Tabuk Cement Co. - Aljazira Capital
Tabuk Cement Co. Initiation | KSA | Cement
November 2015
Tabuk cement: FY2016 to record double-digit growth in sales revenues; however, debt repayment is expected to impact DPS in 2015. ‘Neutral’ recommendation with TP of SAR18.20/share. Positional advantage over other players in northern KSA: Cement sales of companies in the northern region of Saudi Arabia (excluding Tabuk Cement) rose around 20.3% YoY to 4.7mn tons during January− October 2015. During the same period, the clinker production increased 9.7% YoY. Tabuk Cement (TCC) is fairly well positioned compared with northern peers (Northern Region Cement Company, Al Jouf Cement Company, and Hail Cement Company), primarily due to its relative proximity to Al Madinah and the western region (almost 15% of 2014 sales), and primary exposure to Tabuk. Due to this strategic locational advantage, the company may also consider higher penetrating into the cement market in the western region.
Please read Disclaimer on the back
Current Price* (SAR)
17.30
Target Price (SAR)
18.20
Double-digit growth in sales volume in FY2016: TCC’s revenues fell 16.6% YoY in 3Q2015, translating to a 57.4% decline in net profit. This is primarily ascribed to lower sales volume and high cost of sales due to a technical shift to a new production line. Furthermore, revenues came in lower due to lower sales prices after building-up high inventory level in the market. This also resulted in a 36.7% YoY decline in net profit for 9M2015. However, Saudi Arabia, which currently faces a shortage of affordable housing, has taken a major step by addressing the shortage in affordable housing. The cabinet plans to develop the tax system and impose an annual 2.5 percent fee on undeveloped land designated for residential or commercial use. This is expected to boost cement consumptions and reduce the impact of lower government expenditures. Cement producers have also urged the government to lift the ban on exports. If successful, cement companies can export the excess inventory and back to normal position of selling prices. We believe these factors; along with operating the new production line would support TCC’s growth in 2016.
*prices as of 29 of November 2015 th
Key Financials FY14
SARmn (unless specified)
Jassim Al-Jubran
1
+966 11 2256248 [email protected]
© All rights reserved
FY15E FY16E FY17E
322.3 279.8 -9.4% -13.2% 137.6 92.1 -20.7% -33.0% 1.51 1.01
319.5 14.2% 108.0 17.2% 1.19
331.7 3.8% 118.5 9.7% 1.31
Source: Company reports, Aljazira Capital
Key Ratios SARmn (unless specified)
Gross Margin EBITDA Margin Net Margin P/E P/B EV/EBITDA (x) ROE ROA D/Y
FY14
FY15E
FY16E
FY17E
57.3% 62.4% 42.7% 16.4x 1.93x 12.6x 13.5% 8.6% 6٪
42.3% 66.7% 32.9% 17.1x 1.34x 10.7x 8.2% 4.9% 5٫7٪
45.2% 67.6% 33.8% 14.6x 1.32x 8.8x 9.0% 5.7% 5٫7٪
45.9% 65.2% 35.7% 13.3x 1.29x 8.4x 9.7% 6.5% 5٫7٪
Source: Company reports, Aljazira Capital
Founded in 1994, Tabuk Cement Co. (TCC) is based in Duba, Saudi Arabia. The company produces ordinary Portland cement, cement resistant to sulfate salts, and cement Buzolana. TCC primarily caters to Tabuk and Al Madina, with a production capacity of 1.8 mtpa.
Shareholders Pattern Holding Public Pension Agency
5.00%
Khalid Saleh Al-Shithry
12.69%
Public
82.31% Source: Company reports, Aljazira Capital
Key Data Market Cap(mn) YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
1,561.5 -30.44% 28.0 16.15 90.0 Source: Company reports, Aljazira Capital
27 24 21 18 15
Jan-15 Jan-15 Jan-15 Feb-15 Feb-15 Mar-15 Mar-15 Apr-15 Apr-15 May-15 May-15 Jun-15 Jun-15 Jul-15 Jul-15 Jul-15 Aug-15 Aug-15 Sep-15 Sep-15 Oct-15 Oct-15 Nov-15 Nov-15
New production line to increase cost efficiency and operating rate: We expect a steady increase in utilization at the new production line. TCC would eventually substitute the old production line with the new one. In our view, this would improve TCC’s capacity utilization. In fact, we expect capacity utilization to increase by 10.0 percentage points to 85.4% in 2016 and by 2.4 percentage points to 87.8% in 2017. We also Price performance expect efficiency benefits, which would help the company to expand 10000 margins and partially offset any low sales volume in the mid-term. We 9000 expect TCC’s gross margin to rise from 42.3% in 2015 to 45.4% in 2016. We estimate revenues and net income to grow 14.2% and 17.2% for FY2016 8000 respectively following on E2015’s 33.0% decline in net income due to current operating and efficiency weakness. Net income is estimated to 7000 grow 8.8% CAGR by FY2017. 6000 Analyst
5.0%
Upside / (Downside)
Revenues Growth % Net Income Growth % EPS Economic slowdown poses threat in short-term, but high long-term
demand in potential markets: Saudi Arabia’s cement sector depends heavily on the government’s oil and gas revenues and on public sector investments. As oil prices have declined significantly over the past year, the Kingdom is forced to reduce spending in light of an expected fiscal deficit in 2015. If oil prices remain low, demand for cement is expected to be impacted. Additionally, the combined cement and clinker inventory rose to 24.1mn tons by October 2015, posing further risk. This would cause more oversupply in the market and force cement companies to more reduce prices, thereby impacting margins. Also, fuel forms a significant portion of the cost of manufacturing cement. Any rise in fuel prices would hurt margins. In contrast, according to Holtec, market attractiveness (based on consumption density and supply intensity) in regions like Hail, Al Jouf, and Makkah are expected to increase by 2020. These are the key potential markets for TCC, offering strong sales prospects. We expect this expected high demand in the long term to boost TCC’s revenues.
