SAFCO (SAFCO AB Equity)
SAFCO
Petrochemicals – Industrial SAFCO AB: Saudi Arabia 10 May 2018
US$7.22bn Market cap
Target price Current price
40%
US$5.60mn
Free float
Avg. daily volume
62.00 63.70
-2.6% over current as at 8/5/2018
Existing rating Underweight
Neutral
Overweight
Underweight
Vol mn
RSI10
Performance Price Close
MAV10
MAV50
Relative to TADAWUL FF (RHS)
75.0
106.0
70.0
98.5
65.0
91.0
60.0
83.5
55.0
76.0
70 30 -10 8 6 4 2 05/17
08/17
11/17
02/18
Source: Bloomberg
Earnings (SARmn)
2017
2018e
Revenue
2,759
3,333
2019e 3,695
y-o-y
-3.4%
20.8%
10.9%
Gross Profit
1,199
1,558
1,895
Gross margin
43.5%
46.8%
51.3%
Net income
879
1,160
1,459
y-o-y
-15.2%
32.1%
25.7%
Net margin
31.8%
34.8%
39.5%
EPS (SAR)
2.1
2.8
3.5
DPS (SAR)*
1.8
2.5
3.3
Payout ratio
83%
90%
95%
Research Department Pritish K. Devassy, CFA Tel +966 11 2119370, [email protected]
SAFCO (SAFCO AB Equity) Q1: Weak results on higher costs. Maintain Neutral SAFCO reported Q1 earnings at SAR237mn, down by ~44% y-o-y due to higher cost of sales (which included restructuring costs) and top-line miss. Q1 top-line declined 4.2% y-o-y (6% below our estimate and ~13% lower than consensus) despite flattish Urea prices implying slower than expected pick up in operating rates after the Q4 17 shutdown . The stock is down 12% from midApril levels due to concerns around higher costs and decline in Urea price. SAFCO is likely to carry out maintenance in SAFCO II and III, hence we expect operating rates to be slightly lower in the coming quarters. Avg. Q2 Urea price has declined to US$245/t. We use average cycle price of US$250/t (unchanged) for Urea in 2018E as we believe Urea oversupply concerns still persist. We expect DPS to improve to SAR2.5/sh for 2018E, implying a dividend yield of ~4%. Given stable outlook for Urea prices, we make no material changes to our forward looking estimates. Consequently, we maintain our TP of SAR62/sh and remain Neutral. Additional details: We attribute the miss in Q1 18 to have majorly come from higher cost of sales (cost ex-Depreciation and ex-feedstock was 28.9% of sales) which likely included restructuring costs. We believe this could be non-recurring in nature. A higher figure of 35.4% was reported in Q4 2017 as well, but that could have been related to the shutdown. Given the expected shutdown, we expect it to stay relatively high in Q2 as well. Thereafter we expect it to decline back to earlier levels (Figure 2). Q1 also saw a lower share of profit from Ibn AlBaytar, down ~28% y-o-y to SAR19.6mn (below our estimate of ~SAR29.4mn), further dragging down the net profit to SAR237mn (-44% y-o-y), below our estimate of SAR363mn (consensus: SAR392mn). Figure 1 SAFCO Q1 results Q1 2017
(SAR mn) Revenue
P/E (Curr)
23.3x
18.6x
Gross profit
P/E (Target)
22.3x
17.7x
Gross margin
Source: Company data, Al Rajhi Capital
Q4 2017
Q1 Y-o-Y 2018
Q-o-Q 31.6%
ARC est
847
616
811
-4.2%
480
149
358
-25.3% 140.9% 450
56.6% 24.1% 44.2%
Operating profit
395
51
242
Operating margin
47%
8%
30%
Net profit
423
63
237
Net margin
50%
10%
29%
860
Comments Slightly below our estimate, largely due to weaker than expected sales volume. Higher than expected production costs led to gross profit miss in Q1.
52.3% -38.8% 375.6% 347
Non-recurring restructuring costs further contributed to miss at the operating level.
