevertheless, product prices growth was decent with average PP and PE prices growing by +15% Q/Q and +10% Q/Q respectively.
Costs decline on falling feedstock costs Gross profit of SAR 574 million came close to our estimate of SAR 592 million. It declined by -22% Y/Y but increased by +35% Q/Q. We reiterate that fall in feedstock prices has helped to expand its margins. Gross margins of 35% have improved from 26% in 1Q2016. However, it was lower from 38% reported in 2Q2015.
1-Year Price Performance 100 90
Positive surprises from associates
80 70 60 50 40 30 A
S O N D SIIG
J
F M A M J TASI
J
A
TPCHEM
Source: Bloomberg
6M
1Y
Operating profit of SAR 546 million beat estimates of SAR 420 million, declined by -28% Y/Y, while it rose by +67% Q/Q. Operating margins improved to 33% in 2Q2016 from 20% in 1Q2016 and 29% in 2Q2015. Associates (JCP and SCP) on a combined basis reported SAR 178 million, growth of +90% Q/Q, but declined by -20% Y/Y. Strong earnings from JCP in 2Q2016 led to superior performance. It also reported its best quarter with earnings of SAR 132 million, which increased by +48% Y/Y and +448% Q/Q. SCP reported SAR 46 million in 2Q2016, the same declined by -65% Y/Y and -34% Q/Q.
Record growth in margins Net income of SAR 216 million was reported which surprised consensus by a wide margin. Earnings declined by -36% Y/Y, but increased by +145% Q/Q and came above our expectations of SAR 103 million. Net margins stood at 13% this quarter versus 5% in 1Q2016 and 17% in 2Q2015.
2Y
40% 20% 0%
Cut target price to SAR 14.50, maintain Neutral
-20%
We expect the shutdown impact from Petrochem in 4Q2016 and volatile earnings from associates has led to a bearish view. Hence adjust our 2016-18 estimates downwards and cut target price to SAR 14.50. We believe dividends are unlikely for 2016. SIIG trades at 2016E P/E of 12.0x versus sector’s 12.7x and TASI’s 13.0x, though slightly cheaper but outlook for 2016 is weak. Hence, continue to maintain Neutral.
-40% -60% SIIG
2Q2016 (SAR mln) MlnMMln Revenue
TASI
TPCHEM
RC. Est Estimates 1,645
Actuals 1,642
Gross Profit
592
574
EBIT
420
546
Net Income
103
216
EPS (SAR)
0.23
0.48
Key Financial Ratios
Key Financial Figures FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR) BVPS (SAR)
2015A 7,304 2,434 727 1.62 NA 7.09
2016E 5,550 2,109 495 1.10 NA 7.98
Santhosh Balakrishnan
Yasser Bin Ahmed
[email protected] +966-11-203-6809
[email protected] +966-11-203-6805
2017E 7,520 2,782 673 1.50 1.00 9.45
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA EV/Sales
2015A 6% 14% 8.2x 1.9x 8.5x 2.8x
2016E 4% 10% 12.0x 1.7x 9.9x 3.7x
2017E 6% 9% 8.8x 1.4x 7.5x 2.8x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI INDUSTRIAL INVESTMENT GROUP (SIIG) 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
