sabic
SABIC 2Q2015 – First Look
Hold
Downgrade to Hold
July 26, 2015
Expected Total Return Price as of July-26, 2015
SAR 89.32
Upside to Target Price
13.9%
Expected Dividend Yield
5.1%
Expected Total Return
19.0%
Market Data 52 Week H/L
SAR 136.50/70.25
Market Capitalization
SAR 294,960 mln
Enterprise Value
SAR 337,409 mln
Shares Outstanding
3,000 mln
Free Float
24.3%
12-Month ADTV (mln)
4.396
TASI Weight
14.18%
Reuters Code
2010.SE
Bloomberg Symbol
SABIC AB
1-Year Price Performance 120 110
90
80 70 60
A
S O N D SABIC
J
F M A M
TASI
J
J
TPCHEM
Source: Bloomberg SABIC July-23-2015 98.32
TASI 9,297
SABIC’s bulging bottomline for the second quarter is likely to lift sentiments for the stock at the Tadawul. The petrochemical giant reported a net profit of SAR 6.17 billion before market open today beating both our estimates of SAR 4.75 billion and Bloomberg consensus of SAR 4.95 billion. At first look, a combination of rising petchem prices and stable feedstock levels have bloated gross profit and margins leading to a net profit of over SAR 6 billion. Given the recent oil price plunge and restricted upside on account of rising supply expectations, we maintain our full year estimate of SAR 19.35 billion. Trading at 15.2x 2015E P/E, we feel rising stock prices on positive results may be a good exit opportunity for the time being. We are downgrading SABIC to a Hold with a target of SAR 112. Gross profit rises +34% Q/Q We expect topline in the vicinity of SAR 43 billion on elevated petchem price levels in 2Q. Polyethylene and polypropylene prices have risen +21% Q/Q and +28% Q/Q respectively. As majority of feed costs are fixed, gross profit has benefited rising to SAR 12.6 billion, +34% Q/Q but still down -6% over last year. Gross margins are likely to have expanded to over 27% versus 26.6% in 1Q and 27.9% in 2Q2014. Lower variable feed prices have limited benefits for SABIC. SAR 2.50 DPS for 1H Opex is in line with comparable periods at SAR 3.3 billion. Net income has shot up +57% over the preceding quarter to SAR 6.17 billion, much higher than both our forecast and street estimates. SAR 2.06 EPS has declined -4% over the similar period last year as petchem prices are more than -10% lower Y/Y. SAR 2.50 DPS for 1H2015 is inline with our full year SAR 5.00 DPS estimates. Subsidiaries record mixed results Safco booked some gains from its upcoming Safco V unit leading to +1% Q/Q rise in net income despite lower urea prices, comfortably ahead of market estimates. Yansab bottom line was down -63% Y/Y on the back of plant shutdowns with management estimate of losses in the range of SAR 330 million. Higher financial charges and admin expenses resulted in another minor loss for Kayan as opposed to Bloomberg consensus of a small profit.
100
J
TPCHEM
Target price in sight SABIC is expected to feature prominently in QFI radar screens given its status as one of the world’s largest petrochemical companies. At our SAR 112 target, the stock would be valued at 17.4x 2015E P/E. We are downgrading the stock to a Hold given subdued 2H estimates.
