Petro Rabigh 25 April 2016
Petro Rabigh 1Q2016 – First Look
Buy
12-month Target Price SAR 16.00
Lower Refining Margins Y/Y
April 25, 2016
Expected Total Return Price as of April-24, 2016
SAR 12.70
Upside to Target Price
66.0 %
Expected Dividend Yield
-
Expected Total Return
66.0 %
Market Data 52 Week H/L
SAR 65.70/7.00
Market Capitalization
SAR 10,705 mln
Enterprise Value
SAR 27,993 mln
Shares Outstanding
876.0 mln
Free Float
21.7%
12-Month ADTV (mln)
6.374
TASI Weight
0.73%
Reuters Code
2380.SE
Bloomberg Symbol
PETROR AB
1-Year Price Performance 140
Coming off a major plant shutdown in 4Q2015, Petro Rabigh (PR) narrowed losses Q/Q to SAR (33) million, better than our forecast. Last year the Company had earned SAR 205 million in profits. Although quarter revenues are -35% down Y/Y as a consequence of lower oil and petrochemical prices, they are up +84% Q/Q. Lower refining margins coupled with gradual startup of the plant in 1Q leading to restricted volumes are also being blamed for lower margins and profitability as compared to last year. There is some positive news regarding commencement of the new ethane cracker at the PR II project. We await further visibility on commercial operations before incorporating in our models. Revising our estimates leads to an increase in target price from SAR 12.00 to SAR 16.00. Buy recommended. Gradual production rise after shutdown -35% Y/Y revenue decline to SAR 4.9 billion more or less tracks the -37% Y/Y decrease in Brent crude prices over the same period although benchmark ethylene was down only -3% Y/Y. Volumetric sales have been restricted coming-off the extended major shutdown experienced in 4Q as start-up is gradual and plant takes time to reach full capacity. Q/Q revenue comparison is redundant given 4Q plagued by the shutdown. Refinery segment hurts margins Gross profit has plummeted to SAR 221 million, -62% lower Y/Y on the back of declining margins. Refining margins continue to be a drag and have contracted Y/Y. Gross margins accrued at 4.5% versus 7.6% last year. On a gross basis, Petro Rabigh has recorded negative refining margins since inception. As refined products constitute around 80% of total sales, this has pressured total gross margins negating positive petchem segment contribution. Net loss for the quarter Decline in operating expenses both Y/Y and Q/Q to SAR 235 million is positive despite rising energy costs. However, this did not prevent the Company from posting an operating loss of SAR (14) million. Net loss of SAR (33) million is better than expected but compares unfavorably to a net profit of SAR 205 million last year.
120 100 80 60 40
Target price rises to SAR 16 The 30 mmscfd ethane cracker has commenced operations on April 19 th and as per latest Company announcement will contribute SAR 750 million to 2016 revenues. We await further visibility to incorporate it into our projections. We have revised upwards our revenue and margin estimates going forward, which has raised our target price from SAR 12.00 to SAR 16.00. We continue with our Buy recommendation.
20 A
M
J
J
A
S
O
Rabigh
N
D
J
TASI
F
M
TPCHEM
Source: Bloomberg RABIGH April-24-2016
12.70
TASI 6,699
TPCHEM 4,445
Key Financials
Total Change 6-months
(5771)%
(777)%
(5070)%
1-Year
(4176)%
(3077)%
2-Year
(3070)%
(3073) % (6777)%
1Q2016 SAR (mln)
Actual
(4574)%
RC Forecast
FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
25,514
26,758
33,493
36,556
295
1,003
1,423
1,645
Net Profit
(759)
(215)
192
312
EPS (SAR)
(0.87)
(0.24)
0.22
0.36
Net Margin
(3)%
(1)%
1%
1%
DPS (SAR)
0.50
-
-
0.25
Gross Profit
Gross Profit
221
66
-
-
-
70%
Net Profit
(33)
(193)
ROAE
(9)%
(3)%
2%
4%
(0.22)
ROAA
(2)%
(1)%
1%
1%
EPS (SAR)
(0.04)
Payout Ratio
EV / Revenues
1.2x
1.1x
0.8x
0.7x
EV / EBITDA
19.0x
13.3x
10.3x
9.0x
P / CFPS
32.5x
35.4x
39.5x
41.7x
-
-
55.6x
34.3x
P/E
Muhammad Faisal Potrik [email protected] +966-11-203-6807
Yasser bin Ahmed [email protected] +966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
