SAFCO 18 April 2016 PDF
SAFCO 1Q2016 – First Look
Hold
Urea, Feedstock Plunge Profits
April 18, 2016 Expected Total Return Price as of April-17, 2016
SAR 65.23
Upside to Target Price
3.7%
Expected Dividend Yield
1.6%
Expected Total Return
67.1%
Market Data SAR 62.00/127.50
52 Week H/L Market Capitalization
SAR 27,187 mln
Enterprise Value
SAR 24,325 mln
Shares Outstanding
416.6 mln
Free Float
40.2%
12-Month ADTV (mln)
0.283
TASI Weight
1.5%
Reuters Code
2020.SE
Bloomberg Symbol
SAFCO AB
1-Year Price Performance
110 100 90
70
A M
J
J
SAFCO
A
S O
TASI
N D TPCHEM
Source: Bloomberg SAFCO April-17, 2016
12.57
TASI 1,165
Urea down -37% Y/Y We believe topline came in below our expectations of SAR 692 million as decline in urea prices has had a more severe impact than anticipated; rising product availability from Safco 5 has not helped. Revenues below SAR 700 million would be one of the lowest in recent memory. Urea is down -37% Y/Y and -15% lower on a Q/Q basis to an average of USD 210/ton. Ammonia prices have also suffered, declining -36% Y/Y and -31% Q/Q. Gross margins tighten At first look gross margins appear distressed, likely accruing near the 44% level recorded in 4Q2015. Rise in feedstock prices for Safco beginning this quarter has likely raised cost of sales. Gross profit at SAR 271 million is less than half (-55% lower) of last year and even a -25% decline over the preceding quarter. Gross margins sustainably below 50% poses a major risk to Company profitability going forward.
Target price cut to SAR 70 1Q net income has halved to SAR 286 million (down -24% Q/Q) mainly on lower urea prices. Urea prices close to the USD 200/ton level for 3 months now is worrying although rising commodity prices in general give us hope for a rebound. We have moderated our forecasts post 1Q results. 2016 revenue and net profit number is now at SAR 2.7 billion and SAR 1.5 billion respectively. Our valuations have been squeezed; we now target SAR 70 versus SAR 80 previously.
80
F M
Sequential decline in Safco bottom line continued in 1Q2016 as well with a net profit of SAR 286 million (EPS SAR 0.69), down -52% Y/Y and -24% Q/Q. EPS missed both our forecast as well as market expectations. –37% Y/Y drop in urea prices has hit the company hard while profitability has been further marred by hike in feedstock prices. The 1.1 million tons Safco 5 plant in operation improved volumes on a Y/Y basis but impact on financials has been limited. Lower urea prices and shrinking margins have prompted us to adjust revenues and profitability forecasts downwards. Consequently, our target price sinks to SAR 70 from SAR 80 earlier. Continue to recommend a Hold.
Operating profits almost half Y/Y Operating profit is also down -56% Y/Y to SAR 256 million although operating expenses have fallen to SAR 15 million from SAR 20 million last year. We expect other income and income from Ibn Al Baytar to be close to SAR 47 million, below our estimates of SAR 53 million but higher than SAR 24 million last year.