40% -44.0% 279.5% 363
Lower than expected equity income (SAR19.6mn vs SAR29.4mn expected) from Ibn AlBaytar dragged net profit below our estimate.
42%
Source: Company data, Al Rajhi Capital
Figure 2 Costs (ex-Depreciation and ex- feedstock costs) % sales 40%
Shutdown 35.4%
35%
25%
23.6%
23.3%
Q2 2017
Q3 2017
21.8% 20%
Restructuring Shutdown costs expected 28.9%
30%
28% 23.5%
23.5%
Q3 2018e
Q4 2018e
18.8%
15% 10% 5% 0% Q4 2016
Q1 2017
Q4 2017
Q1 2018
Q2 2018e
Source: Company data, Al Rajhi Capital
Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
SAFCO
Petrochemicals –Industrial 10 May 2018
Outlook on Urea prices: Average Urea prices largely remained stable at US$255/t (1Q17: US$253/t) in Q1 2018. Currently average Q2 trading price is at USD$ 245/t. We said in our last report that the price surge in Urea was unsustainable as the factors responsible were temporary. The primary reason was increase in coal prices in China which is the key input for producing Urea for the marginal cost producer. China continues to curtail production due to environment concerns. While Chinese supply is declining, demand-supply balance is being aided by comparably weak demand and higher production volume outside China (Source: Yara international). While it is hard to estimate prices, we note that Urea prices in the past many years have trended in-line with gas prices which we believe are likely to remain stable (Figure 3). Figure 3 Natural gas prices and Urea prices have fairly moved together 3.50
Title: Source:
300
3.00
250
Please fill i
2.50 200 2.00
150 1.50 105 1.00
96
73
67
91
85 66
72
100 84 50
0.50 -
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Natural gas (USD/mmbtu)
Q1 2017
Q2 2017
Urea(USD/ton)
Q3 2017
Q4 2017
Q1 2018
Urea/Natural gas ratio
Source:Bloomberg, Al Rajhi Capital
Lower Chinese exports (Figure 5) implies that Chinese supply shocks will now matter lesser than in the past, especially when there is permanent capacity addition outside China (3.8mn tonnes in 2018E as per Yara International, Figure 4). For the medium term, we have estimated Urea prices to rise gradually by 3% from 2019 onwards. We have considered a few scenarios for Urea price in 2019 and arrived at various target prices based on equal mix of relative and DCF valuations (Figure 6). For our base case we expect 3% increase. Figure 4 Increase in supply outside of China
Figure 5 Falling export (‘000 tonnes)
Source: Yara, Al Rajhi Capital
Source: Yara, Al Rajhi Capital
Valuation: The stock is currently trading at ~22x 12-month forward EPS, above its 3-year historical average of 18x and above global fertilizer peers’ multiple of 16x. The company’s planned capacity expansion of SAFCO III plant (~20% increase in capacity) is most likely to begin production in Q2 2019 and its impact is limited in our view. We make no material changes to our estimates, given the stable near-term outlook for Urea prices. Our TP stands at SAR62/share based on equal mix of relative (SAR59.2/sh. based on 19.0x 12 month forward PE) and DCF valuation (SAR64.4/sh. based on FCF, cost of equity 9.3%). Consequently, we maintain Neutral rating on the stock.
Disclosures Please refer to the important disclosures at the back of this report.