‘Neutral ’
Recommendation
TASI (LHS)
Tabuk Cement Co. (RHS) Source: Bloomberg, Aljazira Capital
Tabuk Cement Co. Initiation | KSA | Cement
November 2015
Please read Disclaimer on the back
FY 2020F
FY 2019F
FY 2018F
FY 2017F
FY 2016F
FY 2015F
FY 2014
FY 2013
Volatility in demand to be better handled with spare capacity: TCC’s Fig. 1 Capacity utilization to improve with new new 5,000 tons per day (tpd) production line is anticipated to commence production line commercial production 3Q2016 onward. The company does not have new 90.0% fuel agreements for incremental capacity; hence, we do not expect the old and new production lines to run simultaneously. Besides, the current demand dynamics do not allow the company to run two production lines 85.0% in parallel. This is primarily due to the slowdown in the Saudi economy, rising competition with northern peers and expected decrease in 80.0% government spending on infrastructure projects given its forecast of a fiscal deficit in 2015 (IMF estimate: around 19.5% of GDP). However, this 75.0% additional capacity would allow TCC to cater to unexpected demand in future. Passive sales volume in near term: TCC primarily supplies to Tabuk city Source: Company reports, Aljazira Capital and Al Madinah, which account for approximately 85% and 11% of sales, respectively. The company production capacity stood at 1.8mn tons in Fig. 2 Normalization of margin with high 2014 compared with an approximate cement consumption of 4.5mn efficiency gain tons in these two key markets. However, we believe TCC’s sales volume 55.0% would remain subdued in 2015 till the completion of the trial period and 50.0% launching the commercial production in 3Q2016. In our view, structural overcapacity would also be a key near-term headwind. However, the 45.0% company may be able to boost sales through exports if the export ban is 40.0% lifted. In fact, this would also increase the sales amount realized per unit. 35.0%
FY 2020F
FY 2019F
FY 2018F
FY 2017F
FY 2016F
FY 2015F
FY 2014
FY 2013
FY 2012
FY 2011
FY 2010
Debt repayment to lower dividend: TCC has paid dividends consistently, 30.0% with an average payout ratio of 90% (SAR1.5 DPS in 2014). We believe the company would repay the debt undertaken of SAR521mn for expansion by the end of 2020. This would restrict the dividend per share Source: Company reports, Aljazira Capital and, accordingly, we assume lower DPS of approximately SAR1.0 during at least 2015−18. However, we expect the payout ratio and dividend Fig. 3 High efficiency to reduce cost; realization payment to increase gradually after 2020 once the company repays all to improve gradually long-term debt. Without any major expansion in the foreseeable future, 250.0 125.0 the company’s cash flow from operations is expected to be sufficient 120.0 to repay the long-term debt. By 2020, the debt-to-equity ratio would 240.0 decline to less than 0.1 from 0.4 currently. 230.0 115.0
2
© All rights reserved
FY 2024F
FY 2020F
FY 2023F
FY 2022F
FY 2019F
FY 2018F
FY 2021F
FY 2017F
FY 2020F
FY 2016F
FY 2019F
FY 2015F
FY 2018F
FY 2014
FY 2017F
FY 2013
FY 2016F
FY 2012
FY 2014
FY 2015F
FY 2011
FY 2013
FY 2010
110.0 Investment consideration to suggest reasonable valuation and 220.0 decline in DPS; we initiate Tabuk with “Natural” recommendation 210.0 105.0 and PT of SAR18.20 per share: Our estimates have been already built 200.0 100.0 on the efficiency of upcoming expansions, along with the current Saudi sector weakness. Our valuation is based on a 10-year DCF methodology, a 2.7% terminal growth assumption and a five years monthly beta of Realization per unit (LHS) Cost per unit (RHS) 0.738. WACC is taken at 9.2%; we have arrived at a target price of SAR Source: Company reports, Aljazira Capital 18.20/share indicating an upside potential of 5.0%. Positive earnings outlook on the assumption of continuous growth of current upcoming Fig. 4 Healthy dividend payout ratio expansion. We estimate TCC’s sales volume to increase at a CAGR of 5.9% 100.0% over 2015–17. Given the weak demand in the northern region, we do not 95.0% anticipate significant expansion in volume in the near future. However, 90.0% high efficiency due to the new production line would support margin 85.0% expansion. During 2015–17, we estimate operating income to increase at 80.0% a CAGR of 11.1%. During 2016, operating margin is estimated to rise by 75.0% 460bps. Based on our estimates, Tabuk is trading at a prospective 2016 70.0% P/E and EV/ EBITDA of 14.6x and 8.8x, respectively. The dividend per 65.0% share is expected to decline to SAR 1.0 in 2015 from SAR 1.5 per share in 2014 due to debt repayment. The debt-to-equity ratio increased to 0.42x in 3Q2015 from 0.23x in 3Q2014, mainly due to a SAR230mn increase Source: Company reports, Aljazira Capital in the company’s long-term debt. We, therefore, initiate our ‘Neutral’ recommendation for the stock, as the positive story is already priced in.