120
J
TPCHEM 1,655
Key Financials
Total Change 6-months
)71.3(%
)6..3(%
)52.2(%
FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
3,547
2,743
3,244
3,468
Gross Profit
2,085
1,509
1,784
1,908
Net Profit
2,130
1,539
1,822
1,950
EPS (SAR)
5.11
3.69
4.37
4.68
Net Margin
60%
56%
56%
56%
DPS (SAR)
6.00
4.00
4.00
4.00
1-Year
)12.1(%
)76.2(%
)77.3(%
2-Year
)53.7(%
)77.2(%
)13.5(%
1Q2016 SAR (mln)
12-month Target Price SAR 70.00
Actual
RC Forecast
Gross Profit
271
332
Payout Ratio
117%
108%
91%
85%
Net Profit
286
350
ROAE
24%
17%
19%
19%
EPS (SAR)
0.69
0.84
ROAA
23%
17%
19%
19%
EV / EBITDA
10.3x
13.4x
11.7x
10.8x
P/E
12.8x
17.7x
14.9x
13.9x
P / CFPS
12.5x
11.8x
10.7x
8.3x
3.1x
3.0x
2.9x
2.7x
P/B
Muhammad Faisal Potrik [email protected] +966-1-203-6807
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
Hold
Urea, Feedstock Plunge Profits
April 18, 2016 Expected Total Return Price as of April-17, 2016
SAR 65.23
Upside to Target Price
3.7%
Expected Dividend Yield
1.6%
Expected Total Return
67.1%
Market Data SAR 62.00/127.50
52 Week H/L Market Capitalization
SAR 27,187 mln
Enterprise Value
SAR 24,325 mln
Shares Outstanding
416.6 mln
Free Float
40.2%
12-Month ADTV (mln)
0.283
TASI Weight
1.5%
Reuters Code
2020.SE
Bloomberg Symbol
SAFCO AB
1-Year Price Performance
110 100 90
70
A M
J
J
SAFCO
A
S O
TASI
N D TPCHEM
Source: Bloomberg SAFCO April-17, 2016
12.57
TASI 1,165
Urea down -37% Y/Y We believe topline came in below our expectations of SAR 692 million as decline in urea prices has had a more severe impact than anticipated; rising product availability from Safco 5 has not helped. Revenues below SAR 700 million would be one of the lowest in recent memory. Urea is down -37% Y/Y and -15% lower on a Q/Q basis to an average of USD 210/ton. Ammonia prices have also suffered, declining -36% Y/Y and -31% Q/Q. Gross margins tighten At first look gross margins appear distressed, likely accruing near the 44% level recorded in 4Q2015. Rise in feedstock prices for Safco beginning this quarter has likely raised cost of sales. Gross profit at SAR 271 million is less than half (-55% lower) of last year and even a -25% decline over the preceding quarter. Gross margins sustainably below 50% poses a major risk to Company profitability going forward.
Target price cut to SAR 70 1Q net income has halved to SAR 286 million (down -24% Q/Q) mainly on lower urea prices. Urea prices close to the USD 200/ton level for 3 months now is worrying although rising commodity prices in general give us hope for a rebound. We have moderated our forecasts post 1Q results. 2016 revenue and net profit number is now at SAR 2.7 billion and SAR 1.5 billion respectively. Our valuations have been squeezed; we now target SAR 70 versus SAR 80 previously.
80
F M
Sequential decline in Safco bottom line continued in 1Q2016 as well with a net profit of SAR 286 million (EPS SAR 0.69), down -52% Y/Y and -24% Q/Q. EPS missed both our forecast as well as market expectations. –37% Y/Y drop in urea prices has hit the company hard while profitability has been further marred by hike in feedstock prices. The 1.1 million tons Safco 5 plant in operation improved volumes on a Y/Y basis but impact on financials has been limited. Lower urea prices and shrinking margins have prompted us to adjust revenues and profitability forecasts downwards. Consequently, our target price sinks to SAR 70 from SAR 80 earlier. Continue to recommend a Hold.
Operating profits almost half Y/Y Operating profit is also down -56% Y/Y to SAR 256 million although operating expenses have fallen to SAR 15 million from SAR 20 million last year. We expect other income and income from Ibn Al Baytar to be close to SAR 47 million, below our estimates of SAR 53 million but higher than SAR 24 million last year.
120
J
TPCHEM 1,655
Key Financials
Total Change 6-months
)71.3(%
)6..3(%
)52.2(%
FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
3,547
2,743
3,244
3,468
Gross Profit
2,085
1,509
1,784
1,908
Net Profit
2,130
1,539
1,822
1,950
EPS (SAR)
5.11
3.69
4.37
4.68
Net Margin
60%
56%
56%
56%
DPS (SAR)
6.00
4.00
4.00
4.00
1-Year
)12.1(%
)76.2(%
)77.3(%
2-Year
)53.7(%
)77.2(%
)13.5(%
1Q2016 SAR (mln)
12-month Target Price SAR 70.00
Actual
RC Forecast
Gross Profit
271
332
Payout Ratio
117%
108%
91%
85%
Net Profit
286
350
ROAE
24%
17%
19%
19%
EPS (SAR)
0.69
0.84
ROAA
23%
17%
19%
19%
EV / EBITDA
10.3x
13.4x
11.7x
10.8x
P/E
12.8x
17.7x
14.9x
13.9x
P / CFPS
12.5x
11.8x
10.7x
8.3x
3.1x
3.0x
2.9x
2.7x
P/B
Muhammad Faisal Potrik [email protected] +966-1-203-6807
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
