Efficiencies Help SABIC Post In-line Results
January 19, 2017 Rating 12- Month Target Price
Neutral SAR 90.00
SAUDI BASIC INDUSTRIES CORP (SABIC) 4Q2016 First Look
Efficiencies Help SABIC Post In-line Results Expected Total Return Price as on Jan-18, 2017
SAR 93.59
Upside to Target Price
3.8%
Expected Dividend Yield
5.3%
Expected Total Return
1.5%
Market Data 52 Week H/L
SAR 98.50/59.50
Market Capitalization
SAR 280,770 mln 3,000 mln
Shares Outstanding
21.01%
Free Float
6,360,266
12-Month ADTV
1-Year Price Performance 160
150 140 130
Sabic posted 4Q results in-line with our estimates with a net income of SAR 4.6 billion (EPS SAR 1.52), close to our SAR 4.8 billion forecast. Although sales have remained flat on a Y/Y basis to SAR 34 billion, margins have expanded top to bottom primarily on the back of improved product prices and widening spreads. We once again raise caution on possible contraction of petchem spreads from highs witnessed last year. While Yansab’s profitability came under pressure as the new higher feedstock regime took effect for the Company, Safco positively surprised as gross margins surged beyond 40% on the back of rising urea prices. Kayan was hit by higher butane prices (85% of its feedstock) but superior efficiency reduced the impact on margins. We raise our target price to SAR 90.00 from SAR 86.00 on forward rollover of forecasts. However, the stock remains on our Neutral list trading at 14.3x 2017E P/E, close to TASI P/E.
Margins expand Y/Y but lower Q/Q Revenues are flat Y/Y but improved marginally by +2% Q/Q to SAR 34 billion, sequentially highest this year. Polyethylene prices were up just +1% Q/Q to an average of USD 1,190/ton, however, we believe Sabic and its subsidiaries benefited tremendously from improved efficiencies across the board. The Company has also reaped gains in its metals segment with the increase in steel rebar prices from SAR 1,790/ton to SAR 2,150/ton. Consequently, gross margins widened by almost 600 bps Y/Y to over 32%. This has led to a +17% growth in gross profit Y/Y to SAR 10.6 billion although it is down -3% Q/Q. We once again raise caution that petchem spreads have likely peaked and some softening over the next few quarters cannot be ruled out.
Efficiencies show positive financial impact
120
110
Another indicator of better efficiencies is the control of operating expenses to SAR 3.3 billion, down -30% Y/Y and similar to 3Q levels. News towards the beginning of 4Q regarding a restructuring plan to boost efficiency and optimize organizational structure appears to have borne fruit.
100 90 80
70 J
F
M
A
M J SABIC
J
A
S
O N TASI
D
J
Listed subsidiaries performance largely at par
Source: Bloomberg
6M
1Y
Performance of Sabic subsidiaries has also been at par this quarter. Although Yansab’s margins were impact by the new higher feedstock regime, Safco positively surprised us with better margins as urea prices grew +16% Y/Y to USD 223/ton, much better than the USD 209/ton full year average. Better operating efficiency at Kayan despite rising butane prices resulted in a net profit of SAR 103 million.
2Y
60% 50% 40% 30% 20% 10% 0% -10% -20% -30%
Target price raised to SAR 90.00
SABIC
Fig in SAR bln
Net margins at 13.4% are elevated versus 9.0% in 4Q2015 but have shrunk as compared to 15.7% last quarter. Net income of SAR 4.6 billion (+48% Y/Y) is in-line with our SAR 4.8 billion forecast. We believe the marginal deviation is on account of SAR 330 million impairment booked on Ibn Rushd assets. On rollover of our forecasts one year forward, we increase our target price to SAR 90.00 from SAR 86.00, the stock remains on our Neutral list.
TASI
RC Est.
