Earnings well ahead of SFC and consensus; Maintain Hold
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National Petrochemical Co. (Petrochem) KSA Petrochemical Sector | 2Q 2015 Preliminary Results | July 22, 2015
2Q15 review: Earnings well ahead of SFC and consensus; Maintain Hold
Rating Summary
2Q15 net profit beats SFC/consensus: Petrochem reported a strong set of 2Q15 numbers
Recommendation
Hold
Target price (SAR)
24.0
Upside/ (downside)
-7%
with net profit of SAR305m (57% qoq, -19% yoy) that came well ahead of SFC (SAR160m) and consensus (SAR180m) estimates. In a backdrop of strong product price rebound
Stock Details
(polyethylene/polypropylene c.+17%/+20% qoq), while revenues were broadly in line with our
Closing price*
estimate meaning Saudi Polymer utilization is close to optimum level, gross profit/EBITDA was c.34%/44% ahead meaning the beat came from much stronger than expected margin (EBITDA margin c.39% vs. SFC est c.27%). This also implies 2Q15 recorded the highest EBITDA margin in Petrochem’s entire operating history. At this stage, while no further details
SAR
25.7
SAR mn
12,336
Mn
480
52-Week High
SAR
36.0
52-Week Low
SAR
19.2
Market capitalization Shares outstanding
Price chg. (3 months)
are disclosed which could explain such a big margin beat, we highlight that the surprise 2Q15
EPS 2015E
beat came on the back of a big miss in 1Q15 (NP c.40% below consensus) and lower cost
Ticker (Reuters/ Bloomberg)
inventory or higher than expected product spreads (in 2Q15, product prices increased at a faster pace vs. feedstock costs) or a combination of both could have led to the earnings beat. Valuation not in favourable territory; Maintain Hold: Ytd, Petrochem (c.17%)
%
3.0
SAR
1.36
2002.SE PETROCH AB
*Price as of July 21, 2015 Key Shareholding (%)
outperformed Tadawul Petchem index (c.10%) and Tadawul (c.12%) and the stock currently
Public/Others
17.4
trades at 2015E P/E of 18.9x P/E (Tadawul Petchem 17.5x, EM 16.8x, global 17.0x).
PPA
16.3
However, we consider 2016E earnings to be reflective of a normalized environment and
GOSI
16.3
consider 2016E multiple to be a more relevant metric for comparison. On our 2016E
SIIG
50.0
estimates, Petrochem trades at 14.2x P/E (Tadawul Petchem 14.3x, EM c.15.5x, Global
Source: Tadawul
14.9x) and EV/EBITDA of 13.6x (vs. Tadawul Petchem c.11.3x) which seems fairly valued. Furthermore, while we expect product spreads to contract (above normal spreads would lead
Key Ratios 2015E
2016E
believe such high EBITDA margin is sustainable. All in all, post publication of 2Q15 earnings,
P/E (x)
18.9
14.2
we maintain our Hold rating on the stock.
EV/EBITDA (x)
16.1
13.6
2.9
3.9
to increased production by price setters leading to lower spreads) down the line, we do not
Dividend yield (%) 2Q15A
2Q15E
%diff
Cons*
%dev
1Q15
%qoq
2Q14
%yoy
1,967
2,010
-2%
2,023
-3%
1,771
11%
1,966
0%
Gross Profit
738
552
34%
Na
Na
440
68%
561
32%
EBITDA
772
536
44%
Na
Na
437
77%
572
35%
39%
27%
Na
Na
25%
EBIT
565
331
71%
320
77%
233
142%
365
55%
Net Profit
305
160
91%
181
69%
102
200%
197
55%
SAR mn
Revenues
Source: Company, Saudi Fransi Capital analysis
Stock price movement vs. TASI 190
EBITDA margin
170 150
29%
130 110 90
Petrochem
Jun-15
Apr-15
Feb-15
Dec-14
Jul-14
Nov-14
Jun-14
Sep-14
Apr-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
Tadawul Petrochemical
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856 CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Petrochemical Co. (Petrochem) KSA Petrochemical Sector | 2Q 2015 Preliminary Results | July 22, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Petrochemical Co. (Petrochem) KSA Petrochemical Sector | 2Q 2015 Preliminary Results | July 22, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Petrochemical Co. (Petrochem) KSA Petrochemical Sector | 2Q 2015 Preliminary Results | July 22, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the c ompany that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. 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. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and stat ements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. 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.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Petrochemical Co. (Petrochem) KSA Petrochemical Sector | 2Q 2015 Preliminary Results | July 22, 2015