2
SAFCO
Petrochemicals –Industrial 10 May 2018
Figure 6 Various scenarios of Target P/E and 2019 Urea price changes 17.0x
18.0x
19.0x
20.0x
21.0x
10%
63
64
66
68
69
3%
59
60
62
63
65
0%
57
58
60
62
63
-5%
54
56
57
59
60
-10%
51
53
54
56
57
Source: Company data, Al Rajhi Capital
Figure 7 SAFCO 1Y Forward P/E trend 30 25 20 15 10 5
SAFCO 1Y Forward P/E trend
Average
Max
Apr-18
Mar-18
Jan-18
Feb-18
Dec-17
Oct-17
Nov-17
Sep-17
Jul-17
Aug-17
Jun-17
Apr-17
May-17
Mar-17
Jan-17
Feb-17
Dec-16
Oct-16
Nov-16
Sep-16
Jul-16
Aug-16
Jun-16
Apr-16
May-16
Mar-16
Jan-16
Feb-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
Jun-15
May-15
0
Min
Source: Bloomberg, Al Rajhi Capital
Figure 8 Margins and Valuation Metrics - SAFCO vs. global peers Market Cap (US$ 'mn) TTM OPM (%) TTM NPM (%)
2018E PE
2019E PE
2018E EV/EBITDA
2019E EV/EBITDA
25.4
22.5x
20.4x
3.9x
14.8x
7.8x
Saudi Arabia SAFCO
7,055
24.0
5,790
11.6
6.7
13.7x
12.2x
2.0x
342
-5.2
-6.6
NA
NA
0.4x
NA
Abou Kir Fertilizers & Chemical Industries
2,189
NA
NA
3.8x
18.1x
10.2x
20.3x
Arab Potash/The
1,991
13.8
21.2
NA
NA
1.7x
NA
Middle East & Africa (ex-Saudi Arabia) Israel Chemicals Jordan Phosphate Mines
Europe K+S Yara International
5,640
9.2
5.1
18.0x
13.9x
1.1x
9.3x
11,763
3.5
3.4
17.5x
12.0x
1.2x
8.8x
North America CF Industries
9,117
5.3
11.0
43.5x
22.9x
2.5x
11.9x
Mosaic
10,460
6.3
-1.4
18.5x
15.1x
1.0x
8.2x
Nutrien Ltd
29,274
6.5
3.6
20.0x
15.5x
NA
8.2x
14,342
28.5
19.7
31.0x
26.3x
6.6x
15.0x
70
0.8
-2.6
6.6x
9.2x
1.5x
3.4x
Latin America Sociedad Quimica y Minera de Chile SA Fertilizantes Heringer SA Asia China XLX Fertilizer
397
10.0
5.3
4.7x
4.0x
0.7x
6.9x
2,011
10.3
6.1
17.1x
14.4x
4.3x
11.4x
Engro Fertilizers
843
NA
NA
8.8x
8.2x
2.3x
5.9x
National Fertilizers
401
6.2
2.4
NA
NA
1.5x
NA
Phosagro
5,556
19.8
14.0
9.7x
9.6x
NA
6.9x
Taiwan Fertilizer Co Ltd
Coromandel International
1,321
10.5
13.9
23.4x
NA
0.8x
NA
Fauji Fertilizer Bin Qasim Ltd
342
-6.9
5.2
21.1x
11.4x
1.1x
NA
Hubei Yihua Chemical Industry Co Ltd
354
NA
-51.0
NA
NA
NA
NA
Acron PJSC
2,796
22.4
14.2
13.1x
9.6x
2.5x
8.2x
Luxi Chemical Group Co Ltd
4,127
21.6
15.0
PhosAgro PJSC
5,095
8.5x
6.8x
3.1x
NA
19.8
14.0
8.9x
8.8x
3.3x
6.5x
Median
10.0
5.7
15.4x
12.0x
1.7x
8.2x
Average
10.2
5.0
16.0x
12.8x
2.5x
9.2x
Source: Bloomberg, Al Rajhi Capital. Notes: All valuation ratios as on latest trading prices.
Disclosures Please refer to the important disclosures at the back of this report.
3
SAFCO
Petrochemicals –Industrial 10 May 2018
IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Al Rajhi. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.
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Disclosures Please refer to the important disclosures at the back of this report.
4
SAFCO
Petrochemicals –Industrial 10 May 2018
Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
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Disclosures Please refer to the important disclosures at the back of this report.
