SABIC 28 July 2016 PDF
July 28, 2016 Rating 12- Month Target Price
Neutral SAR 80.00
SAUDI BASIC INDUSTRIES CORP (SABIC) 2Q2016 First Look
Massive Earnings Beat Expected Total Return
85.22 9 )6.0%(
Price as on Jun-12, 2016 Upside to Target Price
4.7%
Expected Dividend Yield
)1.3%(
Expected Total Return
Market Data 97.6/59.5
52 Week H/L
SAR 255,330 million
Market Capitalization
2,222 million
Shares Outstanding Free Float
21.1%
12-Month ADTV
777.8
1-Year Price Performance
Sabic positively surprised the market in its 2Q result announcement for the third time in as many quarters. Net income of SAR 4.7 billion was above and beyond even the most optimistic estimates. We had forecast a bottomline of SAR 3.8 billion while Bloomberg consensus net income stood at SAR 3.9 billion. At first look, it appears higher margins, turnaround in steel prices as well as better than expected earnings at Yansab and Saudi Kayan are the primary causes of the substantial deviation versus consensus. We have revised upwards our EPS estimates for 2016 and beyond. Current year net income is now forecasted at SAR 15.1 billion (SAR 14.0 billion earlier). Consequently, target price for Sabic also rises from SAR 74.00 to SAR 80.00 but we continue with a Neutral recommendation.
Product prices rise Q/Q Although Sabic has yet to report revenue numbers, we estimate topline above SAR 35.0 billion. Benchmark ethylene prices are down –12% Y/Y but have risen +12% Q/Q. Gross profit of SAR 11.0 billion (-13% Y/Y, +31% Q/Q) is better than expectations as we believe the Company benefitted from higher product prices and margins did not dip as much as expected (on higher feedstock and energy prices). Furthermore, turnaround in steel prices has benefitted the Company and may even have resulted in the reversal of segment loss, we await details.
EPS trumps all expectations
120
Increase in operating expenses by +23% Y/Y and +20% Q/Q to over SAR 4.0 billion needs to be contained going forward. The Company has reported an impairment charge to the tune of SAR 762 million against assets of Ibn Rushd, of which Sabic’s share is SAR 366 million. We believe most other line items below operating income have come in line with our expectations. Net income of SAR 4.7 billion (-23% Y/Y, +39% Q/Q) has comprehensively beaten market estimates and may trigger a short term rally at the Tadawul.
100 80 60 40 20
0 A
S
O
N D SABIC
J
F M A M TASI
J
J TPCHEM
We revise our forecasts for 2016 and beyond on the back of higher average oil prices. In addition margins have so far held up nicely despite increase in feedstock and energy costs. We now expect full year net income of SAR 15.1 billion as compared to SAR 14.0 billion earlier. Revised EPS forecast for 2017 and 2018 stands at SAR 5.46 and SAR 5.95 respectively.
Source: Bloomberg
6M
1Y
Revising estimates
2Y
30%
20%
SAR 2.00 1H dividend
10%
The Company has also announced a SAR 2.00 dividend per share for the first half of 2016. This is in line with our full year SAR 4.00 DPS expectation. Trading at 16.9x 2016E earnings and above our revised SAR 80.00 target price, we are Neutral on the stock.
