In-line Earnings
April 29, 2018 Rating 12- Month Target Price
Neutral SAR 111.00
SAUDI BASIC INDUSTRIES CORP (SABIC) 1Q2018 First Look
In-line Earnings
52 Week H/L
SAR 123.8 /94.75
Sabic reported in-line results for 1Q2018. Net income of SAR 5.5 billion was within striking distance of our SAR 5.6 billion forecast. Bottomline is up +5% Y/Y and +49% Q/Q as 4Q2017 witnessed unexpectedly low earnings. While gross margins are about 400bps lower Y/Y, there is an expansion Q/Q, as expected. Crude prices continue to rise, having a positive impact on product prices as well. Although Kayan posted good bottomline, Yansab results came in below forecasts while Safco has disappointed severely with EPS almost half what the market was expecting. We raise our estimates slightly and increase our target price from SAR 98.00 to SAR 111.00. The stock is trading at a 2018E P/E of 15.1x, close to the market P/E but beyond our target price. Hence, we have a Neutral stance on the stock.
Market Capitalization
SAR 326,610 mln
Topline grows +15% Y/Y
Expected Total Return Price as on Apr-26, 2018
SAR 118.69
Upside to Target Price
-6.5%
Expected Dividend Yield
4.6% -1.8%
Expected Total Return
Market Data
3,000 mln
Shares Outstanding
21.0%
Free Float 12-Month ADTV
4,152,107
Bloomberg Code
SABIC AB
1-Year Price Performance
Revenues have come in close to our forecast at SAR 41.9 billion, up +15% Y/Y and +4% Q/Q as higher product prices helped. Basic petchem prices have risen well in 4Q but lagged the crude rise. During 1Q2018, Polypropylene (PP) was up by +8% Q/Q and +15% Y/Y while Polyethylene (PE) increased by +8% Q/Q and +14% Y/Y. In addition, MEG rose by +12% Q/Q and +15% Y/Y. Urea prices had a tough quarter which saw them decline -3% Q/Q and -4% Y/Y to USD 256/ton but ammonia managed to rise +9% Q/Q.
Better spread, better margins Gross margins have come at decent levels of 33.9%, a definite improvement over 31.1% recorded in the preceding quarter, although they are around 400bps lower Y/Y. The continued rise in oil prices has resulted in better product prices and improved spreads for the Company. Gross profit is up +5% Y/Y and +14% on a quarterly basis to SAR 14.2 billion, close to our SAR 14.8 billion estimate. While operating expenses are restricted to SAR 5.3 billion, Sabic has talked about a cost of SAR 1.1 billion related to a strategic restructuring initiative, which aims to increase productivity.
140 130
120 110 100
90 80
70 A
M
J
J
A S SABIC
O
N
D
J F TASI
M
Safco and Yansab disappoint
A
Kayan reported good results this quarter with a net income of SAR 463 million, +74% Y/Y and beating market expectations as the Company bounced back strongly from the turnaround activity in 4Q. Yansab’s results missed forecasts on lower revenues as volumetric sales were down with a net income of SAR 631 million, -19% down Q/Q. Costs related to the shutdown have spilled over into 1Q as well for Safco. Combined with restructuring charges, this led to a net income of just SAR 237 million for the first quarter, close to half of what the market was expecting.
Source: Bloomberg
6M
1Y
2Y
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Target price grows to SAR 111
SABIC
Fig in SAR bln
Sabic managed to post a net income of SAR 5.5 billion for the quarter, +5% Y/Y and +49% Q/Q. EPS of SAR 1.84 was in-line with our SAR 1.87 forecast. There was good news from Hadeed, which turned to a profit in 1Q as did Ibn Rushd. Talking to the media, the Sabic CEO expects some challenges following introduction of anti-dumping taxes in the US and China. We revise up our target price to SAR 111.00 from SAR 98.00 but keep a Neutral rating.
TASI
RC Est.