Tabuk Cement Co. Initiation | KSA | Cement
November 2015
Please read Disclaimer on the back
Fig. 5 Steady sales volume and increasing net profit margin
FY 2014
Sales Volume('000 tons)(LHS)
Gross profit margin(RHS)
FY 2024F
30%
FY 2023F
0
FY 2022F
35% FY 2021F
300 FY 2020F
40%
FY 2019F
600
FY 2018F
45%
FY 2017F
900
FY 2016F
50%
FY 2015F
1200
FY 2013
55%
FY 2012
1500
FY 2011
60%
FY 2010
1800
Net Profit Margin(RHS) Source: Company reports, Aljazira Capital
The key risks to margins in the Saudi cement sector are: Increasing inventory level: The clinker inventory level of Saudi cement companies increased 9.1%YoY to 23.1mn tons in October 2015, after reaching a low of 4.2mn tons in June 2013. The rise in inventory was primarily due to high level of imported clinker and the fall in cement demand in 2014. The rise in clinker inventory level has led to an increase in market competition and resulting selling price decline per ton early 1Q15. Higher future inventory level would cause more oversupply in the market and force cement companies to more reduce prices, thereby impacting margins. Declining global oil prices: Saudi Arabia depends heavily on the revenues generated from the petroleum sector. However, the global oil prices are on the decline, touching six-year lows. This would adversely impact the Saudis Arabia revenues, thereby could impacting government spending on infrastructure. Lower government spending on infrastructure would impact demand, thereby affecting prices due to high inventory level in the sector. Consequently, margins are likely to decline. Valuation Metrics: Our DCF based valuation methodology is based on 10-year explicit cash flows to reduce the sensitivity of our valuation to terminal value with the following key assumptions; • Terminal growth rate is taken at 2.7%. • 5-years monthly raw beta of 0.73 (Bloomberg). • Risk free rate is taken at 3.3%. • KSA total market risk premium is taken at 13.8% from Bloomberg. Hence, the equity risk premium is calculated at 10.5%. • Capital Assets Pricing Model (CAPM) is used to calculate cost of equity at 11.1%. • Cost of debt is taken at 3.2%. • Weighted average cost of capital (WACC) is calculated at 9.14%. Based on our DCF valuation, our 12month price target for Tabuk cement stands at SAR18.20/share, against current market price of SAR 17.30 per share, we initiate our coverage on the company with “Neutral” recommendation. DISCOUNTED FREE CASH FLOW TO FIRM Year to Dec (SAR mn)
FY15E
FY16E
FY17E
FY18E
FY19E
FY20E
FY21E
FY22E
FY23E
FY24E
Terminal Value
Operating profit Add: Depreciation and amortisation Less: Change in working capital Less: Capex Less: Zakat Free cash flow Beta Debt/ (Debt + equity) Weighted average cost of capital Discount period Discount factor @ WACC Present value of free cash flow
97.8 88.8 (21.8) (100.9) (2.8) 61.1 0.7 0.2 9.1% 0.1 1.0 60.7
126.4 89.6 (7.2) (16.0) (3.3) 189.5 0.7 0.3 8.7% 1.1 0.9 173.1
133.9 82.3 (11.8) (16.6) (3.7) 184.1 0.7 0.3 9.1% 2.1 0.8 153.6
140.4 78.3 (14.2) (16.9) (4.0) 183.6 0.7 0.2 9.4% 3.1 0.8 139.1
144.3 73.4 (14.6) (17.1) (4.2) 181.9 0.7 0.2 9.8% 4.1 0.7 124.2
148.8 70.1 (7.4) (17.3) (4.4) 189.7 0.7 0.1 10.3% 5.1 0.6 115.0
148.8 65.8 (6.6) (17.3) (4.5) 186.2 0.7 0.0 10.8% 6.1 0.5 99.8
149.3 63.0 (6.8) (17.4) (4.5) 183.6 0.7 11.1% 7.1 0.5 87.2
150.6 59.3 (7.3) (17.6) (4.6) 180.5 0.7 11.1% 8.1 0.4 77.1
150.6 57.0 (7.3) (17.6) (4.6) 178.1 0.7 11.1% 9.1 0.4 68.5
2,181.1 0.7 11.1% 9.1 0.4 839.4
TOTAL RETURN
3
Enterprise value Less: Net debt Equity value No of shares outstanding (mn) Fair value (SAR/share) Current price (SAR/share) Expected capital gain
1,937.8 (302.8) 1,635.0 90.0 18.2 17.30 5.0% Source: Company Reports, Aljaizra Research
© All rights reserved
Tabuk Cement Co. Initiation | KSA | Cement
November 2015
Please read Disclaimer on the back
