Saudi Petrochemicals
Sector Report
October 05, 2016
Saudi Petrochemicals Conviction ideas at USD 50 crude We present three conviction ideas offering meaningful upside in the medium term with unchanged USD 50/60bbl crude assumption for 2017/18 We upgrade Yansab (TP SAR 53) and APC (TP SAR 46.5) to a ‘Buy’ rating led by lower feedstock cost in the near-term owing to widening propanenaphtha discount We also upgrade Petrochem to Buy, (TP SAR 19) factoring in benefit from lower feedstock price until mid-2019 Reassessing the liquid feedstock (propane) assumption Propane is an essential feedstock for the Saudi Petrochemicals and constitutes 100% of APC and nearly 40-50% of YANSAB’s feedstock slate. Saudi Arabia cabinet during subsidy reforms in December 2015 established the industry propane price at a 20% discount to the FOB Japan propane price. Historically, propane has traded at 8% discount to naphtha however the discount has widened to 17%/20% for 2015/16YTD (refer exhibit 1) with 3Q16 discount at a staggering 25% led by higher naphtha demand from refiners and long propane markets. Given the widening discount, we believe that our conservative assumption that propane price will trade in line with naphtha prices warrants reconsideration.
Petrochemical
In this note, we assume that propane will trade at a 15% discount to naphtha in 2017-18 tapering off to 10% thereafter, similar to historical trend. This increase in discount from 0% to 15% results in a USD 54/ton (from USD 328/ton to USD 274/ton) decrease in the price of propane (refer exhibit 2). Both Yansab and APC are likely to benefit from this widening propane-naphtha discount leading to lower feedstock cost in the near-term. Accordingly, we increase our 2016/17 net income estimates for APC and YANSAB by 23%/33% and 24%/38%, respectively. Preferred picks: Buy YANSAB, APC and Petrochem Advanced Petrochemicals: We upgrade APC to Buy rating with a revised target price of SAR 46.5/share led by positive estimates revision. We continue to like APC’s operational excellence, hedged against low crude price as feedstock is 100% propane (highly correlated with oil), attractive valuation 11.2x/11.4x 2016/17 earnings with a supportive current dividend yield of 6.5%.
SICO Research
YANSAB: We upgrade YANSAB to Buy rating with a revised target price of SAR 53/share led by positive estimates revision. YANSAB is in a strong position as it is now virtually a ‘cash cow’ with no near-term large capex requirements; hence we expect pay-out to trend towards 100% in the long term. Double digit cash flow yield should support the high single digit dividend yield. We forecast SAR 3.0/3.5/4.0 DPS for 2016/17/18 implying a pay-out ratio of 77%/82%/84%. The stock trades at attractive 11.3x/10.7x 2016/17 earnings with a supportive current dividend yield of 6.8%.
Nitin Garg, CFA +973 1751 5000 ext 5059 [email protected] www.sicobahrain.com
Petrochem: We upgrade Petrochem to Buy rating with a revised target price of SAR 19/sh underpinned by lower production cost as it will continue to get feedstock at old prices until the grace period, increasing our 2016/17 estimates by 26%/33%. We also take comfort from company’s favorable product mix (6065% polyethylene – prices have remain relatively resilient compared to others products) and high operating efficiency. 2015 reported EPS of SAR 1.89 (average oil price USD 54/bbl) underscores company’s operational strength when compared to SAR 1.61 in 2014 (average oil price USD 99/bbl). Strong cash flow (FY16/17: SAR 1.9/2.0bn or SAR 3.9/4.1/sh) supports the case of first ever dividend payout but higher leverage (FY15 Net debt/equity at 1.5x) can be a risk. We build in SAR 0.5/sh payout for 2016 which require a payment of SAR 240mn from a cash balance of SAR 3.5bn at 31- March 2016. © SICO 2016 All Rights Reserved Attention is drawn to the disclaimer and other information in the end
SICO RESEARCH
Petrochemical A recap on liquid feedstock (propane) Saudi Arabia cabinet approved subsidy reforms on 28th December 2015 decreasing the subsidy on natural gas liquids (propane and butane) to 20% discount to international propane price from 28% discount to naphtha price. Two changes here, firstly, the discount was narrowed from 28% to 20% and secondly, pricing basis was changed from naphtha to propane itself. Traditionally, propane has traded at a slight discount to naphtha. On an average between 2001 and 2015, the discount has been 8.0%, however, in December 2015, the propane price registered 7% premium to average naphtha price. In our note published on 4 th February 2016, GCC Petrochemicals: Search for Value and Yield over noise and news flow, being conservative and keeping in mind December 2015 naphtha-propane differential, we had assumed that propane price will trade in line with naphtha prices for our earnings forecasts. Reassessing the liquid feedstock assumption Historically, propane has traded at 8% discount to naphtha however the discount has widened to 17%/20% for 2015/16YTD with 3Q16 discount at staggering 25% led by higher naphtha demand from refiners and long propane markets. Given the widening discount, we believe that our conservative assumption that propane price will trade in line with naphtha prices warrants reconsideration. Low propane prices should lead to margin expansion for mixed feed (Yansab) and liquid feed (APC) producers. Exhibit 1: Widening propane to naphtha discount in USD/ton 1000 Naphtha Propane Discount
30%
25%
800
20%
600
15% 400
10%
200
5%
0
0% 2013
2014
2015
2016 YTD
4Q15
1Q16
2Q16
3Q16
Source: Bloomberg, SICO Research
In this note, we assume that propane will trade at 15% discount to naphtha in 2017-18 tapering off to 10% thereafter, similar to historical trend. This increase in discount from 0% to 15% results in a USD 54/ton (from USD 328/ton to USD 274/ton) decrease in the price of propane (refer exhibit below). Both Yansab and APC will benefit from this widening propane-naphtha discount leading to lower propane costs in the near-term. Additionally, we have assumed that the feedstock pricing structure will remain unchanged, and any significant change presents the major downside risk to our company valuation.
2
SICO RESEARCH
Petrochemical Exhibit 2: Propane pricing difference: New vs old structure Before subsidy old assumption reforms
New assumption
Brent crude (USD/bbl)
50
50
50
Naphtha (USD/ton)
450
450
450
Propane to naphtha discount
8%
0%
15%
Propane price (USD/ton)
414
450
383
Discount to saudi producer
28%
20%
20%
Propane price to Saudi producer (USD/ton)
295
328
274
Source: Bloomberg, SICO Research
Product price estimates We expect commodity chemical prices to remain a function of global crude prices and industry supply-demand balances. Our product price estimates for 2017 are on an average in line with spot prices (see exhibit 3). Exhibit 3: Product price assumptions His torical
F orecas t
2011
2012
2013
2014
2015
Brent (USD/bbl)
111
112
109
99
54
2016 Y TD 43
Naphtha
938
944
922
863
493
Ethylene
1,160
1,197
1,240
1,354
LDPE
1,550
1,320
1,514
1,548
LLDPE
1,325
1,325
1,472
HDPE
1,340
1,350
PP
1,520
MEG
1,180
US D/ ton
S pot
2017E 2018E
50
50
60
384
405
450
540
1,060
1,078
1,050
1,000
1,100
1,237
1,151
1,175
1,200
1,320
1,542
1,227
1,145
1,180
1,200
1,320
1,466
1,527
1,216
1,123
1,125
1,200
1,320
1,400
1,476
1,483
1,091
949
965
1,000
1,100
1,030
1,054
931
738
636
625
650
715
Source: Bloomberg, SICO Research
Earnings revision and Valuation YANSAB and APC: We increase our 2016/17 net income estimates for APC and YANSAB by 23%/33% and 24%/38%, respectively led by assumption that propane will trade at 15% discount to naphtha in 2017-18 tapering off to 10% thereafter. Petrochem: Petrochem is to get feedstock at old prices until the grace period, we incorporate this and increase our 2016/17 estimates by 26%/33%. The increase in our target prices reflects the changes to our medium and long term estimates. Exhibit 4: Rating and Target price changes Target price
Rating
2017 Yield
Total return
PE
20%
6.5%
26.6%
11.4
Buy
33%
3.5%
36.4%
7.6
Buy
20%
6.8%
27.0%
10.7
Company
CMP
Old
New
Old
New
Apc
38.7
36.3
46.5
Buy
Buy
Petrochem
14.3
15.0
19.0
Sell
Yansab
44.1
40.0
53.0
Sell
Upside/ Downside
Source: SICO Research
3
SICO RESEARCH
Petrochemical
Company sections
4
SICO RESEARCH
Petrochemical
Advanced Petrochemical Company
Price Data (SAR) Current Price
38.71
Target Price
46.50
52 wk High/Low
44.17/26.58
Ratings
Petrochemical
Short-term
Positive
Long-term
Buy
Risk Profile
High
We continue to like APC’s operational excellence, low crude price correlation as feedstock is 100% propane (highly correlated with oil) Trades at attractive valuation and supportive dividend profile with 6.5% yield Upgrade to “Buy” rating with a revised target price of SAR 46.5/share Why we continue to like APC