6,366
Key Financials
Total Change FY December 31 (SAR mln)
6-months
5.42%
4.4.%
4441%
1-Year
)5.42(%
)84.(%
)5245(%
2-Year
245%
4841%
.44%
2Q2015 SAR (bln)
12-Month Target Price SAR 112
2014A
2015E
2016E
2017E
Revenue
188,775
161,380
176,943
193,033
Gross Profit
52,400
44,866
51,114
55,803
Net Profit
23,433
19,347
22,870
25,399
EPS (SAR)
7.81
6.45
7.62
8.47
Net Margin
12%
12%
13%
13%
DPS (SAR)
5.50
5.00
5.50
6.00
Actual
RC Forecast
Gross Profit
12.6
11.2
Payout Ratio
70%
78%
72%
71%
Net Profit
6.2
4.8
ROAE
14%
11%
13%
14%
EPS (SAR)
2.06
1.58
ROAA
7%
6%
7%
7%
8.7x
10.2x
8.9x
8.1x
12.6x
15.2x
12.9x
11.6x
P / CFPS
8.7x
9.5x
11.0x
12.0x
P/B
1.4x
1.3x
1.3x
1.3x
EV / EBITDA P/E
Muhammad Faisal Potrik [email protected] +966-11-203-6807
Yasser bin Ahmed [email protected] Riyad Capital is licensed by the Saudi Arabia +966-11-203-6805 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
Hold
Downgrade to Hold
July 26, 2015
Expected Total Return Price as of July-26, 2015
SAR 89.32
Upside to Target Price
13.9%
Expected Dividend Yield
5.1%
Expected Total Return
19.0%
Market Data 52 Week H/L
SAR 136.50/70.25
Market Capitalization
SAR 294,960 mln
Enterprise Value
SAR 337,409 mln
Shares Outstanding
3,000 mln
Free Float
24.3%
12-Month ADTV (mln)
4.396
TASI Weight
14.18%
Reuters Code
2010.SE
Bloomberg Symbol
SABIC AB
1-Year Price Performance 120 110
90
80 70 60
A
S O N D SABIC
J
F M A M
TASI
J
J
TPCHEM
Source: Bloomberg SABIC July-23-2015 98.32
TASI 9,297
SABIC’s bulging bottomline for the second quarter is likely to lift sentiments for the stock at the Tadawul. The petrochemical giant reported a net profit of SAR 6.17 billion before market open today beating both our estimates of SAR 4.75 billion and Bloomberg consensus of SAR 4.95 billion. At first look, a combination of rising petchem prices and stable feedstock levels have bloated gross profit and margins leading to a net profit of over SAR 6 billion. Given the recent oil price plunge and restricted upside on account of rising supply expectations, we maintain our full year estimate of SAR 19.35 billion. Trading at 15.2x 2015E P/E, we feel rising stock prices on positive results may be a good exit opportunity for the time being. We are downgrading SABIC to a Hold with a target of SAR 112. Gross profit rises +34% Q/Q We expect topline in the vicinity of SAR 43 billion on elevated petchem price levels in 2Q. Polyethylene and polypropylene prices have risen +21% Q/Q and +28% Q/Q respectively. As majority of feed costs are fixed, gross profit has benefited rising to SAR 12.6 billion, +34% Q/Q but still down -6% over last year. Gross margins are likely to have expanded to over 27% versus 26.6% in 1Q and 27.9% in 2Q2014. Lower variable feed prices have limited benefits for SABIC. SAR 2.50 DPS for 1H Opex is in line with comparable periods at SAR 3.3 billion. Net income has shot up +57% over the preceding quarter to SAR 6.17 billion, much higher than both our forecast and street estimates. SAR 2.06 EPS has declined -4% over the similar period last year as petchem prices are more than -10% lower Y/Y. SAR 2.50 DPS for 1H2015 is inline with our full year SAR 5.00 DPS estimates. Subsidiaries record mixed results Safco booked some gains from its upcoming Safco V unit leading to +1% Q/Q rise in net income despite lower urea prices, comfortably ahead of market estimates. Yansab bottom line was down -63% Y/Y on the back of plant shutdowns with management estimate of losses in the range of SAR 330 million. Higher financial charges and admin expenses resulted in another minor loss for Kayan as opposed to Bloomberg consensus of a small profit.
100
J
TPCHEM
Target price in sight SABIC is expected to feature prominently in QFI radar screens given its status as one of the world’s largest petrochemical companies. At our SAR 112 target, the stock would be valued at 17.4x 2015E P/E. We are downgrading the stock to a Hold given subdued 2H estimates.
6,366
Key Financials
Total Change FY December 31 (SAR mln)
6-months
5.42%
4.4.%
4441%
1-Year
)5.42(%
)84.(%
)5245(%
2-Year
245%
4841%
.44%
2Q2015 SAR (bln)
12-Month Target Price SAR 112
2014A
2015E
2016E
2017E
Revenue
188,775
161,380
176,943
193,033
Gross Profit
52,400
44,866
51,114
55,803
Net Profit
23,433
19,347
22,870
25,399
EPS (SAR)
7.81
6.45
7.62
8.47
Net Margin
12%
12%
13%
13%
DPS (SAR)
5.50
5.00
5.50
6.00
Actual
RC Forecast
Gross Profit
12.6
11.2
Payout Ratio
70%
78%
72%
71%
Net Profit
6.2
4.8
ROAE
14%
11%
13%
14%
EPS (SAR)
2.06
1.58
ROAA
7%
6%
7%
7%
8.7x
10.2x
8.9x
8.1x
12.6x
15.2x
12.9x
11.6x
P / CFPS
8.7x
9.5x
11.0x
12.0x
P/B
1.4x
1.3x
1.3x
1.3x
EV / EBITDA P/E
Muhammad Faisal Potrik [email protected] +966-11-203-6807
Yasser bin Ahmed [email protected] Riyad Capital is licensed by the Saudi Arabia +966-11-203-6805 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