Actuals
Revenues
42.9
41.9
Gross Profit
14.8
14.2
Net Income
5.6
5.5
1.87
1.84
EPS (SAR)
Key Financial Figures FY Dec31 (SAR bln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2017A 149.8 43.2 18.4 6.14 5.00
Key Financial Ratios 2018E 157.2 45.9 21.0 7.01 5.50
Muhammad Faisal Potrik
Abdullah A. Alrayes
[email protected] +966-11-203-6807
[email protected] +966-11-203-6814
2019E 165.1 48.2 24.3 8.11 5.75
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2017A 70.10 10.6% 5.6% 11.4x 17.2x
2018E 72.71 12.5% 6.7% 10.4x 15.1x
2019E 75.05 13.4% 7.3% 9.4x 12.4x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI BASIC INDUSTRIES CORP (SABIC) 1Q2018 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 closed joint stock 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 Page 2 of 4 Arabia (“KSA”). Website: www.riyadcapital.com
Neutral SAR 111.00
SAUDI BASIC INDUSTRIES CORP (SABIC) 1Q2018 First Look
In-line Earnings
52 Week H/L
SAR 123.8 /94.75
Sabic reported in-line results for 1Q2018. Net income of SAR 5.5 billion was within striking distance of our SAR 5.6 billion forecast. Bottomline is up +5% Y/Y and +49% Q/Q as 4Q2017 witnessed unexpectedly low earnings. While gross margins are about 400bps lower Y/Y, there is an expansion Q/Q, as expected. Crude prices continue to rise, having a positive impact on product prices as well. Although Kayan posted good bottomline, Yansab results came in below forecasts while Safco has disappointed severely with EPS almost half what the market was expecting. We raise our estimates slightly and increase our target price from SAR 98.00 to SAR 111.00. The stock is trading at a 2018E P/E of 15.1x, close to the market P/E but beyond our target price. Hence, we have a Neutral stance on the stock.
Market Capitalization
SAR 326,610 mln
Topline grows +15% Y/Y
Expected Total Return Price as on Apr-26, 2018
SAR 118.69
Upside to Target Price
-6.5%
Expected Dividend Yield
4.6% -1.8%
Expected Total Return
Market Data
3,000 mln
Shares Outstanding
21.0%
Free Float 12-Month ADTV
4,152,107
Bloomberg Code
SABIC AB
1-Year Price Performance
Revenues have come in close to our forecast at SAR 41.9 billion, up +15% Y/Y and +4% Q/Q as higher product prices helped. Basic petchem prices have risen well in 4Q but lagged the crude rise. During 1Q2018, Polypropylene (PP) was up by +8% Q/Q and +15% Y/Y while Polyethylene (PE) increased by +8% Q/Q and +14% Y/Y. In addition, MEG rose by +12% Q/Q and +15% Y/Y. Urea prices had a tough quarter which saw them decline -3% Q/Q and -4% Y/Y to USD 256/ton but ammonia managed to rise +9% Q/Q.
Better spread, better margins Gross margins have come at decent levels of 33.9%, a definite improvement over 31.1% recorded in the preceding quarter, although they are around 400bps lower Y/Y. The continued rise in oil prices has resulted in better product prices and improved spreads for the Company. Gross profit is up +5% Y/Y and +14% on a quarterly basis to SAR 14.2 billion, close to our SAR 14.8 billion estimate. While operating expenses are restricted to SAR 5.3 billion, Sabic has talked about a cost of SAR 1.1 billion related to a strategic restructuring initiative, which aims to increase productivity.
140 130
120 110 100
90 80
70 A
M
J
J
A S SABIC
O
N
D
J F TASI
M
Safco and Yansab disappoint
A
Kayan reported good results this quarter with a net income of SAR 463 million, +74% Y/Y and beating market expectations as the Company bounced back strongly from the turnaround activity in 4Q. Yansab’s results missed forecasts on lower revenues as volumetric sales were down with a net income of SAR 631 million, -19% down Q/Q. Costs related to the shutdown have spilled over into 1Q as well for Safco. Combined with restructuring charges, this led to a net income of just SAR 237 million for the first quarter, close to half of what the market was expecting.
Source: Bloomberg
6M
1Y
2Y
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Target price grows to SAR 111
SABIC
Fig in SAR bln
Sabic managed to post a net income of SAR 5.5 billion for the quarter, +5% Y/Y and +49% Q/Q. EPS of SAR 1.84 was in-line with our SAR 1.87 forecast. There was good news from Hadeed, which turned to a profit in 1Q as did Ibn Rushd. Talking to the media, the Sabic CEO expects some challenges following introduction of anti-dumping taxes in the US and China. We revise up our target price to SAR 111.00 from SAR 98.00 but keep a Neutral rating.
TASI
RC Est.
Actuals
Revenues
42.9
41.9
Gross Profit
14.8
14.2
Net Income
5.6
5.5
1.87
1.84
EPS (SAR)
Key Financial Figures FY Dec31 (SAR bln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2017A 149.8 43.2 18.4 6.14 5.00
Key Financial Ratios 2018E 157.2 45.9 21.0 7.01 5.50
Muhammad Faisal Potrik
Abdullah A. Alrayes
[email protected] +966-11-203-6807
[email protected] +966-11-203-6814
2019E 165.1 48.2 24.3 8.11 5.75
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2017A 70.10 10.6% 5.6% 11.4x 17.2x
2018E 72.71 12.5% 6.7% 10.4x 15.1x
2019E 75.05 13.4% 7.3% 9.4x 12.4x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI BASIC INDUSTRIES CORP (SABIC) 1Q2018 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 closed joint stock 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 Page 2 of 4 Arabia (“KSA”). Website: www.riyadcapital.com