Actuals
Revenues
34.9
34.0
Gross Profit
10.5
10.5
Net Income EPS (SAR)
4.8
4.6
1.59
1.52
Key Financial Figures FY Dec31 (SAR bln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2015A 148.1 41.2 18.8 6.26 5.50
Key Financial Ratios 2016A 132.9 40.7 17.9 5.97 5.00
Muhammad Faisal Potrik
Abdullah Abdulaziz Alrayes
[email protected] +966-11-203-6807
[email protected] +966-11-203-6814
2017E 142.6 45.1 19.5 6.52 5.50
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2015A 71.83 11.1% 5.6% 11.2x 14.9x
2016E 71.14 10.5% 5.4% 12.2x 15.6x
2017E 71.37 11.4% 5.9% 10.6x 14.3x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI BASIC INDUSTRIES CORP (SABIC) 4Q2016 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 (“KSA”). Website: www.riyadcapital.com
Page 2 of 4
Neutral SAR 90.00
SAUDI BASIC INDUSTRIES CORP (SABIC) 4Q2016 First Look
Efficiencies Help SABIC Post In-line Results Expected Total Return Price as on Jan-18, 2017
SAR 93.59
Upside to Target Price
3.8%
Expected Dividend Yield
5.3%
Expected Total Return
1.5%
Market Data 52 Week H/L
SAR 98.50/59.50
Market Capitalization
SAR 280,770 mln 3,000 mln
Shares Outstanding
21.01%
Free Float
6,360,266
12-Month ADTV
1-Year Price Performance 160
150 140 130
Sabic posted 4Q results in-line with our estimates with a net income of SAR 4.6 billion (EPS SAR 1.52), close to our SAR 4.8 billion forecast. Although sales have remained flat on a Y/Y basis to SAR 34 billion, margins have expanded top to bottom primarily on the back of improved product prices and widening spreads. We once again raise caution on possible contraction of petchem spreads from highs witnessed last year. While Yansab’s profitability came under pressure as the new higher feedstock regime took effect for the Company, Safco positively surprised as gross margins surged beyond 40% on the back of rising urea prices. Kayan was hit by higher butane prices (85% of its feedstock) but superior efficiency reduced the impact on margins. We raise our target price to SAR 90.00 from SAR 86.00 on forward rollover of forecasts. However, the stock remains on our Neutral list trading at 14.3x 2017E P/E, close to TASI P/E.
Margins expand Y/Y but lower Q/Q Revenues are flat Y/Y but improved marginally by +2% Q/Q to SAR 34 billion, sequentially highest this year. Polyethylene prices were up just +1% Q/Q to an average of USD 1,190/ton, however, we believe Sabic and its subsidiaries benefited tremendously from improved efficiencies across the board. The Company has also reaped gains in its metals segment with the increase in steel rebar prices from SAR 1,790/ton to SAR 2,150/ton. Consequently, gross margins widened by almost 600 bps Y/Y to over 32%. This has led to a +17% growth in gross profit Y/Y to SAR 10.6 billion although it is down -3% Q/Q. We once again raise caution that petchem spreads have likely peaked and some softening over the next few quarters cannot be ruled out.
Efficiencies show positive financial impact
120
110
Another indicator of better efficiencies is the control of operating expenses to SAR 3.3 billion, down -30% Y/Y and similar to 3Q levels. News towards the beginning of 4Q regarding a restructuring plan to boost efficiency and optimize organizational structure appears to have borne fruit.
100 90 80
70 J
F
M
A
M J SABIC
J
A
S
O N TASI
D
J
Listed subsidiaries performance largely at par
Source: Bloomberg
6M
1Y
Performance of Sabic subsidiaries has also been at par this quarter. Although Yansab’s margins were impact by the new higher feedstock regime, Safco positively surprised us with better margins as urea prices grew +16% Y/Y to USD 223/ton, much better than the USD 209/ton full year average. Better operating efficiency at Kayan despite rising butane prices resulted in a net profit of SAR 103 million.
2Y
60% 50% 40% 30% 20% 10% 0% -10% -20% -30%
Target price raised to SAR 90.00
SABIC
Fig in SAR bln
Net margins at 13.4% are elevated versus 9.0% in 4Q2015 but have shrunk as compared to 15.7% last quarter. Net income of SAR 4.6 billion (+48% Y/Y) is in-line with our SAR 4.8 billion forecast. We believe the marginal deviation is on account of SAR 330 million impairment booked on Ibn Rushd assets. On rollover of our forecasts one year forward, we increase our target price to SAR 90.00 from SAR 86.00, the stock remains on our Neutral list.
TASI
RC Est.
Actuals
Revenues
34.9
34.0
Gross Profit
10.5
10.5
Net Income EPS (SAR)
4.8
4.6
1.59
1.52
Key Financial Figures FY Dec31 (SAR bln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2015A 148.1 41.2 18.8 6.26 5.50
Key Financial Ratios 2016A 132.9 40.7 17.9 5.97 5.00
Muhammad Faisal Potrik
Abdullah Abdulaziz Alrayes
[email protected] +966-11-203-6807
[email protected] +966-11-203-6814
2017E 142.6 45.1 19.5 6.52 5.50
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2015A 71.83 11.1% 5.6% 11.2x 14.9x
2016E 71.14 10.5% 5.4% 12.2x 15.6x
2017E 71.37 11.4% 5.9% 10.6x 14.3x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI BASIC INDUSTRIES CORP (SABIC) 4Q2016 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 (“KSA”). Website: www.riyadcapital.com
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