Summary Table Income Statement (in SAR mn unless specified) Sales EBITDA Depreciation & Amortization Operating income Net income before zakat Net profit Number of shares (in mn) EPS (SAR per share) DPS (SAR per share) Balance Sheet (in SAR mn) Net intangible assets Net Plant, Property & Equipment Cash & Cash Equivalents Accounts Receivable Total Assets Long Term Debt Accounts Payable Total Liabilities Total Stockholder's Equity and Non-controlling Interests Cash Flow Statement (in SAR mn) Net Income Change in WC Cash Flow from Operating Activities Capex Cash Flow from Investing Activities Dividends Cash Flow from Financing Activiites Ratio Analysis Growth Sales growth Operating profit growth EBITDA growth Profitability Gross profit margin EBITDA margin EBIT margin Zakat rate (%) NP margin RoCE RoA DuPont Analysis Profit margin (%) Asset turnover (x) Equity multiplier (x) RoE Efficiency Fixed asset turnover (x) Inventroy turnover (x) Receivables turnover (x) Payables turnover (x) Gearing & Liquidity Debt to equity (%) Debt to total assets (%) Net Gearing (%) Current ratio (x) Quick ratio (x) Valuation Multiples EV/CE (x) EV/EBITDA (x) EV/Sales (x) P/E (x) P/BV (x) Enterprise Value Year end price Number of shares Market value Net debt Non-controlling interests Enterprise value
FY 2016F 319.5 216.0 89.6 126.4 111.4 108.0 90.0 1.19 1.0
FY 2017F 331.7 216.1 82.3 133.9 122.1 118.5 90.0 1.31 1.0
FY 2018F 338.4 218.7 78.3 140.4 132.3 128.4 90.0 1.4 1.0
FY 2019F 341.7 217.7 73.4 144.3 140.1 135.9 90.0 1.5 1.0
FY 2020F 345.5 218.9 70.1 148.8 148.2 143.8 90.0 1.6 1.3
FY 2021F 346.9 214.7 65.8 148.8 149.7 145.2 90.0 1.6 1.5
355.6 237.1 56.4 174.0 180.7 173.5 90.0 1.9 1.8
322.3 201.1 59.3 141.0 141.8 137.6 90.0 1.51 1.5
FY 2015F 279.8 186.6 88.8 97.8 95.0 92.1 90.0 1.01 1.0
974.7 125.6 17.3 1,389.2 21.8 204.4 1,184.8
1,432.8 76.9 15.4 1,819.1 379.7 18.7 660.1 1,159.0
1,444.9 64.2 13.4 1,932.8 433.0 19.6 771.7 1,161.1
1,371.3 51.9 14.8 1,856.1 299.9 22.1 676.9 1,179.1
1,305.6 59.0 14.9 1,804.5 242.6 23.7 596.9 1,207.6
1,244.2 65.9 14.8 1,756.3 182.6 24.7 510.3 1,246.0
1,187.8 46.0 14.5 1,686.4 101.0 25.6 394.6 1,291.8
1,135.0 40.0 14.6 1,634.5 38.0 25.5 311.4 1,323.1
1,086.5 42.7 14.7 1,596.1 25.6 262.9 1,333.2
173.5 (60.1) 183.3 (193.4) 7.0 (150.0)
137.6 61.0 249.3 (519.7) (519.7) 379.7 221.7
92.1 (21.8) 160.2 (100.9) (200.9) 118.0 28.0
108.0 (7.2) 191.5 (16.0) (16.0) (97.9) (187.9)
118.5 (11.8) 190.1 (16.6) (16.6) (76.4) (166.4)
128.4 (14.2) 193.7 (16.9) (16.9) (80.0) (170.0)
135.9 (14.6) 196.0 (17.1) (17.1) (108.7) (198.7)
143.8 (7.4) 207.7 (17.3) (17.3) (84.1) (196.6)
145.2 (6.6) 205.8 (17.3) (17.3) (50.7) (185.7)
-9.2% -12.7% -10.9%
-9.4% -19.0% -15.2%
-13.2% -30.6% -7.2%
14.2% 29.3% 15.7%
3.8% 5.9% 0.0%
2.0% 4.9% 1.2%
1.0% 2.8% -0.5%
1.1% 3.1% 0.5%
0.4% 0.0% -1.9%
54.3% 66.7% 50.8% -4.0% 48.8% 14.4% 12.6%
57.3% 62.4% 44.0% -3.0% 42.7% 8.8% 8.6%
42.3% 66.7% 35.0% -3.0% 32.9% 5.7% 4.9%
45.2% 67.6% 39.6% -3.0% 33.8% 7.2% 5.7%
45.9% 65.2% 40.4% -3.0% 35.7% 8.0% 6.5%
46.9% 64.6% 41.5% -3.0% 37.9% 8.8% 7.2%
47.7% 63.7% 42.2% -3.0% 39.8% 9.6% 7.9%
48.5% 63.3% 43.1% -3.0% 41.6% 10.3% 8.7%
48.3% 61.9% 42.9% -3.0% 41.9% 10.7% 9.0%
48.8% 0.3 1.2 14.7%
42.7% 0.2 1.6 13.5%
32.9% 0.1 1.7 8.2%
33.8% 0.2 1.6 9.0%
35.7% 0.2 1.5 9.7%
37.9% 0.2 1.4 10.2%
39.8% 0.2 1.3 10.3%
41.6% 0.2 1.2 10.7%
41.9% 0.2 1.2 10.8%
0.4 2.0 21.6 15.2
0.3 1.7 19.7 15.9
0.2 1.4 19.5 14.6
0.2 1.5 22.7 15.3
0.2 1.5 22.3 14.5
0.3 1.5 22.8 14.0
0.3 1.5 23.4 13.6
0.3 1.5 23.8 13.5
0.3 1.4 23.7 13.6
0.0% 0.0% 0.0% 1.8 0.9
24.7% 20.9% 32.8% 1.2 0.4
30.0% 25.8% 42.9% 1.0 0.3
25.3% 21.5% 33.9% 0.8 0.2
21.1% 17.9% 26.8% 0.9 0.3
16.3% 13.9% 19.5% 1.1 0.3
9.4% 8.0% 10.4% 1.2 0.3
3.7% 3.1% 3.8% 1.3 0.3
0.0% 0.0% 0.0% 1.4 0.3
2.0 10.2 6.8 14.8 2.1
1.6 12.6 7.9 16.4 1.93
1.2 10.5 7.0 16.8 1.32
1.2 8.7 5.9 14.3 1.30
1.2 8.3 5.4 13.0 1.27
1.2 7.8 5.0 12.0 1.2
1.1 7.4 4.7 11.3 1.2
1.1 7.0 4.5 10.7 1.2
1.1 6.9 4.3 10.6 1.1
28.3 90.0 2,547.0 125.6 2,421.4
24.8 90.0 2,232.0 (302.8) 2,534.8
17.0 90.0 1,530.0 (433.5) 1,963.5
17.0 90.0 1,530.0 (347.9) 1,877.9
17.0 90.0 1,530.0 (264.4) 1,794.4
17.0 90.0 1,530.0 (177.6) 1,707.6
17.0 90.0 1,530.0 (88.7) 1,618.7
17.0 90.0 1,530.0 (10.7) 1,540.7
17.0 90.0 1,530.0 42.7 1,487.3
FY 2013 FY 2014
Source: Company Reports, Aljaizra Research
4
© All rights reserved
RESEARCH DIVISION
AGM - Head of Research
Abdullah Alawi +966 11 2256250 [email protected]
Analyst
Sultan Al Kadi
+966 11 2256115 [email protected]
+966 11 2256374 [email protected]
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
sales
brokerage
Brokerage
Alaa Al-Yousef
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618400 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
Central Region
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
Jassim Al-Jubran +966 11 2256248 [email protected]
BROKERAGE AND INVESTMENT CENTERS DIVISION RESEARCH DIVISION
Talha Nazar
Analyst
+966 11 2256364 [email protected]
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1.
