Trumps Expectations
July 21, 2016 Rating 12- Month Target Price
Buy SAR 51.00
YANBU NATIONAL PETROCHEMICAL COMPANY (YANSAB) 2Q2016 First Look
Trumps Expectations
Expected Total Return
SAR 43.34 17.7%9
Price as on Jul-20, 2016 Upside to Target Price Expected Dividend Yield
5.8%
Expected Total Return
23.5%
Market Data
SAR 54.1/23.8
52 Week H/L
SAR 24,379 million
Market Capitalization
562.5 million
Shares Outstanding Free Float
35.8%
12-Month ADTV(000’s)
489.8
1-Year Price Performance 110 100 90
Yanbu National Petrochemical Company (Yansab) announced preliminary 2Q2016 results on Jul-20 with an EPS of SAR 1.22 (+203% Y/Y and +72% Q/Q). Earnings beat consensus and our estimates by a large margin, signifying a large positive surprise. We believe higher volume sales and better operating rates could have led to such surprises in addition to improved product prices. Valuations at current levels are attractive following our revision in estimates and supported by its consecutive outperformance in the last two quarters. We upgrade target price to SAR 51.00 with the stock offering an upside of +18% and dividend yield of 5.8%. 2016E P/E of 14.9x is at par with sector’s large cap average of 14.8x. We revise our recommendation to Buy from Neutral.
Strong volume sales and higher product prices Our 2Q2016 revenue estimate of SAR 1.72 billion is likely to be topped by a large margin. With such positive surprise in earnings, revenue should cross SAR 1.9 billion in 2Q2016. We believe product price growth has attributed partly followed by higher sales volumes. The average MEG US benchmark prices have increased by +20%, while Asia prices have grown by +5%. The average prices of Asian benchmark’s for PP and PE’s on the other hand have grown by +15% and +10% respectively. We believe such double-digit growth in selective product prices during 2Q16 especially PE, PP and MEG should have helped a price-driven growth in topline.
Earnings beat street and our estimates
80
Gross profit of SAR 795 million beat our estimates of SAR 580 million and consensus of SAR 610 million. It grew by +113% Y/Y and +53% Q/Q. Operating numbers of SAR 738 million tops our estimate of SAR 502 million and consensus of SAR 538 million. It significantly grew by +133% Y/Y and +56% Q/Q. Overall, earnings of SAR 689 million also followed such uptrend and beat our expectations of SAR 409 million and street’s SAR 432 million. This is the second consecutive surprise since 4Q15, while continuous margin expansion is evident over the last 8-9 quarters, a positive.
70 60 50 40 30 J
A S O N D J F M A M J Yansab TASI TPCHEM
Upgrade Target price to SAR 51.00
Source: Bloomberg
6M
1Y
Following a strong set of numbers, Yansab was up by +6% over the last two sessions and up by +42% YTD outperforming TASI’s -4% and sector’s +6%. We upgrade DPS expectations to SAR 2.50 for 2016E offering a dividend yield of 5.8%. We revise our target price to SAR 51.00 and upgrade to a Buy. At current levels, the stock offers an upside of +18%. Valuation looks at par with 2016E P/E of 14.9x versus sector’s large cap average of 14.8x. Recommend Buy.