Market Data Sector
Petrochemical
Market Cap
USD 2.0bn
Primary Market
Saudi Arabia
Other Exchg Reuters
2330.SE
Bloomberg
APPCAB
Free Float
86%
Valuation Ratio 2016E
2017E
11.2
11.4
P/BV x
2.8
2.6
EV/EBITDA x
9.6
9.4
Div Yld %
6.5
6.5
P/E x
Trading Data
GCC Equities
Hedge against lower oil price
Daily Vol (6M Avg)
0.5
Daily T/o (6M Avg USD)
5.4
Issued Shares
196.8
All in millions Performance (%)
1m
3m
12m
Absolute
4.2
-2.1
4.7
Relative
13.6
12.8
29.7
Source: SICO Research, Bloomberg
Solid operational performance: The plant continues to operate at more than 100% utilisation with no near term expected shutdown. Hedge against lower oil price: low oil price correlation, which offers diversification within petrochemicals – this is well underscored by resilience in company’s 2015 earnings, with earnings down by only 5% YoY while oil price was 55% lower in 2015. The stock has outperformed both Saudi petrochemical index and broader Tadawul YTD. We believe this outperformance will continue on back of lower oil prices expected in 2016-17. Attractive valuation and yield: We expect APC to continue to pay SAR 0.625/sh quarterly dividend through FY17-18, which translates into SAR 2.5/share annual payout and 6.5% yield. On PE basis, APC is trading in line with the sector median, however, we believe that it should trade at a premium in a lower oil regime and relatively higher dividend yield. Benefiting from lower propane price: APC should continue to benefit from the widening propane-naphtha discount leading to lower propane costs in the near-term We incorporate this in financial model and increase our 2016/17 estimates by 23%/33%, translating to PE of 11.2x/11.4x Changes to earnings estimate The changes to our estimates are in exhibit below. We increase our 2016/17 net income estimates by 23%/33% led by assumption that propane will trade at 15% discount to naphtha in 2017-18 tapering off to 10% thereafter. Exhibit 5: APC’s earnings estimates 2016E
2017E
SAR mn
New
Old
variance
New
Old
variance
Revenue
2,103
1,856
13.3%
2,156
2,042
5.6%
EBIT
683
592
15.4%
713
542
31.5%
EBIT margin
33%
32%
33%
27%
Net Profit
683
556
669
502
Net margin
32%
30%
31%
25%
EPS
3.47
2.83
3.40
2.55
22.8%
22.8%
33.2%
33.2%
Source: Bloomberg, SICO Research
APC reported 3Q net income of SAR 188mn, down 20% YoY and flat QoQ but 7% lower than our estimate of SAR 202mn
[email protected] www.sicobahrain.com
APC reported flat numbers QoQ despite 10% sequential improvement in (PPnaphtha) spread, missing our estimates by 7%. The miss is at operating level itself, as the company reported EBIT of SAR 193mn (-20% YoY, flat QoQ) versus our estimate of SAR 213mn. Revenues stood at SAR 529mn, 2.0% lower than our estimates of SAR 539mn. Earnings also includes SAR 14mn from its Korean associate, SK advanced as well as provision for impairment loss 5
SICO RESEARCH
Petrochemical loss of SAR 14.0mn on AFS portfolio. Overall a neutral result and a non-event. We attribute the marginal 7.0% miss to 2.0% revenue miss and slightly higher than expected feedstock cost. SK Advanced Joint Venture –marginally earnings accretive but lower margin proposition APC’s new joint venture SK Advanced Company with South Korea’s SK Gas has started commercial operations in 2Q16. The PDH plant with a design capacity of 600 KTA was constructed at a total capex of USD 900mn, 60/40% debt/equity financed. Originally, APC’s 95% owned subsidiary, Advanced Global Investment Company (AGIC) held 35% equity stake and rest 65% with SK Gas. However, in 1Q16, SK Gas and APC offloaded 20% and 5%, respectively, to Kuwait’s Petrochemical Investments Company (PIC). Accordingly, the new shareholding of the JV Co. is 45% by SK Gas, 30% by AGIC (35% previously) and 25% by PIC. APC management believes that strategic partnership with KPC through PIC will improve the competitiveness and stability of SK Advanced PDH business as a significant percentage of the feedstock will be supplied by KPC on a regular long term basis. Having said that, we do not see this project as being significantly earnings accretive. APC, in its existing operations, buys discounted propane and converts it into propylene and then Polypropylene, however, Korean players do not enjoy this discount. Lower margins coupled with high depreciation and tax expenses will translate to sub-par returns in our view. We expect the JV to generate c 15%20% EBITDA margins at high utilizations way lower than APC’s Saudi plant’s 40%/45% EBITDA margin in 2015/16. Valuation: Increase target price to SAR 46.5 from SAR 36.25 earlier, Upgrade to “Buy” rating We base our valuation of APC on a DCF-based approach. Our DCF model is based on an explicit forecast period extending to FY 2020 and after which we build in semi-explicit cash flow forecasts running off a sales growth assumption and a profitability metric through to 2025. Thereafter, we move to a terminal growth stage assuming a 1% growth. The DCF methodology yields a fair value target price of SAR 46.5 per share, indicating a potential return of 20%. Accordingly, we assign a Buy rating on the stock. We have valued the company’s 30% associate, SK Advanced Company, at 1.0x 2016F BV, accounting for 4.5% of our APC’s DCF value.
6
SICO RESEARCH
Petrochemical
Advanced Petrochemical Company Financials Income Statement (Consolidated) Year ending 31 Dec (SAR mn) Revenue Cost of Goods Sold Gross Profit Selling, General and Admin. Expenses
Cash Flow Statement (Consolidated) 2015A
2016E
2017E
Year ending 31 Dec (SAR mn)
2,377 1,386
2,103 1,150
2,156 1,202
Net profit before minority Depreciation
991
952
955
2015A
2016E
2017E
736 210
683 214
696 208
15
0
0
Other Adjustments
42
55
54
Working Capital Changes
(71)
(19)
(2)
949
898
921
Cashflow from Operations
844
878
876
Operating Profit
743
683
713
Capital Expenditure
(116)
(213)
(138)
Other Income
(12)
51
0
(88)
0
0
Net Interest Income
(18)
(29)
(30)
(1,121)
(213)
(138)
Tax
0
0
14
Minority Interest
0
0
0
713
683
669
EBITDA
Net Profit
Other Investing Activities Cashflow from Investing Debt Raised/Repaid Dividend
(30)
0
(20)
(492)
(492)
(492)
Other Financing Activities
0
0
0
Cashflow from Financing
(522)
(492)
(512)
Net Chg in Cash
(798)
173
226
Note: The above statements may not match the published cash flow statements due to adjustments made by us.
Key Ratios (Consolidated)
Balance Sheet (Consolidated) Year ending 31 Dec (SAR mn) Cash & Short Term Deposits Other Current Assets Investments Net Fixed Assets Net Intangible Assets Other Non-Current Assets Total Assets Current Liabilities Total Debt Other Liabilities Total Liabilities Minority Interest
2015A
2016E
2017E
85 368
259 400
485 412
2016E
2017E
EPS EPS Growth (%)
3.62 (5.0)
3.47 (4.2)
3.40 (2.1)
0
0
0
Gross Margin (%)
41.7
45.3
44.3
2,195
2,124
EBITDA Margin (%)
39.9
42.7
42.7
93
EBITDA Growth (%)
0.6
(5.5)
2.6
Net Margin (%)
30.0
32.5
31.0
93
93
0
0
0
3,886
4,089
4,257
ROAE (%)
28.4
25.3
23.2
283
295
306
ROAA (%)
33.7
31.1
31.5
1,088
1,088
1,068
Debt/Equity (%)
45.8
41.8
38.8
Valuation Ratios
(1,048)
(1,048)
(1,028)
1,377
1,389
1,380
PER (x)
10.7
11.2
11.4
PBV (x)
3.0
2.8
2.6
Dividend Yield (%)
6.5
6.5
6.5
EV/EBITDA (x)
9.1
9.6
9.4
0
0
0
2,700
2,877
0
0
0
Shareholders Funds
2,509
2,700
2,877
Total Equity & Liabilities
3,886
4,089
4,257
Reserves & Surplus
2015A
2,117
2,509
Share Capital
Year ending 31 Dec (SAR mn)
Source: Company, SICO Research, Bloomberg
7
SICO RESEARCH
Petrochemical
Petrochem
Price Data (SAR) Current Price
14.30
Target Price
19.00
52 wk High/Low
23.90/10.60
Petrochemical
Short-term
Negative
Long-term
Buy
Risk Profile
High
Market Data Sector
Petrochemical
Market Cap
USD 1.8bn
Primary Market
Saudi Arabia
Other Exchg Reuters Bloomberg
PETROCHAB
Free Float
18%
Valuation Ratio 2016E
2017E
13.0
7.7
P/BV x
1.1
1.0
EV/EBITDA x
9.0
6.9
Div Yld %
3.5
3.5
P/E x
Trading Data
GCC Equities
Petrochem to get feedstock at old prices until the grace period, we incorporate this and increase our 2016/17 estimates by 26%/33% 45% earnings CAGR over 2016-18 period with a single digit forward PE
Ratings
Daily Vol (6M Avg)
0.3
Daily T/o (6M Avg USD)
1.3
Issued Shares
480.0
All in millions Performance (%)
Trading at single digit forward PE
1m
3m
12m
Absolute
-13.6
-15.6
-22.6
Relative
-4.2
-0.7
2.5