0%
-10% -20% -30%
-40%
Key Financial Figures SABIC
Fig in SAR bln MlnMMln Gross Profit
TASI
TPCHEM
RC Est. Estimates 9.25
Actuals
11.02
EBIT
5.72
6.95
Net Income
3.83
4.74
EPS (SAR)
1.28
1.58
FY Dec31 (SARbln) Revenue EBITDA Net Profit EPS DPS
2015A 148.1 41.2 18.8 6.26 5.50
Key Financial Ratios 2016E 134.8 38.0 15.1 5.03 4.00
Muhammad Faisal Potrik
Yasser Bin Ahmed
[email protected] +966-11-203-6807
[email protected] +966-11-203-6805
2017E 142.6 40.4 16.4 5.46 4.00
FY Dec31 BVPS ROAE ROAA EV/EBITDA P/E
2015A 71.83 11.1% 5.6% 9.4x 13.6x
2016E 69.95 9.0% 4.6% 11.2x 16.9x
2017E 68.63 9.9% 5.1% 10.8x 15.6x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI BASIC INDUSTRIES CORP (SABIC) 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 80.00
SAUDI BASIC INDUSTRIES CORP (SABIC) 2Q2016 First Look
Massive Earnings Beat Expected Total Return
85.22 9 )6.0%(
Price as on Jun-12, 2016 Upside to Target Price
4.7%
Expected Dividend Yield
)1.3%(
Expected Total Return
Market Data 97.6/59.5
52 Week H/L
SAR 255,330 million
Market Capitalization
2,222 million
Shares Outstanding Free Float
21.1%
12-Month ADTV
777.8
1-Year Price Performance
Sabic positively surprised the market in its 2Q result announcement for the third time in as many quarters. Net income of SAR 4.7 billion was above and beyond even the most optimistic estimates. We had forecast a bottomline of SAR 3.8 billion while Bloomberg consensus net income stood at SAR 3.9 billion. At first look, it appears higher margins, turnaround in steel prices as well as better than expected earnings at Yansab and Saudi Kayan are the primary causes of the substantial deviation versus consensus. We have revised upwards our EPS estimates for 2016 and beyond. Current year net income is now forecasted at SAR 15.1 billion (SAR 14.0 billion earlier). Consequently, target price for Sabic also rises from SAR 74.00 to SAR 80.00 but we continue with a Neutral recommendation.
Product prices rise Q/Q Although Sabic has yet to report revenue numbers, we estimate topline above SAR 35.0 billion. Benchmark ethylene prices are down –12% Y/Y but have risen +12% Q/Q. Gross profit of SAR 11.0 billion (-13% Y/Y, +31% Q/Q) is better than expectations as we believe the Company benefitted from higher product prices and margins did not dip as much as expected (on higher feedstock and energy prices). Furthermore, turnaround in steel prices has benefitted the Company and may even have resulted in the reversal of segment loss, we await details.
EPS trumps all expectations
120
Increase in operating expenses by +23% Y/Y and +20% Q/Q to over SAR 4.0 billion needs to be contained going forward. The Company has reported an impairment charge to the tune of SAR 762 million against assets of Ibn Rushd, of which Sabic’s share is SAR 366 million. We believe most other line items below operating income have come in line with our expectations. Net income of SAR 4.7 billion (-23% Y/Y, +39% Q/Q) has comprehensively beaten market estimates and may trigger a short term rally at the Tadawul.
100 80 60 40 20
0 A
S
O
N D SABIC
J
F M A M TASI
J
J TPCHEM
We revise our forecasts for 2016 and beyond on the back of higher average oil prices. In addition margins have so far held up nicely despite increase in feedstock and energy costs. We now expect full year net income of SAR 15.1 billion as compared to SAR 14.0 billion earlier. Revised EPS forecast for 2017 and 2018 stands at SAR 5.46 and SAR 5.95 respectively.
Source: Bloomberg
6M
1Y
Revising estimates
2Y
30%
20%
SAR 2.00 1H dividend
10%
The Company has also announced a SAR 2.00 dividend per share for the first half of 2016. This is in line with our full year SAR 4.00 DPS expectation. Trading at 16.9x 2016E earnings and above our revised SAR 80.00 target price, we are Neutral on the stock.
0%
-10% -20% -30%
-40%
Key Financial Figures SABIC
Fig in SAR bln MlnMMln Gross Profit
TASI
TPCHEM
RC Est. Estimates 9.25
Actuals
11.02
EBIT
5.72
6.95
Net Income
3.83
4.74
EPS (SAR)
1.28
1.58
FY Dec31 (SARbln) Revenue EBITDA Net Profit EPS DPS
2015A 148.1 41.2 18.8 6.26 5.50
Key Financial Ratios 2016E 134.8 38.0 15.1 5.03 4.00
Muhammad Faisal Potrik
Yasser Bin Ahmed
[email protected] +966-11-203-6807
[email protected] +966-11-203-6805
2017E 142.6 40.4 16.4 5.46 4.00
FY Dec31 BVPS ROAE ROAA EV/EBITDA P/E
2015A 71.83 11.1% 5.6% 9.4x 13.6x
2016E 69.95 9.0% 4.6% 11.2x 16.9x
2017E 68.63 9.9% 5.1% 10.8x 15.6x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI BASIC INDUSTRIES CORP (SABIC) 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