RATING TERMINOLOGY
Senior Analyst
2. 3. 4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
November 2015
Tabuk cement: FY2016 to record double-digit growth in sales revenues; however, debt repayment is expected to impact DPS in 2015. ‘Neutral’ recommendation with TP of SAR18.20/share. Positional advantage over other players in northern KSA: Cement sales of companies in the northern region of Saudi Arabia (excluding Tabuk Cement) rose around 20.3% YoY to 4.7mn tons during January− October 2015. During the same period, the clinker production increased 9.7% YoY. Tabuk Cement (TCC) is fairly well positioned compared with northern peers (Northern Region Cement Company, Al Jouf Cement Company, and Hail Cement Company), primarily due to its relative proximity to Al Madinah and the western region (almost 15% of 2014 sales), and primary exposure to Tabuk. Due to this strategic locational advantage, the company may also consider higher penetrating into the cement market in the western region.
Please read Disclaimer on the back
Current Price* (SAR)
17.30
Target Price (SAR)
18.20
Double-digit growth in sales volume in FY2016: TCC’s revenues fell 16.6% YoY in 3Q2015, translating to a 57.4% decline in net profit. This is primarily ascribed to lower sales volume and high cost of sales due to a technical shift to a new production line. Furthermore, revenues came in lower due to lower sales prices after building-up high inventory level in the market. This also resulted in a 36.7% YoY decline in net profit for 9M2015. However, Saudi Arabia, which currently faces a shortage of affordable housing, has taken a major step by addressing the shortage in affordable housing. The cabinet plans to develop the tax system and impose an annual 2.5 percent fee on undeveloped land designated for residential or commercial use. This is expected to boost cement consumptions and reduce the impact of lower government expenditures. Cement producers have also urged the government to lift the ban on exports. If successful, cement companies can export the excess inventory and back to normal position of selling prices. We believe these factors; along with operating the new production line would support TCC’s growth in 2016.
*prices as of 29 of November 2015 th
Key Financials FY14
SARmn (unless specified)
Jassim Al-Jubran
1
+966 11 2256248 [email protected]
© All rights reserved
FY15E FY16E FY17E
322.3 279.8 -9.4% -13.2% 137.6 92.1 -20.7% -33.0% 1.51 1.01
319.5 14.2% 108.0 17.2% 1.19
331.7 3.8% 118.5 9.7% 1.31
Source: Company reports, Aljazira Capital
Key Ratios SARmn (unless specified)
Gross Margin EBITDA Margin Net Margin P/E P/B EV/EBITDA (x) ROE ROA D/Y
FY14
FY15E
FY16E
FY17E
57.3% 62.4% 42.7% 16.4x 1.93x 12.6x 13.5% 8.6% 6٪
42.3% 66.7% 32.9% 17.1x 1.34x 10.7x 8.2% 4.9% 5٫7٪
45.2% 67.6% 33.8% 14.6x 1.32x 8.8x 9.0% 5.7% 5٫7٪
45.9% 65.2% 35.7% 13.3x 1.29x 8.4x 9.7% 6.5% 5٫7٪
Source: Company reports, Aljazira Capital
Founded in 1994, Tabuk Cement Co. (TCC) is based in Duba, Saudi Arabia. The company produces ordinary Portland cement, cement resistant to sulfate salts, and cement Buzolana. TCC primarily caters to Tabuk and Al Madina, with a production capacity of 1.8 mtpa.
Shareholders Pattern Holding Public Pension Agency
5.00%
Khalid Saleh Al-Shithry
12.69%
Public
82.31% Source: Company reports, Aljazira Capital
Key Data Market Cap(mn) YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
1,561.5 -30.44% 28.0 16.15 90.0 Source: Company reports, Aljazira Capital
27 24 21 18 15
Jan-15 Jan-15 Jan-15 Feb-15 Feb-15 Mar-15 Mar-15 Apr-15 Apr-15 May-15 May-15 Jun-15 Jun-15 Jul-15 Jul-15 Jul-15 Aug-15 Aug-15 Sep-15 Sep-15 Oct-15 Oct-15 Nov-15 Nov-15
New production line to increase cost efficiency and operating rate: We expect a steady increase in utilization at the new production line. TCC would eventually substitute the old production line with the new one. In our view, this would improve TCC’s capacity utilization. In fact, we expect capacity utilization to increase by 10.0 percentage points to 85.4% in 2016 and by 2.4 percentage points to 87.8% in 2017. We also Price performance expect efficiency benefits, which would help the company to expand 10000 margins and partially offset any low sales volume in the mid-term. We 9000 expect TCC’s gross margin to rise from 42.3% in 2015 to 45.4% in 2016. We estimate revenues and net income to grow 14.2% and 17.2% for FY2016 8000 respectively following on E2015’s 33.0% decline in net income due to current operating and efficiency weakness. Net income is estimated to 7000 grow 8.8% CAGR by FY2017. 6000 Analyst
5.0%
Upside / (Downside)
Revenues Growth % Net Income Growth % EPS Economic slowdown poses threat in short-term, but high long-term
demand in potential markets: Saudi Arabia’s cement sector depends heavily on the government’s oil and gas revenues and on public sector investments. As oil prices have declined significantly over the past year, the Kingdom is forced to reduce spending in light of an expected fiscal deficit in 2015. If oil prices remain low, demand for cement is expected to be impacted. Additionally, the combined cement and clinker inventory rose to 24.1mn tons by October 2015, posing further risk. This would cause more oversupply in the market and force cement companies to more reduce prices, thereby impacting margins. Also, fuel forms a significant portion of the cost of manufacturing cement. Any rise in fuel prices would hurt margins. In contrast, according to Holtec, market attractiveness (based on consumption density and supply intensity) in regions like Hail, Al Jouf, and Makkah are expected to increase by 2020. These are the key potential markets for TCC, offering strong sales prospects. We expect this expected high demand in the long term to boost TCC’s revenues.