Upgrade to “Buy” rating with a revised target price of SAR 19/share Why are we turning positive on Petrochem? Petrochem announced on 24th February that Saudi Aramco will continue to supply feedstock at old prices until the grace period: methane till 6 November 2018, ethane till 12 August 2019, and Propane till 1 September 2019. We incorporate this into our financial model and increase our 2016/17 estimates by 26%/33%, translating to PE of 13.0x/7.7x at USD 50/bbl oil price. We also take comfort from company’s favorable product mix (60-65% polyethylene – prices have remain relatively resilient compared to others products) and high operating efficiency. 2015 reported EPS of SAR 1.93 (average oil price USD 54/bbl) underscores company’s operational strength when compared to SAR 1.61 in 2014 (average oil price USD 99/bbl). Strong cash flow (FY16/17: SAR 1.9/2.0bn or SAR 3.9/4.1/sh) supports the case of first ever dividend payout but higher leverage (FY15 Net debt/equity at 1.5x) can be a risk. We build in SAR 0.5/sh payout for 2016 which require a payment of SAR 240mn from a cash balance of SAR 3.5bn at 31- March 2016. It should be noted that Petrochem will shut down Saudi Polymers plant for regular maintenance during 4Q16, which is expected to continue for 60 days. Although this is a routine shutdown, earnings impact is material owing to high operating leverage at the plant. We forecast Petrochem to report SAR 32mn loss in 4Q16. Changes to earnings estimate Petrochem to get feedstock at old prices until the grace period, we incorporate this and increase our 2016/17 estimates by 26%/33%. We expect Saudi polymers plant to return to high operating efficiency post this scheduled shutdown, leading to SAR 220-230mn quarterly net income run rate throughout 2017, translating to PE of 7.7x at current price. Exhibit 6: Petrochem’s earnings estimates 2016E
Source: SICO Research, Bloomberg
2017E
SAR mn
New
Old
variance
New
Old
variance
Revenue
5,586
5,190
7.6%
6,834
6,423
6.4%
EBIT
1,139
845
34.8%
1,703
1,276
33.5%
EBIT margin
20%
16%
25%
20%
Net Profit
529
419
897
675
Net margin
9%
8%
13%
11%
EPS
1.10
0.87
1.87
1.41
26.3%
26.3%
32.9%
32.9%
Source: SICO Research
[email protected] www.sicobahrain.com
Valuation: Increase target price to SAR 19 from SAR 15 earlier, Upgrade to “Buy” rating We base our valuation of Petrochem on a DCF-based approach. Our DCF model is based on an explicit forecast period extending to FY 2020 and after which we build in semi-explicit cash flow forecasts running off a sales growth assumption and a profitability metric through to 2025. Thereafter, we move to a terminal growth stage assuming a 1% growth. The DCF methodology yields a fair value target price of SAR 19 per share, indicating a potential return of 33%. Accordingly, we assign a Buy rating on the stock. 8
SICO RESEARCH
Petrochemical
Petrochem Financials Income Statement (Consolidated) Year ending 31 Dec (SAR mn)
Cash Flow Statement (Consolidated) 2015A
2016E
2017E
Year ending 31 Dec (SAR mn)
Revenue Cost of Goods Sold
7,304 4,001
5,586 3,151
6,834 3,647
Net profit before minority Depreciation
Gross Profit
3,304
2,435
3,187
Selling, General and Admin. Expenses
(700)
(494)
(649)
EBITDA
2,604
1,941
2,538
Operating Profit
1,782
1,139
1,703
6
7
0
Net Interest Income
(157)
(181)
Tax
(125)
Minority Interest
(579) 926
Other Income
Net Profit
2015A
2016E
2017E
1,177 796
730 801
1,203 835
Other Adjustments
746
335
483
Working Capital Changes
177
193
(251)
Cashflow from Operations
2,651
1,859
1,964
Capital Expenditure
(135)
(323)
(323)
Other Investing Activities
(81)
0
0
(170)
Cashflow from Investing
(216)
(323)
(323)
(100)
(153)
Debt Raised/Repaid
(1,211)
(492)
(1,000)
(335)
(483)
Dividend
0
(240)
(240)
529
897
Other Financing Activities
0
0
0
(1,211)
(732)
(1,240)
1,223
804
401
Cashflow from Financing Net Chg in Cash
Note: The above statements may not match the published cash flow statements due to adjustments made by us.
Key Ratios (Consolidated)
Balance Sheet (Consolidated) Year ending 31 Dec (SAR mn) Cash & Short Term Deposits Other Current Assets Investments Net Fixed Assets Net Intangible Assets Other Non-Current Assets Total Assets
2015A
2016E
2017E
Year ending 31 Dec (SAR mn)
2015A
2016E
2017E
2,395 2,192
3,199 1,971
3,600 2,293
EPS EPS Growth (%)
1.93 19.6
1.10 (42.9)
1.87 69.5
0
0
0
Gross Margin (%)
45.2
43.6
46.6
17,066
16,491
15,979
EBITDA Margin (%)
35.7
34.7
37.1
0
0
0
EBITDA Growth (%)
11.7
(25.5)
30.8
67
180
180
Net Margin (%)
12.7
9.5
13.1
22,726
ROAE (%)
16.0
8.7
13.3
22,394
22,515
1,978
1,951
2,022
ROAA (%)
5.4
3.2
5.6
Total Debt
13,088
12,596
11,596
Debt/Equity
1.8
1.7
1.3
Other Liabilities
(11,79 2) 14,094
(11,30 0) 13,575
(10,30 0) 12,645
Valuation Ratios PER (x)
7.4
13.0
7.7
3,316
PBV (x)
1.2
1.1
1.0
4,800
Dividend Yield (%)
0.0
3.5
3.5
EV/EBITDA (x)
6.7
9.0
6.9
Current Liabilities
Total Liabilities Minority Interest Share Capital Reserves & Surplus Shareholders Funds Total Equity & Liabilities
2,498 4,800
2,833 4,800
0
0
0
5,802
6,091
6,748
22,394
22,516
22,726
Source: Company, SICO Research, Bloomberg
9
SICO RESEARCH
Petrochemical
Yanbu Nat Petrochem Co (YANSAB)
Price Data (SAR) Current Price
44.08
Target Price
53.00
52 wk High/Low
52.00/23.80
Ratings Short-term
Petrochemical
Strong cash flow and dividend pay-out story
Buy
Long-term
Buy
Risk Profile
High
YANSAB to benefit from widening propane- naphtha discount as propane forms 40-50% of feedstock slate 10% earnings CAGR over 2016-18 period with supportive 6.8%/7.9% 2016/17 yield Upgrade to “Buy” rating with a revised target price of SAR 53/share Why are we turning positive on Yansab?
Market Data Sector
Petrochemical
Market Cap
USD 6.6bn
Primary Market
Saudi Arabia
Other Exchg Reuters
2290.SE
Bloomberg
YANSABAB
Free Float
37%
Valuation Ratio 2016E
2017E
11.3
10.7
P/BV x
1.6
1.5
EV/EBITDA x
8.0
7.5
Div Yld %
6.8
7.9
P/E x
Benefiting from lower propane price: YANSAB should continue to benefit from the widening propane-naphtha discount leading to lower propane costs in the near-term. We incorporate this into our financial model and increase our 2016/17 estimates by 24%/38%, translating to a PE of 11.3x/10.7x at USD 50/bbl oil price. Strong cash flow generation and attractive yield: YANSAB is in a strong position as it is now virtually a ‘cash cow’ with no near-term large capex requirements; hence we expect payout to trend towards 100% in the long term. Double digit cash flow yield should support the high single digit dividend yield. We forecast SAR 3.0/3.5/4.0 DPS for 2016/17/18 implying a pay-out ratio of 77%/85%/86% Expect a strong 3Q16: We forecast YANSAB to report SAR 586mn in net income (+94% YoY, -15% QoQ) owing to higher utilisation rates YoY and lower feedstock cost. Changes to earnings estimates
GCC Equities
Trading Data Daily Vol (6M Avg)
0.4
Daily T/o (6M Avg USD)
4.4
Issued Shares
562.5
We increase our 2016/17 net income estimates by 24%/38% led by assumption that propane will trade at 15% discount to naphtha in 2017-18 tapering off to 10% thereafter. Exhibit 7: YANSAB’s earnings estimate
All in millions 3m
2016E
Performance (%)
1m
12m
Absolute
1.1
5.2
0.5
Relative
10.5
20.2
25.5
Source: SICO Research, Bloomberg
SAR mn
New
Old
Revenue
7,009
EBIT
2017E variance
New
Old
6,358
10.2%
7,245
6,825
6.2%
2,435
2,049
18.9%
2,583
1,900
35.9%
EBIT margin
35%
32%
36%
28%
Net Profit
2,192
1,763
2,322
1,677
Net margin
31%
28%
32%
25%
EPS
3.90
3.13
4.13
2.98
24.3%
24.3%
variance
38.4%
38.4%
Source: SICO Research
Valuation: Increase target price to SAR 53 from SAR 40 earlier, Upgrade to “Buy” rating
[email protected]
We base our valuation of Yansab on a DCF-based approach. Our DCF model is based on an explicit forecast period extending to FY 2020 and after which we build in semi-explicit cash flow forecasts running off a sales growth assumption and a profitability metric through to 2025. Thereafter, we move to a terminal growth stage assuming a 1% growth. The DCF methodology yields a fair value target price of SAR 53 per share, indicating a potential return of 20%. Accordingly, we assign a Buy rating on the stock.
www.sicobahrain.com
10
SICO RESEARCH
Petrochemical
Yanbu Nat Petrochem Co (YANSAB) Financials Income Statement (Consolidated) Year ending 31 Dec (SAR mn)
Cash Flow Statement (Consolidated) 2015A
2016E
2017E
Year ending 31 Dec (SAR mn)
Revenue Cost of Goods Sold
6,911 4,034
7,009 3,271
7,245 3,269
Net profit before minority Depreciation
Gross Profit
2,878
3,737
3,976
Other Adjustments
218
213
217
EBITDA
2,660
3,524
3,758
Operating Profit
1,540
2,435
2,583
26
66
0
(182)
(146)
(86)
176
164
175
0
0
0
1,207
2,192
2,322
Selling, General and Admin. Expenses
Other Income Net Interest Income Tax Minority Interest Net Profit
2015A
2016E
2017E
1,560 1,149
2,520 1,089
2,671 1,176
38
0
0
587
(90)
(79)
Cashflow from Operations
3,431
3,191
3,419
Capital Expenditure
(794)
(605)
(623)
(14)
0
0
Cashflow from Investing
(2,578)
(605)
(623)
Debt Raised/Repaid
(1,462)
(785)
(1,300)
Dividend
(1,404)
(1,688)
(1,969)
0
0
0
Cashflow from Financing
(2,866)
(2,472)
(3,269)
Net Chg in Cash
(2,012)
114
(473)
Working Capital Changes
Other Investing Activities
Other Financing Activities
Note: The above statements may not match the published cash flow statements due to adjustments made by us.