5
Petrochemicals – Industrial SAFCO AB: Saudi Arabia 10 May 2018
US$7.22bn Market cap
Target price Current price
40%
US$5.60mn
Free float
Avg. daily volume
62.00 63.70
-2.6% over current as at 8/5/2018
Existing rating Underweight
Neutral
Overweight
Underweight
Vol mn
RSI10
Performance Price Close
MAV10
MAV50
Relative to TADAWUL FF (RHS)
75.0
106.0
70.0
98.5
65.0
91.0
60.0
83.5
55.0
76.0
70 30 -10 8 6 4 2 05/17
08/17
11/17
02/18
Source: Bloomberg
Earnings (SARmn)
2017
2018e
Revenue
2,759
3,333
2019e 3,695
y-o-y
-3.4%
20.8%
10.9%
Gross Profit
1,199
1,558
1,895
Gross margin
43.5%
46.8%
51.3%
Net income
879
1,160
1,459
y-o-y
-15.2%
32.1%
25.7%
Net margin
31.8%
34.8%
39.5%
EPS (SAR)
2.1
2.8
3.5
DPS (SAR)*
1.8
2.5
3.3
Payout ratio
83%
90%
95%
Research Department Pritish K. Devassy, CFA Tel +966 11 2119370, [email protected]
SAFCO (SAFCO AB Equity) Q1: Weak results on higher costs. Maintain Neutral SAFCO reported Q1 earnings at SAR237mn, down by ~44% y-o-y due to higher cost of sales (which included restructuring costs) and top-line miss. Q1 top-line declined 4.2% y-o-y (6% below our estimate and ~13% lower than consensus) despite flattish Urea prices implying slower than expected pick up in operating rates after the Q4 17 shutdown . The stock is down 12% from midApril levels due to concerns around higher costs and decline in Urea price. SAFCO is likely to carry out maintenance in SAFCO II and III, hence we expect operating rates to be slightly lower in the coming quarters. Avg. Q2 Urea price has declined to US$245/t. We use average cycle price of US$250/t (unchanged) for Urea in 2018E as we believe Urea oversupply concerns still persist. We expect DPS to improve to SAR2.5/sh for 2018E, implying a dividend yield of ~4%. Given stable outlook for Urea prices, we make no material changes to our forward looking estimates. Consequently, we maintain our TP of SAR62/sh and remain Neutral. Additional details: We attribute the miss in Q1 18 to have majorly come from higher cost of sales (cost ex-Depreciation and ex-feedstock was 28.9% of sales) which likely included restructuring costs. We believe this could be non-recurring in nature. A higher figure of 35.4% was reported in Q4 2017 as well, but that could have been related to the shutdown. Given the expected shutdown, we expect it to stay relatively high in Q2 as well. Thereafter we expect it to decline back to earlier levels (Figure 2). Q1 also saw a lower share of profit from Ibn AlBaytar, down ~28% y-o-y to SAR19.6mn (below our estimate of ~SAR29.4mn), further dragging down the net profit to SAR237mn (-44% y-o-y), below our estimate of SAR363mn (consensus: SAR392mn). Figure 1 SAFCO Q1 results Q1 2017
(SAR mn) Revenue
P/E (Curr)
23.3x
18.6x
Gross profit
P/E (Target)
22.3x
17.7x
Gross margin
Source: Company data, Al Rajhi Capital
Q4 2017
Q1 Y-o-Y 2018
Q-o-Q 31.6%
ARC est
847
616
811
-4.2%
480
149
358
-25.3% 140.9% 450
56.6% 24.1% 44.2%
Operating profit
395
51
242
Operating margin
47%
8%
30%
Net profit
423
63
237
Net margin
50%
10%
29%
860
Comments Slightly below our estimate, largely due to weaker than expected sales volume. Higher than expected production costs led to gross profit miss in Q1.
52.3% -38.8% 375.6% 347
Non-recurring restructuring costs further contributed to miss at the operating level.
40% -44.0% 279.5% 363
Lower than expected equity income (SAR19.6mn vs SAR29.4mn expected) from Ibn AlBaytar dragged net profit below our estimate.