‘Neutral ’
Recommendation
TASI (LHS)
Tabuk Cement Co. (RHS) Source: Bloomberg, Aljazira Capital
Tabuk Cement Co. Initiation | KSA | Cement
November 2015
Please read Disclaimer on the back
FY 2020F
FY 2019F
FY 2018F
FY 2017F
FY 2016F
FY 2015F
FY 2014
FY 2013
Volatility in demand to be better handled with spare capacity: TCC’s Fig. 1 Capacity utilization to improve with new new 5,000 tons per day (tpd) production line is anticipated to commence production line commercial production 3Q2016 onward. The company does not have new 90.0% fuel agreements for incremental capacity; hence, we do not expect the old and new production lines to run simultaneously. Besides, the current demand dynamics do not allow the company to run two production lines 85.0% in parallel. This is primarily due to the slowdown in the Saudi economy, rising competition with northern peers and expected decrease in 80.0% government spending on infrastructure projects given its forecast of a fiscal deficit in 2015 (IMF estimate: around 19.5% of GDP). However, this 75.0% additional capacity would allow TCC to cater to unexpected demand in future. Passive sales volume in near term: TCC primarily supplies to Tabuk city Source: Company reports, Aljazira Capital and Al Madinah, which account for approximately 85% and 11% of sales, respectively. The company production capacity stood at 1.8mn tons in Fig. 2 Normalization of margin with high 2014 compared with an approximate cement consumption of 4.5mn efficiency gain tons in these two key markets. However, we believe TCC’s sales volume 55.0% would remain subdued in 2015 till the completion of the trial period and 50.0% launching the commercial production in 3Q2016. In our view, structural overcapacity would also be a key near-term headwind. However, the 45.0% company may be able to boost sales through exports if the export ban is 40.0% lifted. In fact, this would also increase the sales amount realized per unit. 35.0%
FY 2020F
FY 2019F
FY 2018F
FY 2017F
FY 2016F
FY 2015F
FY 2014
FY 2013
FY 2012
FY 2011
FY 2010
Debt repayment to lower dividend: TCC has paid dividends consistently, 30.0% with an average payout ratio of 90% (SAR1.5 DPS in 2014). We believe the company would repay the debt undertaken of SAR521mn for expansion by the end of 2020. This would restrict the dividend per share Source: Company reports, Aljazira Capital and, accordingly, we assume lower DPS of approximately SAR1.0 during at least 2015−18. However, we expect the payout ratio and dividend Fig. 3 High efficiency to reduce cost; realization payment to increase gradually after 2020 once the company repays all to improve gradually long-term debt. Without any major expansion in the foreseeable future, 250.0 125.0 the company’s cash flow from operations is expected to be sufficient 120.0 to repay the long-term debt. By 2020, the debt-to-equity ratio would 240.0 decline to less than 0.1 from 0.4 currently. 230.0 115.0
2
© All rights reserved
FY 2024F
FY 2020F
FY 2023F
FY 2022F
FY 2019F
FY 2018F
FY 2021F
FY 2017F
FY 2020F
FY 2016F
FY 2019F
FY 2015F
FY 2018F
FY 2014
FY 2017F
FY 2013
FY 2016F
FY 2012
FY 2014
FY 2015F
FY 2011
FY 2013
FY 2010
110.0 Investment consideration to suggest reasonable valuation and 220.0 decline in DPS; we initiate Tabuk with “Natural” recommendation 210.0 105.0 and PT of SAR18.20 per share: Our estimates have been already built 200.0 100.0 on the efficiency of upcoming expansions, along with the current Saudi sector weakness. Our valuation is based on a 10-year DCF methodology, a 2.7% terminal growth assumption and a five years monthly beta of Realization per unit (LHS) Cost per unit (RHS) 0.738. WACC is taken at 9.2%; we have arrived at a target price of SAR Source: Company reports, Aljazira Capital 18.20/share indicating an upside potential of 5.0%. Positive earnings outlook on the assumption of continuous growth of current upcoming Fig. 4 Healthy dividend payout ratio expansion. We estimate TCC’s sales volume to increase at a CAGR of 5.9% 100.0% over 2015–17. Given the weak demand in the northern region, we do not 95.0% anticipate significant expansion in volume in the near future. However, 90.0% high efficiency due to the new production line would support margin 85.0% expansion. During 2015–17, we estimate operating income to increase at 80.0% a CAGR of 11.1%. During 2016, operating margin is estimated to rise by 75.0% 460bps. Based on our estimates, Tabuk is trading at a prospective 2016 70.0% P/E and EV/ EBITDA of 14.6x and 8.8x, respectively. The dividend per 65.0% share is expected to decline to SAR 1.0 in 2015 from SAR 1.5 per share in 2014 due to debt repayment. The debt-to-equity ratio increased to 0.42x in 3Q2015 from 0.23x in 3Q2014, mainly due to a SAR230mn increase Source: Company reports, Aljazira Capital in the company’s long-term debt. We, therefore, initiate our ‘Neutral’ recommendation for the stock, as the positive story is already priced in.