Key Ratios (Consolidated)
Balance Sheet (Consolidated) Year ending 31 Dec (SAR mn) Cash & Short Term Deposits Other Current Assets
2015A
2016E
2017E
Year ending 31 Dec (SAR mn)
3,413 2,915
3,526 3,154
3,054 3,232
EPS EPS Growth (%)
2015A
2016E
2017E
2.15 (51.3)
3.90 81.6
4.13 5.9
0
0
0
Gross Margin (%)
41.6
53.3
54.9
14,357
13,873
13,319
EBITDA Margin (%)
38.5
50.3
51.9
80
80
80
EBITDA Growth (%)
(35.6)
32.5
6.6
203
203
203
17.5
31.3
32.0
20,968
20,837
19,889
ROAE (%)
7.9
13.8
14.3
Current Liabilities
2,617
2,602
2,302
ROAA (%)
Total Debt
4,085
3,300
2,000
Debt/Equity (%)
(2,621)
(2,000)
(1,000)
Valuation Ratios
5,616
4,981
3,680 0
Investments Net Fixed Assets Net Intangible Assets Other Non-Current Assets Total Assets
Other Liabilities Total Liabilities Minority Interest Share Capital
0 5,625
0 5,625
5,625
Reserves & Surplus
1,376
1,376
1,376
Shareholders Funds
15,352
15,856
16,209
Total Equity & Liabilities
20,968
20,837
19,889
Net Margin (%)
8.4
15.8
17.4
17.1
12.6
6.2
PER (x)
20.5
11.3
10.7
PBV (x)
1.6
1.6
1.5
Dividend Yield (%)
4.5
6.8
7.9
10.6
8.0
7.5
EV/EBITDA (x)
Source: Company, SICO Research, Bloomberg
11
Price, Target Price and Rating Change History Chart of (APPC AB) SICO RESEARCH
Petrochemical
N
N
AA A
B
A
N
BB
Closing Price
Sep-16
Jun-16
Mar-16
Dec-15
Sep-15
Jun-15
Dec-14
Mar-15
Sep-14
Jun-14
Mar-14
Dec-13
N
A
Sep-13
Rating Initiation 50.0 N X 45.0 N 40.0 N N 35.0 N 30.0 A 25.0 N A 20.0 A 15.0 A N A A N N N A B B B
Jun-13
5-Mar-12 1-Apr-12 15-Apr-12 26-Apr-12 28-Jun-12 10-Jul-12 6-Oct-12 2-Mar-13 29-Apr-13 22-Aug-13 3-Oct-13 1-Jan-14 15-Jan-14 24-Aug-14 27-Jan-15 5-Jul-15 6-Oct-15 3-Feb-16 18-Feb-16 4-Oct-16
Target Price 25.0 25.0 25.0 23.6 23.6 22.0 22.0 26.3 26.3 29.2 30.8 39.2 39.2 41.7 37.5 45.8 45.8 37.5 36.3 46.5
Mar-13
Date
Closing Price 17.40 20.59 17.21 16.65 15.46 14.94 16.89 17.93 18.47 22.14 24.03 28.78 29.62 40.13 34.34 45.65 37.23 28.62 28.88 38.71
Target Price
B=Buy, A=Add, N=Neutral, R=Reduce, S=Sell, U/R = Under Review
Price, Target Price and Rating Change History Chart of (PETROCH AB) Rating Initiation 40.0 R X 35.0 R 30.0 A 25.0 A 20.0 A 15.0 B N 10.0 B 5.0
R
R
A A AB
B N
Closing Price
Sep-16
Jul-16
May-16
Mar-16
Jan-16
Sep-15
Nov-15
Jul-15
May-15
Jan-15
Mar-15
Nov-14
Sep-14
Jul-14
0.0
May-14
Target Price 30.0 30.0 30.0 28.0 17.0 16.0 15.0 19.0
Jan-14
23-Jun-14 24-Aug-14 15-Jun-15 19-Oct-15 3-Feb-16 18-Feb-16 23-Feb-16 4-Oct-16
Closing Price 33.46 33.90 26.61 23.55 14.08 12.92 13.71 14.30
Mar-14
Date
Target Price
B=Buy, A=Add, N=Neutral, R=Reduce, S=Sell, U/R = Under Review
12
SICO RESEARCH
Petrochemical
Price, Target Price and Rating Change History Chart of (YANSAB AB)
N N
A A
B
B
Closing Price
Mar-16
Sep-15
Dec-15
Jun-15
Dec-14
Mar-15
Sep-14
Jun-14
Mar-14
Sep-13
B B
N
S
Jun-16
A
Sep-16
A
Dec-13
Rating Initiation 80.0 A 70.0 A A 60.0 B 50.0 A A 40.0 B 30.0 B B 20.0 B B B A A A A N N N A A B B B N S B
Jun-13
Target Price 54.8 54.8 54.8 54.8 54.8 54.8 58.3 58.2 58.2 60.0 58.0 56.5 56.5 60.0 60.0 67.0 77.0 77.0 77.0 58.0 62.0 60.0 40.0 38.0 40.0 40.0 53.0
Dec-12
10-Jan-11 19-Jan-11 26-Jan-11 3-Feb-11 11-Apr-11 17-Apr-11 27-Jun-11 14-Jul-11 13-Dec-11 5-Mar-12 14-Jul-12 14-Oct-12 12-Jan-13 2-Mar-13 29-Apr-13 22-Aug-13 13-Jan-14 15-Jan-14 24-Aug-14 5-Feb-15 15-Jun-15 6-Oct-15 3-Feb-16 18-Feb-16 6-Mar-16 14-Apr-16 4-Oct-16
Closing Price 39.89 38.64 38.89 37.81 43.19 41.65 39.48 41.73 36.55 42.77 34.89 35.47 41.94 41.73 42.56 49.70 60.53 60.95 67.55 44.14 51.04 43.02 27.63 29.85 36.20 40.15 44.08
Mar-13
Date
Target Price
B=Buy, A=Add, N=Neutral, R=Reduce, S=Sell, U/R = Under Review
Securities & Investment Company BSC Analyst Stock Rating Definitions * Note:- Under old methodology, up until 20th Feb 2016, we had 5 categories of LT rating. Sell (+25%). The LT rating was independent of Risk Profile. Time horizon Short term SICO Research issues a Short term outlook if the analyst feels that there are factors which might affect the short-term performance of the stock during the immediate six months after issuing a rating. This might be due to both quantitative and qualitative factors which the analyst think can affect the stock price. Long term SICO Research’s Long-term rating is based on the Target Price calculated by the analyst. The Target Price is arrived at using both fundamental and/or comparative valuation methods based on the detailed Financial models developed by analysts incorporating current expectations and analyst's assumptions. Target price for a stock is calculated one year forward from the valuation date Recommendation (Short term) Positive Analyst expect positive triggers in the short term which might affect current price positively (> 10%) Neutral Analyst does not expect any short term triggers/events (+/- 10%) Negative Analyst expect negative triggers in the short term which might affect current price adversely (< 10%) Recommendation (Long term)* Buy If Risk profile is “High” Target price estimate offers 20%+ return from the current share price. If Risk profile is “Normal” Target price estimate offers 15%+ return from the current share price. Neutral If Risk profile is “High” Target Price estimate offers 0% to 20% return from the current share price. If Risk profile is “Normal” Target Price estimate offers 5% to 15% return from the current share price Sell If Risk profile is “High” Target price estimate offers less than 0% return from the current share price. If Risk profile is “Normal” Target price estimate offers less than 5% return from the current share price. Risk High Stock volatility (360 days standard deviation) exceeds 2x of S&P GCC market volatility Normal Stock volatility (360 days standard deviation) lower than 2x of S&P GCC market volatility
13
SICO RESEARCH
Petrochemical
NOTES Contact Details BMB Centre, 1 Floor P.O Box 1331, Diplomatic Area Manama Kingdom of Bahrain st
Investment Research [email protected]
Head of Research Nishit Lakhotia, CFA, CAIA Tel: (Direct) +973 – 17515021
Brokerage Fadhel Makhlooq Tel: (Direct): +973 – 17515202
Visit us at www.sicobahrain.com
Disclaimer This report does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for any securities. The information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness and are subject to change without notice. Investors must make their own investment decisions. Past performance is not necessarily a guide to future performance. Nothing in this report should be construed as investment or financial advice or as an advice to buy or sell the securities of the company referred to in this report. SICO and/or its clients may have positions in or options on the securities mentioned in this report or any related investments, may affect transactions or may buy, sell or offer to buy or sell such securities or any related investments. The analyst(s) who is (are) responsible for producing the report certifies(y) that he (she) or any of their close relative have no beneficial ownership in the company’s stock at the time of publishing the report. Any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Additional information on the contents of this report is available on request. Among stocks under our coverage, Ahli United Bank and National Bank of Bahrain owns 11.9% and 12.5% respectively in SICO. SICO does market making in Aluminum Bahrain (ALBA) and Zain Bahrain’s shares.
Copyright Notice © Securities and Investment Company 2016. This report is being supplied to the recipient for information and not for circulation and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part.