2Y
80% 60% 40% 20%
Key Financial Figures
0%
FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
-20% -40% Yansab
Fig in SAR Mln MlnMMln Gross Profit
EBIT
TASI
RC.Est Estimates 580
TPCHEM
2015A 6,911 2,660 1,207 2.15 2.00
Key Financial Ratios 2016E 6,758 2,458 1,631 2.90 2.50
2017E 7,124 2,611 1,853 3.29 2.50
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA
2015A 6% 8% 20.2x 1.6x 9.2x
2016E 7% 9% 14.9x 1.5x 10.0x
2017E 7% 9% 13.2x 1.5x 9.4x
Actuals
502
795 738
Net Income
409
689
EPS (SAR)
0.73
1.22
Santhosh Balakrishnan
Yasser Bin Ahmed
[email protected] +966-11-203-6809
[email protected] +966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
YANBU NATIONAL PETROCHEMICALS COMPANY (YANSAB) 2Q2016 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
Buy SAR 51.00
YANBU NATIONAL PETROCHEMICAL COMPANY (YANSAB) 2Q2016 First Look
Trumps Expectations
Expected Total Return
SAR 43.34 17.7%9
Price as on Jul-20, 2016 Upside to Target Price Expected Dividend Yield
5.8%
Expected Total Return
23.5%
Market Data
SAR 54.1/23.8
52 Week H/L
SAR 24,379 million
Market Capitalization
562.5 million
Shares Outstanding Free Float
35.8%
12-Month ADTV(000’s)
489.8
1-Year Price Performance 110 100 90
Yanbu National Petrochemical Company (Yansab) announced preliminary 2Q2016 results on Jul-20 with an EPS of SAR 1.22 (+203% Y/Y and +72% Q/Q). Earnings beat consensus and our estimates by a large margin, signifying a large positive surprise. We believe higher volume sales and better operating rates could have led to such surprises in addition to improved product prices. Valuations at current levels are attractive following our revision in estimates and supported by its consecutive outperformance in the last two quarters. We upgrade target price to SAR 51.00 with the stock offering an upside of +18% and dividend yield of 5.8%. 2016E P/E of 14.9x is at par with sector’s large cap average of 14.8x. We revise our recommendation to Buy from Neutral.
Strong volume sales and higher product prices Our 2Q2016 revenue estimate of SAR 1.72 billion is likely to be topped by a large margin. With such positive surprise in earnings, revenue should cross SAR 1.9 billion in 2Q2016. We believe product price growth has attributed partly followed by higher sales volumes. The average MEG US benchmark prices have increased by +20%, while Asia prices have grown by +5%. The average prices of Asian benchmark’s for PP and PE’s on the other hand have grown by +15% and +10% respectively. We believe such double-digit growth in selective product prices during 2Q16 especially PE, PP and MEG should have helped a price-driven growth in topline.
Earnings beat street and our estimates
80
Gross profit of SAR 795 million beat our estimates of SAR 580 million and consensus of SAR 610 million. It grew by +113% Y/Y and +53% Q/Q. Operating numbers of SAR 738 million tops our estimate of SAR 502 million and consensus of SAR 538 million. It significantly grew by +133% Y/Y and +56% Q/Q. Overall, earnings of SAR 689 million also followed such uptrend and beat our expectations of SAR 409 million and street’s SAR 432 million. This is the second consecutive surprise since 4Q15, while continuous margin expansion is evident over the last 8-9 quarters, a positive.
70 60 50 40 30 J
A S O N D J F M A M J Yansab TASI TPCHEM
Upgrade Target price to SAR 51.00
Source: Bloomberg
6M
1Y
Following a strong set of numbers, Yansab was up by +6% over the last two sessions and up by +42% YTD outperforming TASI’s -4% and sector’s +6%. We upgrade DPS expectations to SAR 2.50 for 2016E offering a dividend yield of 5.8%. We revise our target price to SAR 51.00 and upgrade to a Buy. At current levels, the stock offers an upside of +18%. Valuation looks at par with 2016E P/E of 14.9x versus sector’s large cap average of 14.8x. Recommend Buy.
2Y
80% 60% 40% 20%
Key Financial Figures
0%
FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
-20% -40% Yansab
Fig in SAR Mln MlnMMln Gross Profit
EBIT
TASI
RC.Est Estimates 580
TPCHEM
2015A 6,911 2,660 1,207 2.15 2.00
Key Financial Ratios 2016E 6,758 2,458 1,631 2.90 2.50
2017E 7,124 2,611 1,853 3.29 2.50
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA
2015A 6% 8% 20.2x 1.6x 9.2x
2016E 7% 9% 14.9x 1.5x 10.0x
2017E 7% 9% 13.2x 1.5x 9.4x
Actuals
502
795 738
Net Income
409
689
EPS (SAR)
0.73
1.22
Santhosh Balakrishnan
Yasser Bin Ahmed
[email protected] +966-11-203-6809
[email protected] +966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
YANBU NATIONAL PETROCHEMICALS COMPANY (YANSAB) 2Q2016 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