Tabuk Cement Co. Initiation | KSA | Cement
November 2015
Please read Disclaimer on the back
Fig. 5 Steady sales volume and increasing net profit margin
FY 2014
Sales Volume('000 tons)(LHS)
Gross profit margin(RHS)
FY 2024F
30%
FY 2023F
0
FY 2022F
35% FY 2021F
300 FY 2020F
40%
FY 2019F
600
FY 2018F
45%
FY 2017F
900
FY 2016F
50%
FY 2015F
1200
FY 2013
55%
FY 2012
1500
FY 2011
60%
FY 2010
1800
Net Profit Margin(RHS) Source: Company reports, Aljazira Capital
The key risks to margins in the Saudi cement sector are: Increasing inventory level: The clinker inventory level of Saudi cement companies increased 9.1%YoY to 23.1mn tons in October 2015, after reaching a low of 4.2mn tons in June 2013. The rise in inventory was primarily due to high level of imported clinker and the fall in cement demand in 2014. The rise in clinker inventory level has led to an increase in market competition and resulting selling price decline per ton early 1Q15. Higher future inventory level would cause more oversupply in the market and force cement companies to more reduce prices, thereby impacting margins. Declining global oil prices: Saudi Arabia depends heavily on the revenues generated from the petroleum sector. However, the global oil prices are on the decline, touching six-year lows. This would adversely impact the Saudis Arabia revenues, thereby could impacting government spending on infrastructure. Lower government spending on infrastructure would impact demand, thereby affecting prices due to high inventory level in the sector. Consequently, margins are likely to decline. Valuation Metrics: Our DCF based valuation methodology is based on 10-year explicit cash flows to reduce the sensitivity of our valuation to terminal value with the following key assumptions; • Terminal growth rate is taken at 2.7%. • 5-years monthly raw beta of 0.73 (Bloomberg). • Risk free rate is taken at 3.3%. • KSA total market risk premium is taken at 13.8% from Bloomberg. Hence, the equity risk premium is calculated at 10.5%. • Capital Assets Pricing Model (CAPM) is used to calculate cost of equity at 11.1%. • Cost of debt is taken at 3.2%. • Weighted average cost of capital (WACC) is calculated at 9.14%. Based on our DCF valuation, our 12month price target for Tabuk cement stands at SAR18.20/share, against current market price of SAR 17.30 per share, we initiate our coverage on the company with “Neutral” recommendation. DISCOUNTED FREE CASH FLOW TO FIRM Year to Dec (SAR mn)
FY15E
FY16E
FY17E
FY18E
FY19E
FY20E
FY21E
FY22E
FY23E
FY24E
Terminal Value
Operating profit Add: Depreciation and amortisation Less: Change in working capital Less: Capex Less: Zakat Free cash flow Beta Debt/ (Debt + equity) Weighted average cost of capital Discount period Discount factor @ WACC Present value of free cash flow
97.8 88.8 (21.8) (100.9) (2.8) 61.1 0.7 0.2 9.1% 0.1 1.0 60.7
126.4 89.6 (7.2) (16.0) (3.3) 189.5 0.7 0.3 8.7% 1.1 0.9 173.1
133.9 82.3 (11.8) (16.6) (3.7) 184.1 0.7 0.3 9.1% 2.1 0.8 153.6
140.4 78.3 (14.2) (16.9) (4.0) 183.6 0.7 0.2 9.4% 3.1 0.8 139.1
144.3 73.4 (14.6) (17.1) (4.2) 181.9 0.7 0.2 9.8% 4.1 0.7 124.2
148.8 70.1 (7.4) (17.3) (4.4) 189.7 0.7 0.1 10.3% 5.1 0.6 115.0
148.8 65.8 (6.6) (17.3) (4.5) 186.2 0.7 0.0 10.8% 6.1 0.5 99.8
149.3 63.0 (6.8) (17.4) (4.5) 183.6 0.7 11.1% 7.1 0.5 87.2
150.6 59.3 (7.3) (17.6) (4.6) 180.5 0.7 11.1% 8.1 0.4 77.1
150.6 57.0 (7.3) (17.6) (4.6) 178.1 0.7 11.1% 9.1 0.4 68.5
2,181.1 0.7 11.1% 9.1 0.4 839.4
TOTAL RETURN
3
Enterprise value Less: Net debt Equity value No of shares outstanding (mn) Fair value (SAR/share) Current price (SAR/share) Expected capital gain
1,937.8 (302.8) 1,635.0 90.0 18.2 17.30 5.0% Source: Company Reports, Aljaizra Research
© All rights reserved
Tabuk Cement Co. Initiation | KSA | Cement
November 2015
Please read Disclaimer on the back