14
October 05, 2016
Saudi Petrochemicals Conviction ideas at USD 50 crude We present three conviction ideas offering meaningful upside in the medium term with unchanged USD 50/60bbl crude assumption for 2017/18 We upgrade Yansab (TP SAR 53) and APC (TP SAR 46.5) to a ‘Buy’ rating led by lower feedstock cost in the near-term owing to widening propanenaphtha discount We also upgrade Petrochem to Buy, (TP SAR 19) factoring in benefit from lower feedstock price until mid-2019 Reassessing the liquid feedstock (propane) assumption Propane is an essential feedstock for the Saudi Petrochemicals and constitutes 100% of APC and nearly 40-50% of YANSAB’s feedstock slate. Saudi Arabia cabinet during subsidy reforms in December 2015 established the industry propane price at a 20% discount to the FOB Japan propane price. Historically, propane has traded at 8% discount to naphtha however the discount has widened to 17%/20% for 2015/16YTD (refer exhibit 1) with 3Q16 discount at a staggering 25% led by higher naphtha demand from refiners and long propane markets. Given the widening discount, we believe that our conservative assumption that propane price will trade in line with naphtha prices warrants reconsideration.
Petrochemical
In this note, we assume that propane will trade at a 15% discount to naphtha in 2017-18 tapering off to 10% thereafter, similar to historical trend. This increase in discount from 0% to 15% results in a USD 54/ton (from USD 328/ton to USD 274/ton) decrease in the price of propane (refer exhibit 2). Both Yansab and APC are likely to benefit from this widening propane-naphtha discount leading to lower feedstock cost in the near-term. Accordingly, we increase our 2016/17 net income estimates for APC and YANSAB by 23%/33% and 24%/38%, respectively. Preferred picks: Buy YANSAB, APC and Petrochem Advanced Petrochemicals: We upgrade APC to Buy rating with a revised target price of SAR 46.5/share led by positive estimates revision. We continue to like APC’s operational excellence, hedged against low crude price as feedstock is 100% propane (highly correlated with oil), attractive valuation 11.2x/11.4x 2016/17 earnings with a supportive current dividend yield of 6.5%.
SICO Research
YANSAB: We upgrade YANSAB to Buy rating with a revised target price of SAR 53/share led by positive estimates revision. YANSAB is in a strong position as it is now virtually a ‘cash cow’ with no near-term large capex requirements; hence we expect pay-out to trend towards 100% in the long term. Double digit cash flow yield should support the high single digit dividend yield. We forecast SAR 3.0/3.5/4.0 DPS for 2016/17/18 implying a pay-out ratio of 77%/82%/84%. The stock trades at attractive 11.3x/10.7x 2016/17 earnings with a supportive current dividend yield of 6.8%.
Nitin Garg, CFA +973 1751 5000 ext 5059 [email protected] www.sicobahrain.com
Petrochem: We upgrade Petrochem to Buy rating with a revised target price of SAR 19/sh underpinned by lower production cost as it will continue to get feedstock at old prices until the grace period, increasing our 2016/17 estimates by 26%/33%. We also take comfort from company’s favorable product mix (6065% polyethylene – prices have remain relatively resilient compared to others products) and high operating efficiency. 2015 reported EPS of SAR 1.89 (average oil price USD 54/bbl) underscores company’s operational strength when compared to SAR 1.61 in 2014 (average oil price USD 99/bbl). Strong cash flow (FY16/17: SAR 1.9/2.0bn or SAR 3.9/4.1/sh) supports the case of first ever dividend payout but higher leverage (FY15 Net debt/equity at 1.5x) can be a risk. We build in SAR 0.5/sh payout for 2016 which require a payment of SAR 240mn from a cash balance of SAR 3.5bn at 31- March 2016. © SICO 2016 All Rights Reserved Attention is drawn to the disclaimer and other information in the end
SICO RESEARCH
Petrochemical A recap on liquid feedstock (propane) Saudi Arabia cabinet approved subsidy reforms on 28th December 2015 decreasing the subsidy on natural gas liquids (propane and butane) to 20% discount to international propane price from 28% discount to naphtha price. Two changes here, firstly, the discount was narrowed from 28% to 20% and secondly, pricing basis was changed from naphtha to propane itself. Traditionally, propane has traded at a slight discount to naphtha. On an average between 2001 and 2015, the discount has been 8.0%, however, in December 2015, the propane price registered 7% premium to average naphtha price. In our note published on 4 th February 2016, GCC Petrochemicals: Search for Value and Yield over noise and news flow, being conservative and keeping in mind December 2015 naphtha-propane differential, we had assumed that propane price will trade in line with naphtha prices for our earnings forecasts. Reassessing the liquid feedstock assumption Historically, propane has traded at 8% discount to naphtha however the discount has widened to 17%/20% for 2015/16YTD with 3Q16 discount at staggering 25% led by higher naphtha demand from refiners and long propane markets. Given the widening discount, we believe that our conservative assumption that propane price will trade in line with naphtha prices warrants reconsideration. Low propane prices should lead to margin expansion for mixed feed (Yansab) and liquid feed (APC) producers. Exhibit 1: Widening propane to naphtha discount in USD/ton 1000 Naphtha Propane Discount
30%
25%
800
20%
600
15% 400
10%
200
5%
0
0% 2013
2014
2015
2016 YTD
4Q15
1Q16
2Q16
3Q16
Source: Bloomberg, SICO Research
In this note, we assume that propane will trade at 15% discount to naphtha in 2017-18 tapering off to 10% thereafter, similar to historical trend. This increase in discount from 0% to 15% results in a USD 54/ton (from USD 328/ton to USD 274/ton) decrease in the price of propane (refer exhibit below). Both Yansab and APC will benefit from this widening propane-naphtha discount leading to lower propane costs in the near-term. Additionally, we have assumed that the feedstock pricing structure will remain unchanged, and any significant change presents the major downside risk to our company valuation.
2
SICO RESEARCH
Petrochemical Exhibit 2: Propane pricing difference: New vs old structure Before subsidy old assumption reforms
New assumption
Brent crude (USD/bbl)
50
50
50
Naphtha (USD/ton)
450
450
450
Propane to naphtha discount
8%
0%
15%
Propane price (USD/ton)
414
450
383
Discount to saudi producer
28%
20%
20%
Propane price to Saudi producer (USD/ton)
295
328
274
Source: Bloomberg, SICO Research
Product price estimates We expect commodity chemical prices to remain a function of global crude prices and industry supply-demand balances. Our product price estimates for 2017 are on an average in line with spot prices (see exhibit 3). Exhibit 3: Product price assumptions His torical
F orecas t
2011
2012
2013
2014
2015
Brent (USD/bbl)
111
112
109
99
54
2016 Y TD 43
Naphtha
938
944
922
863
493
Ethylene
1,160
1,197
1,240
1,354
LDPE
1,550
1,320
1,514
1,548
LLDPE
1,325
1,325
1,472
HDPE
1,340
1,350
PP
1,520
MEG
1,180
US D/ ton
S pot
2017E 2018E
50
50
60
384
405
450
540
1,060
1,078
1,050
1,000
1,100
1,237
1,151
1,175
1,200
1,320
1,542
1,227
1,145
1,180
1,200
1,320
1,466
1,527
1,216
1,123
1,125
1,200
1,320
1,400
1,476
1,483
1,091
949
965
1,000
1,100
1,030
1,054
931
738
636
625
650
715
Source: Bloomberg, SICO Research
Earnings revision and Valuation YANSAB and APC: We increase our 2016/17 net income estimates for APC and YANSAB by 23%/33% and 24%/38%, respectively led by assumption that propane will trade at 15% discount to naphtha in 2017-18 tapering off to 10% thereafter. Petrochem: Petrochem is to get feedstock at old prices until the grace period, we incorporate this and increase our 2016/17 estimates by 26%/33%. The increase in our target prices reflects the changes to our medium and long term estimates. Exhibit 4: Rating and Target price changes Target price
Rating
2017 Yield
Total return
PE
20%
6.5%
26.6%
11.4
Buy
33%
3.5%
36.4%
7.6
Buy
20%
6.8%
27.0%
10.7
Company
CMP
Old
New
Old
New
Apc
38.7
36.3
46.5
Buy
Buy
Petrochem
14.3
15.0
19.0
Sell
Yansab
44.1
40.0
53.0
Sell
Upside/ Downside
Source: SICO Research
3
SICO RESEARCH
Petrochemical
Company sections
4
SICO RESEARCH
Petrochemical
Advanced Petrochemical Company
Price Data (SAR) Current Price
38.71
Target Price
46.50
52 wk High/Low
44.17/26.58
Ratings
Petrochemical
Short-term
Positive
Long-term
Buy
Risk Profile
High
We continue to like APC’s operational excellence, low crude price correlation as feedstock is 100% propane (highly correlated with oil) Trades at attractive valuation and supportive dividend profile with 6.5% yield Upgrade to “Buy” rating with a revised target price of SAR 46.5/share Why we continue to like APC