2Q15 review: Earnings well ahead of SFC and consensus; Maintain Hold
Rating Summary
2Q15 net profit beats SFC/consensus: Petrochem reported a strong set of 2Q15 numbers
Recommendation
Hold
Target price (SAR)
24.0
Upside/ (downside)
-7%
with net profit of SAR305m (57% qoq, -19% yoy) that came well ahead of SFC (SAR160m) and consensus (SAR180m) estimates. In a backdrop of strong product price rebound
Stock Details
(polyethylene/polypropylene c.+17%/+20% qoq), while revenues were broadly in line with our
Closing price*
estimate meaning Saudi Polymer utilization is close to optimum level, gross profit/EBITDA was c.34%/44% ahead meaning the beat came from much stronger than expected margin (EBITDA margin c.39% vs. SFC est c.27%). This also implies 2Q15 recorded the highest EBITDA margin in Petrochem’s entire operating history. At this stage, while no further details
SAR
25.7
SAR mn
12,336
Mn
480
52-Week High
SAR
36.0
52-Week Low
SAR
19.2
Market capitalization Shares outstanding
Price chg. (3 months)
are disclosed which could explain such a big margin beat, we highlight that the surprise 2Q15
EPS 2015E
beat came on the back of a big miss in 1Q15 (NP c.40% below consensus) and lower cost
Ticker (Reuters/ Bloomberg)
inventory or higher than expected product spreads (in 2Q15, product prices increased at a faster pace vs. feedstock costs) or a combination of both could have led to the earnings beat. Valuation not in favourable territory; Maintain Hold: Ytd, Petrochem (c.17%)
%
3.0
SAR
1.36
2002.SE PETROCH AB
*Price as of July 21, 2015 Key Shareholding (%)
outperformed Tadawul Petchem index (c.10%) and Tadawul (c.12%) and the stock currently
Public/Others
17.4
trades at 2015E P/E of 18.9x P/E (Tadawul Petchem 17.5x, EM 16.8x, global 17.0x).
PPA
16.3
However, we consider 2016E earnings to be reflective of a normalized environment and
GOSI
16.3
consider 2016E multiple to be a more relevant metric for comparison. On our 2016E
SIIG
50.0
estimates, Petrochem trades at 14.2x P/E (Tadawul Petchem 14.3x, EM c.15.5x, Global
Source: Tadawul
14.9x) and EV/EBITDA of 13.6x (vs. Tadawul Petchem c.11.3x) which seems fairly valued. Furthermore, while we expect product spreads to contract (above normal spreads would lead
Key Ratios 2015E
2016E
believe such high EBITDA margin is sustainable. All in all, post publication of 2Q15 earnings,
P/E (x)
18.9
14.2
we maintain our Hold rating on the stock.
EV/EBITDA (x)
16.1
13.6
2.9
3.9
to increased production by price setters leading to lower spreads) down the line, we do not
Dividend yield (%) 2Q15A
2Q15E
%diff
Cons*
%dev
1Q15
%qoq
2Q14
%yoy
1,967
2,010
-2%
2,023
-3%
1,771
11%
1,966
0%
Gross Profit
738
552
34%
Na
Na
440
68%
561
32%
EBITDA
772
536
44%
Na
Na
437
77%
572
35%
39%
27%
Na
Na
25%
EBIT
565
331
71%
320
77%
233
142%
365
55%
Net Profit
305
160
91%
181
69%
102
200%
197
55%
SAR mn
Revenues
Source: Company, Saudi Fransi Capital analysis
Stock price movement vs. TASI 190
EBITDA margin
170 150
29%
130 110 90
Petrochem
Jun-15
Apr-15
Feb-15
Dec-14
Jul-14
Nov-14
Jun-14
Sep-14
Apr-14
Feb-14
Dec-13
Nov-13
Jul-13
Sep-13
Jun-13
Apr-13
Jan-13
Feb-13
70
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus
Tadawul Petrochemical
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856 CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Petrochemical Co. (Petrochem) KSA Petrochemical Sector | 2Q 2015 Preliminary Results | July 22, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Petrochemical Co. (Petrochem) KSA Petrochemical Sector | 2Q 2015 Preliminary Results | July 22, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
National Petrochemical Co. (Petrochem) KSA Petrochemical Sector | 2Q 2015 Preliminary Results | July 22, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the c ompany that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. 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. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and stat ements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. 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.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
CONFIDENTIAL
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