Summary Table Income Statement (in SAR mn unless specified) Sales EBITDA Depreciation & Amortization Operating income Net income before zakat Net profit Number of shares (in mn) EPS (SAR per share) DPS (SAR per share) Balance Sheet (in SAR mn) Net intangible assets Net Plant, Property & Equipment Cash & Cash Equivalents Accounts Receivable Total Assets Long Term Debt Accounts Payable Total Liabilities Total Stockholder's Equity and Non-controlling Interests Cash Flow Statement (in SAR mn) Net Income Change in WC Cash Flow from Operating Activities Capex Cash Flow from Investing Activities Dividends Cash Flow from Financing Activiites Ratio Analysis Growth Sales growth Operating profit growth EBITDA growth Profitability Gross profit margin EBITDA margin EBIT margin Zakat rate (%) NP margin RoCE RoA DuPont Analysis Profit margin (%) Asset turnover (x) Equity multiplier (x) RoE Efficiency Fixed asset turnover (x) Inventroy turnover (x) Receivables turnover (x) Payables turnover (x) Gearing & Liquidity Debt to equity (%) Debt to total assets (%) Net Gearing (%) Current ratio (x) Quick ratio (x) Valuation Multiples EV/CE (x) EV/EBITDA (x) EV/Sales (x) P/E (x) P/BV (x) Enterprise Value Year end price Number of shares Market value Net debt Non-controlling interests Enterprise value
FY 2016F 319.5 216.0 89.6 126.4 111.4 108.0 90.0 1.19 1.0
FY 2017F 331.7 216.1 82.3 133.9 122.1 118.5 90.0 1.31 1.0
FY 2018F 338.4 218.7 78.3 140.4 132.3 128.4 90.0 1.4 1.0
FY 2019F 341.7 217.7 73.4 144.3 140.1 135.9 90.0 1.5 1.0
FY 2020F 345.5 218.9 70.1 148.8 148.2 143.8 90.0 1.6 1.3
FY 2021F 346.9 214.7 65.8 148.8 149.7 145.2 90.0 1.6 1.5
355.6 237.1 56.4 174.0 180.7 173.5 90.0 1.9 1.8
322.3 201.1 59.3 141.0 141.8 137.6 90.0 1.51 1.5
FY 2015F 279.8 186.6 88.8 97.8 95.0 92.1 90.0 1.01 1.0
974.7 125.6 17.3 1,389.2 21.8 204.4 1,184.8
1,432.8 76.9 15.4 1,819.1 379.7 18.7 660.1 1,159.0
1,444.9 64.2 13.4 1,932.8 433.0 19.6 771.7 1,161.1
1,371.3 51.9 14.8 1,856.1 299.9 22.1 676.9 1,179.1
1,305.6 59.0 14.9 1,804.5 242.6 23.7 596.9 1,207.6
1,244.2 65.9 14.8 1,756.3 182.6 24.7 510.3 1,246.0
1,187.8 46.0 14.5 1,686.4 101.0 25.6 394.6 1,291.8
1,135.0 40.0 14.6 1,634.5 38.0 25.5 311.4 1,323.1
1,086.5 42.7 14.7 1,596.1 25.6 262.9 1,333.2
173.5 (60.1) 183.3 (193.4) 7.0 (150.0)
137.6 61.0 249.3 (519.7) (519.7) 379.7 221.7
92.1 (21.8) 160.2 (100.9) (200.9) 118.0 28.0
108.0 (7.2) 191.5 (16.0) (16.0) (97.9) (187.9)
118.5 (11.8) 190.1 (16.6) (16.6) (76.4) (166.4)
128.4 (14.2) 193.7 (16.9) (16.9) (80.0) (170.0)
135.9 (14.6) 196.0 (17.1) (17.1) (108.7) (198.7)
143.8 (7.4) 207.7 (17.3) (17.3) (84.1) (196.6)
145.2 (6.6) 205.8 (17.3) (17.3) (50.7) (185.7)
-9.2% -12.7% -10.9%
-9.4% -19.0% -15.2%
-13.2% -30.6% -7.2%
14.2% 29.3% 15.7%
3.8% 5.9% 0.0%
2.0% 4.9% 1.2%
1.0% 2.8% -0.5%
1.1% 3.1% 0.5%
0.4% 0.0% -1.9%
54.3% 66.7% 50.8% -4.0% 48.8% 14.4% 12.6%
57.3% 62.4% 44.0% -3.0% 42.7% 8.8% 8.6%
42.3% 66.7% 35.0% -3.0% 32.9% 5.7% 4.9%
45.2% 67.6% 39.6% -3.0% 33.8% 7.2% 5.7%
45.9% 65.2% 40.4% -3.0% 35.7% 8.0% 6.5%
46.9% 64.6% 41.5% -3.0% 37.9% 8.8% 7.2%
47.7% 63.7% 42.2% -3.0% 39.8% 9.6% 7.9%
48.5% 63.3% 43.1% -3.0% 41.6% 10.3% 8.7%
48.3% 61.9% 42.9% -3.0% 41.9% 10.7% 9.0%
48.8% 0.3 1.2 14.7%
42.7% 0.2 1.6 13.5%
32.9% 0.1 1.7 8.2%
33.8% 0.2 1.6 9.0%
35.7% 0.2 1.5 9.7%
37.9% 0.2 1.4 10.2%
39.8% 0.2 1.3 10.3%
41.6% 0.2 1.2 10.7%
41.9% 0.2 1.2 10.8%
0.4 2.0 21.6 15.2
0.3 1.7 19.7 15.9
0.2 1.4 19.5 14.6
0.2 1.5 22.7 15.3
0.2 1.5 22.3 14.5
0.3 1.5 22.8 14.0
0.3 1.5 23.4 13.6
0.3 1.5 23.8 13.5
0.3 1.4 23.7 13.6
0.0% 0.0% 0.0% 1.8 0.9
24.7% 20.9% 32.8% 1.2 0.4
30.0% 25.8% 42.9% 1.0 0.3
25.3% 21.5% 33.9% 0.8 0.2
21.1% 17.9% 26.8% 0.9 0.3
16.3% 13.9% 19.5% 1.1 0.3
9.4% 8.0% 10.4% 1.2 0.3
3.7% 3.1% 3.8% 1.3 0.3
0.0% 0.0% 0.0% 1.4 0.3
2.0 10.2 6.8 14.8 2.1
1.6 12.6 7.9 16.4 1.93
1.2 10.5 7.0 16.8 1.32
1.2 8.7 5.9 14.3 1.30
1.2 8.3 5.4 13.0 1.27
1.2 7.8 5.0 12.0 1.2
1.1 7.4 4.7 11.3 1.2
1.1 7.0 4.5 10.7 1.2
1.1 6.9 4.3 10.6 1.1
28.3 90.0 2,547.0 125.6 2,421.4
24.8 90.0 2,232.0 (302.8) 2,534.8
17.0 90.0 1,530.0 (433.5) 1,963.5
17.0 90.0 1,530.0 (347.9) 1,877.9
17.0 90.0 1,530.0 (264.4) 1,794.4
17.0 90.0 1,530.0 (177.6) 1,707.6
17.0 90.0 1,530.0 (88.7) 1,618.7
17.0 90.0 1,530.0 (10.7) 1,540.7
17.0 90.0 1,530.0 42.7 1,487.3
FY 2013 FY 2014
Source: Company Reports, Aljaizra Research
4
© All rights reserved
RESEARCH DIVISION
AGM - Head of Research
Abdullah Alawi +966 11 2256250 [email protected]
Analyst
Sultan Al Kadi
+966 11 2256115 [email protected]
+966 11 2256374 [email protected]
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
sales
brokerage
Brokerage
Alaa Al-Yousef
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618400 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
Central Region
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
Jassim Al-Jubran +966 11 2256248 [email protected]
BROKERAGE AND INVESTMENT CENTERS DIVISION RESEARCH DIVISION
Talha Nazar
Analyst
+966 11 2256364 [email protected]
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1.
RATING TERMINOLOGY
Senior Analyst
2. 3. 4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