Market Data Sector
Petrochemical
Market Cap
USD 2.0bn
Primary Market
Saudi Arabia
Other Exchg Reuters
2330.SE
Bloomberg
APPCAB
Free Float
86%
Valuation Ratio 2016E
2017E
11.2
11.4
P/BV x
2.8
2.6
EV/EBITDA x
9.6
9.4
Div Yld %
6.5
6.5
P/E x
Trading Data
GCC Equities
Hedge against lower oil price
Daily Vol (6M Avg)
0.5
Daily T/o (6M Avg USD)
5.4
Issued Shares
196.8
All in millions Performance (%)
1m
3m
12m
Absolute
4.2
-2.1
4.7
Relative
13.6
12.8
29.7
Source: SICO Research, Bloomberg
Solid operational performance: The plant continues to operate at more than 100% utilisation with no near term expected shutdown. Hedge against lower oil price: low oil price correlation, which offers diversification within petrochemicals – this is well underscored by resilience in company’s 2015 earnings, with earnings down by only 5% YoY while oil price was 55% lower in 2015. The stock has outperformed both Saudi petrochemical index and broader Tadawul YTD. We believe this outperformance will continue on back of lower oil prices expected in 2016-17. Attractive valuation and yield: We expect APC to continue to pay SAR 0.625/sh quarterly dividend through FY17-18, which translates into SAR 2.5/share annual payout and 6.5% yield. On PE basis, APC is trading in line with the sector median, however, we believe that it should trade at a premium in a lower oil regime and relatively higher dividend yield. Benefiting from lower propane price: APC should continue to benefit from the widening propane-naphtha discount leading to lower propane costs in the near-term We incorporate this in financial model and increase our 2016/17 estimates by 23%/33%, translating to PE of 11.2x/11.4x Changes to earnings estimate The changes to our estimates are in exhibit below. We increase our 2016/17 net income estimates by 23%/33% led by assumption that propane will trade at 15% discount to naphtha in 2017-18 tapering off to 10% thereafter. Exhibit 5: APC’s earnings estimates 2016E
2017E
SAR mn
New
Old
variance
New
Old
variance
Revenue
2,103
1,856
13.3%
2,156
2,042
5.6%
EBIT
683
592
15.4%
713
542
31.5%
EBIT margin
33%
32%
33%
27%
Net Profit
683
556
669
502
Net margin
32%
30%
31%
25%
EPS
3.47
2.83
3.40
2.55
22.8%
22.8%
33.2%
33.2%
Source: Bloomberg, SICO Research
APC reported 3Q net income of SAR 188mn, down 20% YoY and flat QoQ but 7% lower than our estimate of SAR 202mn
[email protected] www.sicobahrain.com
APC reported flat numbers QoQ despite 10% sequential improvement in (PPnaphtha) spread, missing our estimates by 7%. The miss is at operating level itself, as the company reported EBIT of SAR 193mn (-20% YoY, flat QoQ) versus our estimate of SAR 213mn. Revenues stood at SAR 529mn, 2.0% lower than our estimates of SAR 539mn. Earnings also includes SAR 14mn from its Korean associate, SK advanced as well as provision for impairment loss 5
SICO RESEARCH
Petrochemical loss of SAR 14.0mn on AFS portfolio. Overall a neutral result and a non-event. We attribute the marginal 7.0% miss to 2.0% revenue miss and slightly higher than expected feedstock cost. SK Advanced Joint Venture –marginally earnings accretive but lower margin proposition APC’s new joint venture SK Advanced Company with South Korea’s SK Gas has started commercial operations in 2Q16. The PDH plant with a design capacity of 600 KTA was constructed at a total capex of USD 900mn, 60/40% debt/equity financed. Originally, APC’s 95% owned subsidiary, Advanced Global Investment Company (AGIC) held 35% equity stake and rest 65% with SK Gas. However, in 1Q16, SK Gas and APC offloaded 20% and 5%, respectively, to Kuwait’s Petrochemical Investments Company (PIC). Accordingly, the new shareholding of the JV Co. is 45% by SK Gas, 30% by AGIC (35% previously) and 25% by PIC. APC management believes that strategic partnership with KPC through PIC will improve the competitiveness and stability of SK Advanced PDH business as a significant percentage of the feedstock will be supplied by KPC on a regular long term basis. Having said that, we do not see this project as being significantly earnings accretive. APC, in its existing operations, buys discounted propane and converts it into propylene and then Polypropylene, however, Korean players do not enjoy this discount. Lower margins coupled with high depreciation and tax expenses will translate to sub-par returns in our view. We expect the JV to generate c 15%20% EBITDA margins at high utilizations way lower than APC’s Saudi plant’s 40%/45% EBITDA margin in 2015/16. Valuation: Increase target price to SAR 46.5 from SAR 36.25 earlier, Upgrade to “Buy” rating We base our valuation of APC on a DCF-based approach. Our DCF model is based on an explicit forecast period extending to FY 2020 and after which we build in semi-explicit cash flow forecasts running off a sales growth assumption and a profitability metric through to 2025. Thereafter, we move to a terminal growth stage assuming a 1% growth. The DCF methodology yields a fair value target price of SAR 46.5 per share, indicating a potential return of 20%. Accordingly, we assign a Buy rating on the stock. We have valued the company’s 30% associate, SK Advanced Company, at 1.0x 2016F BV, accounting for 4.5% of our APC’s DCF value.
6
SICO RESEARCH
Petrochemical
Advanced Petrochemical Company Financials Income Statement (Consolidated) Year ending 31 Dec (SAR mn) Revenue Cost of Goods Sold Gross Profit Selling, General and Admin. Expenses
Cash Flow Statement (Consolidated) 2015A
2016E
2017E
Year ending 31 Dec (SAR mn)
2,377 1,386
2,103 1,150
2,156 1,202
Net profit before minority Depreciation
991
952
955
2015A
2016E
2017E
736 210
683 214
696 208
15
0
0
Other Adjustments
42
55
54
Working Capital Changes
(71)
(19)
(2)
949
898
921
Cashflow from Operations
844
878
876
Operating Profit
743
683
713
Capital Expenditure
(116)
(213)
(138)
Other Income
(12)
51
0
(88)
0
0
Net Interest Income
(18)
(29)
(30)
(1,121)
(213)
(138)
Tax
0
0
14
Minority Interest
0
0
0
713
683
669
EBITDA
Net Profit
Other Investing Activities Cashflow from Investing Debt Raised/Repaid Dividend
(30)
0
(20)
(492)
(492)
(492)
Other Financing Activities
0
0
0
Cashflow from Financing
(522)
(492)
(512)
Net Chg in Cash
(798)
173
226
Note: The above statements may not match the published cash flow statements due to adjustments made by us.
Key Ratios (Consolidated)
Balance Sheet (Consolidated) Year ending 31 Dec (SAR mn) Cash & Short Term Deposits Other Current Assets Investments Net Fixed Assets Net Intangible Assets Other Non-Current Assets Total Assets Current Liabilities Total Debt Other Liabilities Total Liabilities Minority Interest
2015A
2016E
2017E
85 368
259 400
485 412
2016E
2017E
EPS EPS Growth (%)
3.62 (5.0)
3.47 (4.2)
3.40 (2.1)
0
0
0
Gross Margin (%)
41.7
45.3
44.3
2,195
2,124
EBITDA Margin (%)
39.9
42.7
42.7
93
EBITDA Growth (%)
0.6
(5.5)
2.6
Net Margin (%)
30.0
32.5
31.0
93
93
0
0
0
3,886
4,089
4,257
ROAE (%)
28.4
25.3
23.2
283
295
306
ROAA (%)
33.7
31.1
31.5
1,088
1,088
1,068
Debt/Equity (%)
45.8
41.8
38.8
Valuation Ratios
(1,048)
(1,048)
(1,028)
1,377
1,389
1,380
PER (x)
10.7
11.2
11.4
PBV (x)
3.0
2.8
2.6
Dividend Yield (%)
6.5
6.5
6.5
EV/EBITDA (x)
9.1
9.6
9.4
0
0
0
2,700
2,877
0
0
0
Shareholders Funds
2,509
2,700
2,877
Total Equity & Liabilities
3,886
4,089
4,257
Reserves & Surplus
2015A
2,117
2,509
Share Capital
Year ending 31 Dec (SAR mn)
Source: Company, SICO Research, Bloomberg
7
SICO RESEARCH
Petrochemical
Petrochem
Price Data (SAR) Current Price
14.30
Target Price
19.00
52 wk High/Low
23.90/10.60
Petrochemical
Short-term
Negative
Long-term
Buy
Risk Profile
High
Market Data Sector
Petrochemical
Market Cap
USD 1.8bn
Primary Market
Saudi Arabia
Other Exchg Reuters Bloomberg
PETROCHAB
Free Float
18%
Valuation Ratio 2016E
2017E
13.0
7.7
P/BV x
1.1
1.0
EV/EBITDA x
9.0
6.9
Div Yld %
3.5
3.5
P/E x
Trading Data
GCC Equities
Petrochem to get feedstock at old prices until the grace period, we incorporate this and increase our 2016/17 estimates by 26%/33% 45% earnings CAGR over 2016-18 period with a single digit forward PE
Ratings
Daily Vol (6M Avg)
0.3
Daily T/o (6M Avg USD)
1.3
Issued Shares
480.0
All in millions Performance (%)
Trading at single digit forward PE
1m
3m
12m
Absolute
-13.6
-15.6
-22.6
Relative
-4.2
-0.7
2.5