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
Buy
12-month Target Price SAR 16.00
Lower Refining Margins Y/Y
April 25, 2016
Expected Total Return Price as of April-24, 2016
SAR 12.70
Upside to Target Price
66.0 %
Expected Dividend Yield
-
Expected Total Return
66.0 %
Market Data 52 Week H/L
SAR 65.70/7.00
Market Capitalization
SAR 10,705 mln
Enterprise Value
SAR 27,993 mln
Shares Outstanding
876.0 mln
Free Float
21.7%
12-Month ADTV (mln)
6.374
TASI Weight
0.73%
Reuters Code
2380.SE
Bloomberg Symbol
PETROR AB
1-Year Price Performance 140
Coming off a major plant shutdown in 4Q2015, Petro Rabigh (PR) narrowed losses Q/Q to SAR (33) million, better than our forecast. Last year the Company had earned SAR 205 million in profits. Although quarter revenues are -35% down Y/Y as a consequence of lower oil and petrochemical prices, they are up +84% Q/Q. Lower refining margins coupled with gradual startup of the plant in 1Q leading to restricted volumes are also being blamed for lower margins and profitability as compared to last year. There is some positive news regarding commencement of the new ethane cracker at the PR II project. We await further visibility on commercial operations before incorporating in our models. Revising our estimates leads to an increase in target price from SAR 12.00 to SAR 16.00. Buy recommended. Gradual production rise after shutdown -35% Y/Y revenue decline to SAR 4.9 billion more or less tracks the -37% Y/Y decrease in Brent crude prices over the same period although benchmark ethylene was down only -3% Y/Y. Volumetric sales have been restricted coming-off the extended major shutdown experienced in 4Q as start-up is gradual and plant takes time to reach full capacity. Q/Q revenue comparison is redundant given 4Q plagued by the shutdown. Refinery segment hurts margins Gross profit has plummeted to SAR 221 million, -62% lower Y/Y on the back of declining margins. Refining margins continue to be a drag and have contracted Y/Y. Gross margins accrued at 4.5% versus 7.6% last year. On a gross basis, Petro Rabigh has recorded negative refining margins since inception. As refined products constitute around 80% of total sales, this has pressured total gross margins negating positive petchem segment contribution. Net loss for the quarter Decline in operating expenses both Y/Y and Q/Q to SAR 235 million is positive despite rising energy costs. However, this did not prevent the Company from posting an operating loss of SAR (14) million. Net loss of SAR (33) million is better than expected but compares unfavorably to a net profit of SAR 205 million last year.
120 100 80 60 40
Target price rises to SAR 16 The 30 mmscfd ethane cracker has commenced operations on April 19 th and as per latest Company announcement will contribute SAR 750 million to 2016 revenues. We await further visibility to incorporate it into our projections. We have revised upwards our revenue and margin estimates going forward, which has raised our target price from SAR 12.00 to SAR 16.00. We continue with our Buy recommendation.
20 A
M
J
J
A
S
O
Rabigh
N
D
J
TASI
F
M
TPCHEM
Source: Bloomberg RABIGH April-24-2016
12.70
TASI 6,699
TPCHEM 4,445
Key Financials
Total Change 6-months
(5771)%
(777)%
(5070)%
1-Year
(4176)%
(3077)%
2-Year
(3070)%
(3073) % (6777)%
1Q2016 SAR (mln)
Actual
(4574)%
RC Forecast
FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
25,514
26,758
33,493
36,556
295
1,003
1,423
1,645
Net Profit
(759)
(215)
192
312
EPS (SAR)
(0.87)
(0.24)
0.22
0.36
Net Margin
(3)%
(1)%
1%
1%
DPS (SAR)
0.50
-
-
0.25
Gross Profit
Gross Profit
221
66
-
-
-
70%
Net Profit
(33)
(193)
ROAE
(9)%
(3)%
2%
4%
(0.22)
ROAA
(2)%
(1)%
1%
1%
EPS (SAR)
(0.04)
Payout Ratio
EV / Revenues
1.2x
1.1x
0.8x
0.7x
EV / EBITDA
19.0x
13.3x
10.3x
9.0x
P / CFPS
32.5x
35.4x
39.5x
41.7x
-
-
55.6x
34.3x
P/E
Muhammad Faisal Potrik [email protected] +966-11-203-6807
Yasser bin Ahmed [email protected] +966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
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
