Results in-line
July 13, 2016 Rating 12- Month Target Price
Neutral SAR 46.00
ADVANCED PETROCHEMICAL COMPANY (ADVANCED) 2Q2016 First Look
Results in-line
Expected Total Return Price as on Jul-12, 2016
47.43
Upside to Target Price
(3.0%)
Expected Dividend Yield
6.3%
Expected Total Return
3.3%
Market Data SAR 58.0/31.9
52 Week H/L
SAR 7,773 million
Market Capitalization
163.9 million
Shares Outstanding Free Float
82.4%
12-Month ADTV(000’s)
641.7
1-Year Price Performance
Advanced Petrochemical Company (Advanced) reported its 2Q2016 results on Jul-11 with earnings falling in-line with our estimates and consensus. EPS of SAR 1.13 increased by +28% Q/Q but declined by -24% Y/Y. Revenue is not reported yet but expected to be with in our estimate range of SAR 548 million. With 2Q results being inline due to an improved product prices scenario coupled with decent operating performance, Advanced’s fundamentals remain intact. We revise 2016-18 estimates and raise our target price to SAR 46.00 on the back of continued improvement in two quarters. However, we maintain Neutral rating and believe valuation have overridden with its 2016E P/E of 12.1x is unjustified and higher to its 5 year average of 10.2x. Maintain Neutral rating on valuation concerns.
Product prices improve in 2Q We estimated revenue of SAR 548 million for 2Q2016 and actuals are expected to be close to our estimates. The improvement in product prices is expected to have helped Advanced, maintain a decent growth rate in 2Q. Product prices especially average prices of Polypropylene (PP)-Asian benchmark grew by +16% during the quarter, a positive.
Feedstock spreads aided growth 110
Gross profit of SAR 201 million in 2Q2016 increased by +28% Q/Q but declined -24% Y/Y and remained close to our expectations. The feedstock spread advantage over Asian producers is expected to have aided Improvement in margins, though margin impact is not clear. We believe the lower growth in propane prices during this quarter should have aided such spreads. Operating profit of SAR 192 million witnessed similar trend, a decline of -24% Y/Y but increased by +33% Q/Q.
100 90 80 70 60 50
Earnings in-line though provisions impact was unexpected
40 30 J
A S O N D J F M A M J J APPC TASI TPCHEM Source: Bloomberg
6M
1Y
Advanced has reported SAR 8 million as associate income from its Korean JV but recorded a loss provision of SAR 9.0 million from available for sale investments. We await more clarity on its SAR 387 million investment, which is a long term positive. Net income of SAR 186 met our estimates of SAR 187 million, a growth of +27% Q/Q, while recording a decline of -24% Y/Y.
Revise target price, but maintain Neutral
2Y
We revise 2016-18 estimates and increase our target price to SAR 46.00. Advanced continues to offer above par sector yields of 6.3% and expected to pay DPS of SAR 3.00 for 2016 and 2017. The stock outperformed the sector and returned +18% in 2Q2016. However, irrational uptrend and unjustified premium over peers had left us with no option; hence continue to maintain our Neutral rating and a target price of SAR 46.00.
60% 40% 20% 0% -20%
APPC
Fig in SAR Mln MlnMMln Revenue EBIT
Key Financial Ratios
Key Financial Figures
-40% TASI
RC Esti 548 mate 185 s
TPCHEM
Actuals NA
FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2015A 2,328 953 713 4.35 3.00
2016E 2,210 878 642 3.92 3.00
2017E 2,317 942 687 4.19 3.00
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2015A 15.96 22% 27% 8.4x 10.9x
2016E 16.73 19% 23% 9.2x 12.1x
2017E 17.74 19% 23% 8.5x 11.3x
192
Net Income
187
186
EPS (SAR)
1.14
1.13
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)
ADVANCED PETROCHEMICALS COMPANY (ADVANCED) 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
Neutral SAR 46.00
ADVANCED PETROCHEMICAL COMPANY (ADVANCED) 2Q2016 First Look
Results in-line
Expected Total Return Price as on Jul-12, 2016
47.43
Upside to Target Price
(3.0%)
Expected Dividend Yield
6.3%
Expected Total Return
3.3%
Market Data SAR 58.0/31.9
52 Week H/L
SAR 7,773 million
Market Capitalization
163.9 million
Shares Outstanding Free Float
82.4%
12-Month ADTV(000’s)
641.7
1-Year Price Performance
Advanced Petrochemical Company (Advanced) reported its 2Q2016 results on Jul-11 with earnings falling in-line with our estimates and consensus. EPS of SAR 1.13 increased by +28% Q/Q but declined by -24% Y/Y. Revenue is not reported yet but expected to be with in our estimate range of SAR 548 million. With 2Q results being inline due to an improved product prices scenario coupled with decent operating performance, Advanced’s fundamentals remain intact. We revise 2016-18 estimates and raise our target price to SAR 46.00 on the back of continued improvement in two quarters. However, we maintain Neutral rating and believe valuation have overridden with its 2016E P/E of 12.1x is unjustified and higher to its 5 year average of 10.2x. Maintain Neutral rating on valuation concerns.
Product prices improve in 2Q We estimated revenue of SAR 548 million for 2Q2016 and actuals are expected to be close to our estimates. The improvement in product prices is expected to have helped Advanced, maintain a decent growth rate in 2Q. Product prices especially average prices of Polypropylene (PP)-Asian benchmark grew by +16% during the quarter, a positive.
Feedstock spreads aided growth 110
Gross profit of SAR 201 million in 2Q2016 increased by +28% Q/Q but declined -24% Y/Y and remained close to our expectations. The feedstock spread advantage over Asian producers is expected to have aided Improvement in margins, though margin impact is not clear. We believe the lower growth in propane prices during this quarter should have aided such spreads. Operating profit of SAR 192 million witnessed similar trend, a decline of -24% Y/Y but increased by +33% Q/Q.
100 90 80 70 60 50
Earnings in-line though provisions impact was unexpected
40 30 J
A S O N D J F M A M J J APPC TASI TPCHEM Source: Bloomberg
6M
1Y
Advanced has reported SAR 8 million as associate income from its Korean JV but recorded a loss provision of SAR 9.0 million from available for sale investments. We await more clarity on its SAR 387 million investment, which is a long term positive. Net income of SAR 186 met our estimates of SAR 187 million, a growth of +27% Q/Q, while recording a decline of -24% Y/Y.
Revise target price, but maintain Neutral
2Y
We revise 2016-18 estimates and increase our target price to SAR 46.00. Advanced continues to offer above par sector yields of 6.3% and expected to pay DPS of SAR 3.00 for 2016 and 2017. The stock outperformed the sector and returned +18% in 2Q2016. However, irrational uptrend and unjustified premium over peers had left us with no option; hence continue to maintain our Neutral rating and a target price of SAR 46.00.
60% 40% 20% 0% -20%
APPC
Fig in SAR Mln MlnMMln Revenue EBIT
Key Financial Ratios
Key Financial Figures
-40% TASI
RC Esti 548 mate 185 s
TPCHEM
Actuals NA
FY Dec31 (SAR Mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2015A 2,328 953 713 4.35 3.00
2016E 2,210 878 642 3.92 3.00
2017E 2,317 942 687 4.19 3.00
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2015A 15.96 22% 27% 8.4x 10.9x
2016E 16.73 19% 23% 9.2x 12.1x
2017E 17.74 19% 23% 8.5x 11.3x
192
Net Income
187
186
EPS (SAR)
1.14
1.13
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)
ADVANCED PETROCHEMICALS COMPANY (ADVANCED) 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