42%
Source: Company data, Al Rajhi Capital
Figure 2 Costs (ex-Depreciation and ex- feedstock costs) % sales 40%
Shutdown 35.4%
35%
25%
23.6%
23.3%
Q2 2017
Q3 2017
21.8% 20%
Restructuring Shutdown costs expected 28.9%
30%
28% 23.5%
23.5%
Q3 2018e
Q4 2018e
18.8%
15% 10% 5% 0% Q4 2016
Q1 2017
Q4 2017
Q1 2018
Q2 2018e
Source: Company data, Al Rajhi Capital
Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
SAFCO
Petrochemicals –Industrial 10 May 2018
Outlook on Urea prices: Average Urea prices largely remained stable at US$255/t (1Q17: US$253/t) in Q1 2018. Currently average Q2 trading price is at USD$ 245/t. We said in our last report that the price surge in Urea was unsustainable as the factors responsible were temporary. The primary reason was increase in coal prices in China which is the key input for producing Urea for the marginal cost producer. China continues to curtail production due to environment concerns. While Chinese supply is declining, demand-supply balance is being aided by comparably weak demand and higher production volume outside China (Source: Yara international). While it is hard to estimate prices, we note that Urea prices in the past many years have trended in-line with gas prices which we believe are likely to remain stable (Figure 3). Figure 3 Natural gas prices and Urea prices have fairly moved together 3.50
Title: Source:
300
3.00
250
Please fill i
2.50 200 2.00
150 1.50 105 1.00
96
73
67
91
85 66
72
100 84 50
0.50 -
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Natural gas (USD/mmbtu)
Q1 2017
Q2 2017
Urea(USD/ton)
Q3 2017
Q4 2017
Q1 2018
Urea/Natural gas ratio
Source:Bloomberg, Al Rajhi Capital
Lower Chinese exports (Figure 5) implies that Chinese supply shocks will now matter lesser than in the past, especially when there is permanent capacity addition outside China (3.8mn tonnes in 2018E as per Yara International, Figure 4). For the medium term, we have estimated Urea prices to rise gradually by 3% from 2019 onwards. We have considered a few scenarios for Urea price in 2019 and arrived at various target prices based on equal mix of relative and DCF valuations (Figure 6). For our base case we expect 3% increase. Figure 4 Increase in supply outside of China
Figure 5 Falling export (‘000 tonnes)
Source: Yara, Al Rajhi Capital
Source: Yara, Al Rajhi Capital
Valuation: The stock is currently trading at ~22x 12-month forward EPS, above its 3-year historical average of 18x and above global fertilizer peers’ multiple of 16x. The company’s planned capacity expansion of SAFCO III plant (~20% increase in capacity) is most likely to begin production in Q2 2019 and its impact is limited in our view. We make no material changes to our estimates, given the stable near-term outlook for Urea prices. Our TP stands at SAR62/share based on equal mix of relative (SAR59.2/sh. based on 19.0x 12 month forward PE) and DCF valuation (SAR64.4/sh. based on FCF, cost of equity 9.3%). Consequently, we maintain Neutral rating on the stock.
Disclosures Please refer to the important disclosures at the back of this report.