Upgrade to “Buy” rating with a revised target price of SAR 19/share Why are we turning positive on Petrochem? Petrochem announced on 24th February that Saudi Aramco will continue to supply feedstock at old prices until the grace period: methane till 6 November 2018, ethane till 12 August 2019, and Propane till 1 September 2019. We incorporate this into our financial model and increase our 2016/17 estimates by 26%/33%, translating to PE of 13.0x/7.7x at USD 50/bbl oil price. We also take comfort from company’s favorable product mix (60-65% polyethylene – prices have remain relatively resilient compared to others products) and high operating efficiency. 2015 reported EPS of SAR 1.93 (average oil price USD 54/bbl) underscores company’s operational strength when compared to SAR 1.61 in 2014 (average oil price USD 99/bbl). Strong cash flow (FY16/17: SAR 1.9/2.0bn or SAR 3.9/4.1/sh) supports the case of first ever dividend payout but higher leverage (FY15 Net debt/equity at 1.5x) can be a risk. We build in SAR 0.5/sh payout for 2016 which require a payment of SAR 240mn from a cash balance of SAR 3.5bn at 31- March 2016. It should be noted that Petrochem will shut down Saudi Polymers plant for regular maintenance during 4Q16, which is expected to continue for 60 days. Although this is a routine shutdown, earnings impact is material owing to high operating leverage at the plant. We forecast Petrochem to report SAR 32mn loss in 4Q16. Changes to earnings estimate Petrochem to get feedstock at old prices until the grace period, we incorporate this and increase our 2016/17 estimates by 26%/33%. We expect Saudi polymers plant to return to high operating efficiency post this scheduled shutdown, leading to SAR 220-230mn quarterly net income run rate throughout 2017, translating to PE of 7.7x at current price. Exhibit 6: Petrochem’s earnings estimates 2016E
Source: SICO Research, Bloomberg
2017E
SAR mn
New
Old
variance
New
Old
variance
Revenue
5,586
5,190
7.6%
6,834
6,423
6.4%
EBIT
1,139
845
34.8%
1,703
1,276
33.5%
EBIT margin
20%
16%
25%
20%
Net Profit
529
419
897
675
Net margin
9%
8%
13%
11%
EPS
1.10
0.87
1.87
1.41
26.3%
26.3%
32.9%
32.9%
Source: SICO Research
[email protected] www.sicobahrain.com
Valuation: Increase target price to SAR 19 from SAR 15 earlier, Upgrade to “Buy” rating We base our valuation of Petrochem on a DCF-based approach. Our DCF model is based on an explicit forecast period extending to FY 2020 and after which we build in semi-explicit cash flow forecasts running off a sales growth assumption and a profitability metric through to 2025. Thereafter, we move to a terminal growth stage assuming a 1% growth. The DCF methodology yields a fair value target price of SAR 19 per share, indicating a potential return of 33%. Accordingly, we assign a Buy rating on the stock. 8
SICO RESEARCH
Petrochemical
Petrochem Financials Income Statement (Consolidated) Year ending 31 Dec (SAR mn)
Cash Flow Statement (Consolidated) 2015A
2016E
2017E
Year ending 31 Dec (SAR mn)
Revenue Cost of Goods Sold
7,304 4,001
5,586 3,151
6,834 3,647
Net profit before minority Depreciation
Gross Profit
3,304
2,435
3,187
Selling, General and Admin. Expenses
(700)
(494)
(649)
EBITDA
2,604
1,941
2,538
Operating Profit
1,782
1,139
1,703
6
7
0
Net Interest Income
(157)
(181)
Tax
(125)
Minority Interest
(579) 926
Other Income
Net Profit
2015A
2016E
2017E
1,177 796
730 801
1,203 835
Other Adjustments
746
335
483
Working Capital Changes
177
193
(251)
Cashflow from Operations
2,651
1,859
1,964
Capital Expenditure
(135)
(323)
(323)
Other Investing Activities
(81)
0
0
(170)
Cashflow from Investing
(216)
(323)
(323)
(100)
(153)
Debt Raised/Repaid
(1,211)
(492)
(1,000)
(335)
(483)
Dividend
0
(240)
(240)
529
897
Other Financing Activities
0
0
0
(1,211)
(732)
(1,240)
1,223
804
401
Cashflow from Financing Net Chg in Cash
Note: The above statements may not match the published cash flow statements due to adjustments made by us.
Key Ratios (Consolidated)
Balance Sheet (Consolidated) Year ending 31 Dec (SAR mn) Cash & Short Term Deposits Other Current Assets Investments Net Fixed Assets Net Intangible Assets Other Non-Current Assets Total Assets
2015A
2016E
2017E
Year ending 31 Dec (SAR mn)
2015A
2016E
2017E
2,395 2,192
3,199 1,971
3,600 2,293
EPS EPS Growth (%)
1.93 19.6
1.10 (42.9)
1.87 69.5
0
0
0
Gross Margin (%)
45.2
43.6
46.6
17,066
16,491
15,979
EBITDA Margin (%)
35.7
34.7
37.1
0
0
0
EBITDA Growth (%)
11.7
(25.5)
30.8
67
180
180
Net Margin (%)
12.7
9.5
13.1
22,726
ROAE (%)
16.0
8.7
13.3
22,394
22,515
1,978
1,951
2,022
ROAA (%)
5.4
3.2
5.6
Total Debt
13,088
12,596
11,596
Debt/Equity
1.8
1.7
1.3
Other Liabilities
(11,79 2) 14,094
(11,30 0) 13,575
(10,30 0) 12,645
Valuation Ratios PER (x)
7.4
13.0
7.7
3,316
PBV (x)
1.2
1.1
1.0
4,800
Dividend Yield (%)
0.0
3.5
3.5
EV/EBITDA (x)
6.7
9.0
6.9
Current Liabilities
Total Liabilities Minority Interest Share Capital Reserves & Surplus Shareholders Funds Total Equity & Liabilities
2,498 4,800
2,833 4,800
0
0
0
5,802
6,091
6,748
22,394
22,516
22,726
Source: Company, SICO Research, Bloomberg
9
SICO RESEARCH
Petrochemical
Yanbu Nat Petrochem Co (YANSAB)
Price Data (SAR) Current Price
44.08
Target Price
53.00
52 wk High/Low
52.00/23.80
Ratings Short-term
Petrochemical
Strong cash flow and dividend pay-out story
Buy
Long-term
Buy
Risk Profile
High
YANSAB to benefit from widening propane- naphtha discount as propane forms 40-50% of feedstock slate 10% earnings CAGR over 2016-18 period with supportive 6.8%/7.9% 2016/17 yield Upgrade to “Buy” rating with a revised target price of SAR 53/share Why are we turning positive on Yansab?
Market Data Sector
Petrochemical
Market Cap
USD 6.6bn
Primary Market
Saudi Arabia
Other Exchg Reuters
2290.SE
Bloomberg
YANSABAB
Free Float
37%
Valuation Ratio 2016E
2017E
11.3
10.7
P/BV x
1.6
1.5
EV/EBITDA x
8.0
7.5
Div Yld %
6.8
7.9
P/E x
Benefiting from lower propane price: YANSAB should continue to benefit from the widening propane-naphtha discount leading to lower propane costs in the near-term. We incorporate this into our financial model and increase our 2016/17 estimates by 24%/38%, translating to a PE of 11.3x/10.7x at USD 50/bbl oil price. Strong cash flow generation and attractive yield: YANSAB is in a strong position as it is now virtually a ‘cash cow’ with no near-term large capex requirements; hence we expect payout to trend towards 100% in the long term. Double digit cash flow yield should support the high single digit dividend yield. We forecast SAR 3.0/3.5/4.0 DPS for 2016/17/18 implying a pay-out ratio of 77%/85%/86% Expect a strong 3Q16: We forecast YANSAB to report SAR 586mn in net income (+94% YoY, -15% QoQ) owing to higher utilisation rates YoY and lower feedstock cost. Changes to earnings estimates
GCC Equities
Trading Data Daily Vol (6M Avg)
0.4
Daily T/o (6M Avg USD)
4.4
Issued Shares
562.5
We increase our 2016/17 net income estimates by 24%/38% led by assumption that propane will trade at 15% discount to naphtha in 2017-18 tapering off to 10% thereafter. Exhibit 7: YANSAB’s earnings estimate
All in millions 3m
2016E
Performance (%)
1m
12m
Absolute
1.1
5.2
0.5
Relative
10.5
20.2
25.5
Source: SICO Research, Bloomberg
SAR mn
New
Old
Revenue
7,009
EBIT
2017E variance
New
Old
6,358
10.2%
7,245
6,825
6.2%
2,435
2,049
18.9%
2,583
1,900
35.9%
EBIT margin
35%
32%
36%
28%
Net Profit
2,192
1,763
2,322
1,677
Net margin
31%
28%
32%
25%
EPS
3.90
3.13
4.13
2.98
24.3%
24.3%
variance
38.4%
38.4%
Source: SICO Research
Valuation: Increase target price to SAR 53 from SAR 40 earlier, Upgrade to “Buy” rating
[email protected]
We base our valuation of Yansab on a DCF-based approach. Our DCF model is based on an explicit forecast period extending to FY 2020 and after which we build in semi-explicit cash flow forecasts running off a sales growth assumption and a profitability metric through to 2025. Thereafter, we move to a terminal growth stage assuming a 1% growth. The DCF methodology yields a fair value target price of SAR 53 per share, indicating a potential return of 20%. Accordingly, we assign a Buy rating on the stock.
www.sicobahrain.com
10
SICO RESEARCH
Petrochemical
Yanbu Nat Petrochem Co (YANSAB) Financials Income Statement (Consolidated) Year ending 31 Dec (SAR mn)
Cash Flow Statement (Consolidated) 2015A
2016E
2017E
Year ending 31 Dec (SAR mn)
Revenue Cost of Goods Sold
6,911 4,034
7,009 3,271
7,245 3,269
Net profit before minority Depreciation
Gross Profit
2,878
3,737
3,976
Other Adjustments
218
213
217
EBITDA
2,660
3,524
3,758
Operating Profit
1,540
2,435
2,583
26
66
0
(182)
(146)
(86)
176
164
175
0
0
0
1,207
2,192
2,322
Selling, General and Admin. Expenses
Other Income Net Interest Income Tax Minority Interest Net Profit
2015A
2016E
2017E
1,560 1,149
2,520 1,089
2,671 1,176
38
0
0
587
(90)
(79)
Cashflow from Operations
3,431
3,191
3,419
Capital Expenditure
(794)
(605)
(623)
(14)
0
0
Cashflow from Investing
(2,578)
(605)
(623)
Debt Raised/Repaid
(1,462)
(785)
(1,300)
Dividend
(1,404)
(1,688)
(1,969)
0
0
0
Cashflow from Financing
(2,866)
(2,472)
(3,269)
Net Chg in Cash
(2,012)
114
(473)
Working Capital Changes
Other Investing Activities
Other Financing Activities
Note: The above statements may not match the published cash flow statements due to adjustments made by us.