2
SAFCO
Petrochemicals –Industrial 10 May 2018
Figure 6 Various scenarios of Target P/E and 2019 Urea price changes 17.0x
18.0x
19.0x
20.0x
21.0x
10%
63
64
66
68
69
3%
59
60
62
63
65
0%
57
58
60
62
63
-5%
54
56
57
59
60
-10%
51
53
54
56
57
Source: Company data, Al Rajhi Capital
Figure 7 SAFCO 1Y Forward P/E trend 30 25 20 15 10 5
SAFCO 1Y Forward P/E trend
Average
Max
Apr-18
Mar-18
Jan-18
Feb-18
Dec-17
Oct-17
Nov-17
Sep-17
Jul-17
Aug-17
Jun-17
Apr-17
May-17
Mar-17
Jan-17
Feb-17
Dec-16
Oct-16
Nov-16
Sep-16
Jul-16
Aug-16
Jun-16
Apr-16
May-16
Mar-16
Jan-16
Feb-16
Dec-15
Oct-15
Nov-15
Sep-15
Jul-15
Aug-15
Jun-15
May-15
0
Min
Source: Bloomberg, Al Rajhi Capital
Figure 8 Margins and Valuation Metrics - SAFCO vs. global peers Market Cap (US$ 'mn) TTM OPM (%) TTM NPM (%)
2018E PE
2019E PE
2018E EV/EBITDA
2019E EV/EBITDA
25.4
22.5x
20.4x
3.9x
14.8x
7.8x
Saudi Arabia SAFCO
7,055
24.0
5,790
11.6
6.7
13.7x
12.2x
2.0x
342
-5.2
-6.6
NA
NA
0.4x
NA
Abou Kir Fertilizers & Chemical Industries
2,189
NA
NA
3.8x
18.1x
10.2x
20.3x
Arab Potash/The
1,991
13.8
21.2
NA
NA
1.7x
NA
Middle East & Africa (ex-Saudi Arabia) Israel Chemicals Jordan Phosphate Mines
Europe K+S Yara International
5,640
9.2
5.1
18.0x
13.9x
1.1x
9.3x
11,763
3.5
3.4
17.5x
12.0x
1.2x
8.8x
North America CF Industries
9,117
5.3
11.0
43.5x
22.9x
2.5x
11.9x
Mosaic
10,460
6.3
-1.4
18.5x
15.1x
1.0x
8.2x
Nutrien Ltd
29,274
6.5
3.6
20.0x
15.5x
NA
8.2x
14,342
28.5
19.7
31.0x
26.3x
6.6x
15.0x
70
0.8
-2.6
6.6x
9.2x
1.5x
3.4x
Latin America Sociedad Quimica y Minera de Chile SA Fertilizantes Heringer SA Asia China XLX Fertilizer
397
10.0
5.3
4.7x
4.0x
0.7x
6.9x
2,011
10.3
6.1
17.1x
14.4x
4.3x
11.4x
Engro Fertilizers
843
NA
NA
8.8x
8.2x
2.3x
5.9x
National Fertilizers
401
6.2
2.4
NA
NA
1.5x
NA
Phosagro
5,556
19.8
14.0
9.7x
9.6x
NA
6.9x
Taiwan Fertilizer Co Ltd
Coromandel International
1,321
10.5
13.9
23.4x
NA
0.8x
NA
Fauji Fertilizer Bin Qasim Ltd
342
-6.9
5.2
21.1x
11.4x
1.1x
NA
Hubei Yihua Chemical Industry Co Ltd
354
NA
-51.0
NA
NA
NA
NA
Acron PJSC
2,796
22.4
14.2
13.1x
9.6x
2.5x
8.2x
Luxi Chemical Group Co Ltd
4,127
21.6
15.0
PhosAgro PJSC
5,095
8.5x
6.8x
3.1x
NA
19.8
14.0
8.9x
8.8x
3.3x
6.5x
Median
10.0
5.7
15.4x
12.0x
1.7x
8.2x
Average
10.2
5.0
16.0x
12.8x
2.5x
9.2x
Source: Bloomberg, Al Rajhi Capital. Notes: All valuation ratios as on latest trading prices.
Disclosures Please refer to the important disclosures at the back of this report.
3
SAFCO
Petrochemicals –Industrial 10 May 2018
IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Al Rajhi. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.
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Disclosures Please refer to the important disclosures at the back of this report.
4
SAFCO
Petrochemicals –Industrial 10 May 2018
Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Explanation of Al Rajhi Capital’s rating system Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 12 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Target price": We estimate target value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations.
Contact us Mazen AlSudairi Head of Research Tel : +966 1 211 9449 Email: [email protected] Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh 11432 Kingdom of Saudi Arabia Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
5