Key Ratios (Consolidated)
Balance Sheet (Consolidated) Year ending 31 Dec (SAR mn) Cash & Short Term Deposits Other Current Assets
2015A
2016E
2017E
Year ending 31 Dec (SAR mn)
3,413 2,915
3,526 3,154
3,054 3,232
EPS EPS Growth (%)
2015A
2016E
2017E
2.15 (51.3)
3.90 81.6
4.13 5.9
0
0
0
Gross Margin (%)
41.6
53.3
54.9
14,357
13,873
13,319
EBITDA Margin (%)
38.5
50.3
51.9
80
80
80
EBITDA Growth (%)
(35.6)
32.5
6.6
203
203
203
17.5
31.3
32.0
20,968
20,837
19,889
ROAE (%)
7.9
13.8
14.3
Current Liabilities
2,617
2,602
2,302
ROAA (%)
Total Debt
4,085
3,300
2,000
Debt/Equity (%)
(2,621)
(2,000)
(1,000)
Valuation Ratios
5,616
4,981
3,680 0
Investments Net Fixed Assets Net Intangible Assets Other Non-Current Assets Total Assets
Other Liabilities Total Liabilities Minority Interest Share Capital
0 5,625
0 5,625
5,625
Reserves & Surplus
1,376
1,376
1,376
Shareholders Funds
15,352
15,856
16,209
Total Equity & Liabilities
20,968
20,837
19,889
Net Margin (%)
8.4
15.8
17.4
17.1
12.6
6.2
PER (x)
20.5
11.3
10.7
PBV (x)
1.6
1.6
1.5
Dividend Yield (%)
4.5
6.8
7.9
10.6
8.0
7.5
EV/EBITDA (x)
Source: Company, SICO Research, Bloomberg
11
Price, Target Price and Rating Change History Chart of (APPC AB) SICO RESEARCH
Petrochemical
N
N
AA A
B
A
N
BB
Closing Price
Sep-16
Jun-16
Mar-16
Dec-15
Sep-15
Jun-15
Dec-14
Mar-15
Sep-14
Jun-14
Mar-14
Dec-13
N
A
Sep-13
Rating Initiation 50.0 N X 45.0 N 40.0 N N 35.0 N 30.0 A 25.0 N A 20.0 A 15.0 A N A A N N N A B B B
Jun-13
5-Mar-12 1-Apr-12 15-Apr-12 26-Apr-12 28-Jun-12 10-Jul-12 6-Oct-12 2-Mar-13 29-Apr-13 22-Aug-13 3-Oct-13 1-Jan-14 15-Jan-14 24-Aug-14 27-Jan-15 5-Jul-15 6-Oct-15 3-Feb-16 18-Feb-16 4-Oct-16
Target Price 25.0 25.0 25.0 23.6 23.6 22.0 22.0 26.3 26.3 29.2 30.8 39.2 39.2 41.7 37.5 45.8 45.8 37.5 36.3 46.5
Mar-13
Date
Closing Price 17.40 20.59 17.21 16.65 15.46 14.94 16.89 17.93 18.47 22.14 24.03 28.78 29.62 40.13 34.34 45.65 37.23 28.62 28.88 38.71
Target Price
B=Buy, A=Add, N=Neutral, R=Reduce, S=Sell, U/R = Under Review
Price, Target Price and Rating Change History Chart of (PETROCH AB) Rating Initiation 40.0 R X 35.0 R 30.0 A 25.0 A 20.0 A 15.0 B N 10.0 B 5.0
R
R
A A AB
B N
Closing Price
Sep-16
Jul-16
May-16
Mar-16
Jan-16
Sep-15
Nov-15
Jul-15
May-15
Jan-15
Mar-15
Nov-14
Sep-14
Jul-14
0.0
May-14
Target Price 30.0 30.0 30.0 28.0 17.0 16.0 15.0 19.0
Jan-14
23-Jun-14 24-Aug-14 15-Jun-15 19-Oct-15 3-Feb-16 18-Feb-16 23-Feb-16 4-Oct-16
Closing Price 33.46 33.90 26.61 23.55 14.08 12.92 13.71 14.30
Mar-14
Date
Target Price
B=Buy, A=Add, N=Neutral, R=Reduce, S=Sell, U/R = Under Review
12
SICO RESEARCH
Petrochemical
Price, Target Price and Rating Change History Chart of (YANSAB AB)
N N
A A
B
B
Closing Price
Mar-16
Sep-15
Dec-15
Jun-15
Dec-14
Mar-15
Sep-14
Jun-14
Mar-14
Sep-13
B B
N
S
Jun-16
A
Sep-16
A
Dec-13
Rating Initiation 80.0 A 70.0 A A 60.0 B 50.0 A A 40.0 B 30.0 B B 20.0 B B B A A A A N N N A A B B B N S B
Jun-13
Target Price 54.8 54.8 54.8 54.8 54.8 54.8 58.3 58.2 58.2 60.0 58.0 56.5 56.5 60.0 60.0 67.0 77.0 77.0 77.0 58.0 62.0 60.0 40.0 38.0 40.0 40.0 53.0
Dec-12
10-Jan-11 19-Jan-11 26-Jan-11 3-Feb-11 11-Apr-11 17-Apr-11 27-Jun-11 14-Jul-11 13-Dec-11 5-Mar-12 14-Jul-12 14-Oct-12 12-Jan-13 2-Mar-13 29-Apr-13 22-Aug-13 13-Jan-14 15-Jan-14 24-Aug-14 5-Feb-15 15-Jun-15 6-Oct-15 3-Feb-16 18-Feb-16 6-Mar-16 14-Apr-16 4-Oct-16
Closing Price 39.89 38.64 38.89 37.81 43.19 41.65 39.48 41.73 36.55 42.77 34.89 35.47 41.94 41.73 42.56 49.70 60.53 60.95 67.55 44.14 51.04 43.02 27.63 29.85 36.20 40.15 44.08
Mar-13
Date
Target Price
B=Buy, A=Add, N=Neutral, R=Reduce, S=Sell, U/R = Under Review
Securities & Investment Company BSC Analyst Stock Rating Definitions * Note:- Under old methodology, up until 20th Feb 2016, we had 5 categories of LT rating. Sell (+25%). The LT rating was independent of Risk Profile. Time horizon Short term SICO Research issues a Short term outlook if the analyst feels that there are factors which might affect the short-term performance of the stock during the immediate six months after issuing a rating. This might be due to both quantitative and qualitative factors which the analyst think can affect the stock price. Long term SICO Research’s Long-term rating is based on the Target Price calculated by the analyst. The Target Price is arrived at using both fundamental and/or comparative valuation methods based on the detailed Financial models developed by analysts incorporating current expectations and analyst's assumptions. Target price for a stock is calculated one year forward from the valuation date Recommendation (Short term) Positive Analyst expect positive triggers in the short term which might affect current price positively (> 10%) Neutral Analyst does not expect any short term triggers/events (+/- 10%) Negative Analyst expect negative triggers in the short term which might affect current price adversely (< 10%) Recommendation (Long term)* Buy If Risk profile is “High” Target price estimate offers 20%+ return from the current share price. If Risk profile is “Normal” Target price estimate offers 15%+ return from the current share price. Neutral If Risk profile is “High” Target Price estimate offers 0% to 20% return from the current share price. If Risk profile is “Normal” Target Price estimate offers 5% to 15% return from the current share price Sell If Risk profile is “High” Target price estimate offers less than 0% return from the current share price. If Risk profile is “Normal” Target price estimate offers less than 5% return from the current share price. Risk High Stock volatility (360 days standard deviation) exceeds 2x of S&P GCC market volatility Normal Stock volatility (360 days standard deviation) lower than 2x of S&P GCC market volatility
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SICO RESEARCH
Petrochemical
NOTES Contact Details BMB Centre, 1 Floor P.O Box 1331, Diplomatic Area Manama Kingdom of Bahrain st
Investment Research [email protected]
Head of Research Nishit Lakhotia, CFA, CAIA Tel: (Direct) +973 – 17515021
Brokerage Fadhel Makhlooq Tel: (Direct): +973 – 17515202
Visit us at www.sicobahrain.com
Disclaimer This report does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for any securities. The information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness and are subject to change without notice. Investors must make their own investment decisions. Past performance is not necessarily a guide to future performance. Nothing in this report should be construed as investment or financial advice or as an advice to buy or sell the securities of the company referred to in this report. SICO and/or its clients may have positions in or options on the securities mentioned in this report or any related investments, may affect transactions or may buy, sell or offer to buy or sell such securities or any related investments. The analyst(s) who is (are) responsible for producing the report certifies(y) that he (she) or any of their close relative have no beneficial ownership in the company’s stock at the time of publishing the report. Any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Additional information on the contents of this report is available on request. Among stocks under our coverage, Ahli United Bank and National Bank of Bahrain owns 11.9% and 12.5% respectively in SICO. SICO does market making in Aluminum Bahrain (ALBA) and Zain Bahrain’s shares.
Copyright Notice © Securities and Investment Company 2016. This report is being supplied to the recipient for information and not for circulation and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part.
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