Sahara Petrochemical Co. - Aljazira Capital
Sahara Petrochemical Co. January 2017
Sahara Petrochemical: 4Q2016 earnings were above estimates with a positive surprise; higher than expected operating rate of AlWaha plant, along with strong income from associates to achieve the highest net income since 2H2014. “Overweight” recommendation on the stock with higher PT. Amount in SAR mn; unless specified Sales revenues Net profit EPS (SAR)
Forecasts 4Q-16 476.2 95.8 0.22
Actual 4Q-16 528.0 159.7 0.36
Deviation (%) 10.8% 66.7% -
4Q2016 earnings were supported by Al-Waha higher operating rate, higher than expected income from associates and controlled OPEX: 4Q2016 net profit came above our estimates and showed a deviation of 66.7% from AJC estimates and 68.0% from the market consensus of SAR 95.05mn. SAHARA posted a net profit of SAR 159.7mn; (EPS; SAR 0.36); as compared with net losses of SAR 47.9mn in 4Q2015, and a net profit of SAR 105.3mn in 3Q2016. We believe the improved results is mainly ascribed to i) better than expected operating rate in Al-Waha Plant ii) higher than expected earnings from associates (TSOC & SAAC) and decline in SAMAPCO losses due to the improvement in caustic soda selling prices. We believe that the higher operating rate from associates and improved product prices has strongly revived the financial earnings in 4Q2016. The income from associates is expected to stand around SAR 118mn, higher than our estimate of SAR 54.4mn and against a net profit of SAR 49.0mn in 3Q2016 and net losses of SAR 92.0mn in 4Q2015. We believe that the start of commercial operation of the Butanol project in 2Q2016 has reduced the production cost of Saudi Acrylic Acid plant (SAAC). Furthermore, the operational improvement of associates’ facilities is considered as a key catalyst for current year growth, along with better operating rate of AlWaha plant and expected improvement in product prices in FY2017. AlWaha’s sales in 4Q2016 stood at SAR 528mn, well above AJC estimates of SAR 476.2mn. Based on our calculation, the plant was running at an operating rate of 123%, higher than our estimates of 111% and 113% in 4Q2015. We believe that the maintenance in 2015 has positively impacted the overall performance in FY2016. Our outlook remains optimistic for FY2017 due to continued improvement in associates and higher average product prices. Gross profit stood at SAR 145.8mn, above AJC estimates of SAR 143mn due to higher than expected operating rate and despite the weak gross margins. Gross margin stood at 27.6% in 4Q2016, as compared to 32.4% in 3Q2016, which we believe was due to higher increase in feedstock price compared to the final product prices that resulted in PP-propane spreads to shrink in QoQ basis. PP-Propane spread contracted 3.9%QoQ to USD 736/ton in 4Q2016 from USD 766/ton in 3Q2016. Operating profits stood at SAR 95.9mn; where the company recorded lower OPEX (SG & A) of SAR 49.9mn, as compared SAR 53.7mn in 4Q2015. During the quarter, average selling prices of PP-Asia hiked by 3.3%QoQ and 12.5%YoY. HDPE prices inched by 2.6%YoY and 1.0%QoQ. LDPE average prices increased by 12.1%YoY and 8.2%QoQ. Global demand for polypropylene is expected to increase at an avg. annual growth rate of 5% per annum up to 2020 according to a report released for GPCA Plasticon 2016. We remain “Overweight” on SAHARA with a higher PT of SAR 15.50/share indicating a potential upside of 12.7%: SAHARA is expected to post SAR 612.4mn in net income (1.40 EPS) for FY2017, recording an increase of 46.9%YoY for the year supported by higher operating rate of Al-Waha plant and improved performance of the associated companies. Therefore, we maintain our ‘Overweight’ for the stock with higher target price at SAR 15.50/share; indicating a potential upside of 12.7% over current market price of SAR 13.75/share (as of 18th January 2017). The company is trading at forward PE and P/B of 10.4x and 1.0x respectively based on our FY2017 earnings forecast.
1
© All rights reserved
Please read Disclaimer on the back
Recommendation
Overweight
Current Price* (SAR)
13.75 15.50
Target Price (SAR)
12.7%
Upside / (Downside)
*prices as of 18nd of January 2017
Key Financials FY14
SARmn (unless specified) Revenues Growth % Net Income Growth % EPS
FY15
FY16
1,898 1,424 1,820 -20.2% -25.0% 27.7% 385.4 43.2 417.0 -32.5% -88.8% 865.7% 0.88 0.10 0.95
FY17E 2,182 19.9% 612.4 46.9% 1.4
Source: Company reports, Aljazira Capital
Key Ratios SARmn (unless specified) FY14 Gross Margin EBITDA Margin Net Margin P/E P/B EV/EBITDA (x) ROE ROA Dividend Yield
FY15
FY16
FY17E
20.6% 25.4% 23.7% 25.9% 20.3% 3.0% 17.34x 104.06x 1.05x 0.74x 16.4x 14.6x 6.1% 0.7% 4.5% 0.5% 5.6% 4.9%
29.6% 31.9% 22.9% 15.52x 1.06x 12.7x 6.8% 4.9% 5.0%
29.9% 31.6% 28.1% 10.39x 1.00x 10.4x 9.8% 7.0% 6.8%
Source: Company reports, Aljazira Capital
Key Market Data Market Cap (bn) YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
6.36 -6.4% 14.95 7.40 438.8 Source: Company reports, Aljazira Capital
Shareholders Pattern Holding
Shareholders Pattern Zamil Group Holding Company Public Pension Agency Public
7.91% 5.95% 86.14%
Source: Company reports, Aljazira Capital
Price Performance 10000
19
9000
17 15
8000
13
7000
11
6000
9
5000
7
1/1/2015 2/1/2015 3/1/2015 4/1/2015 5/1/2015 6/1/2015 7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016 5/1/2016 6/1/2016 7/1/2016 8/1/2016 9/1/2016 10/1/2016 11/1/2016 12/1/2016 1/1/2017
Result Flash Note 4Q-2016
SAHARA PETROCHEM
Tadawul
Source: Bloomberg, Aljazira Capital
Analyst
Jassim Al-Jubran +966 11 2256248 [email protected]
RESEARCH DIVISION
Acting Head of Research
RESEARCH DIVISION
BROKERAGE AND INVESTMENT CENTERS DIVISION
Talha Nazar
Sultan Al Kadi
Analyst
Jassim Al-Jubran
+966 11 2256250 [email protected]
+966 11 2256374 [email protected]
Analyst
Analyst
Waleed Al-jubayr
Muhanad Al-Odan
+966 11 2256146 [email protected]
+966 11 2256115 [email protected]
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
sales
brokerage
Brokerage
Alaa Al-Yousef
Luay Jawad Al-Motawa
Mansour Hamad Al-shuaibi
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618443 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
Central Region
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
+966 11 2256364 [email protected]
+966 11 2256248 [email protected]
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1.
RATING TERMINOLOGY
Analyst
2. 3. 4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
Sahara Petrochemical: 4Q2016 earnings were above estimates with a positive surprise; higher than expected operating rate of AlWaha plant, along with strong income from associates to achieve the highest net income since 2H2014. “Overweight” recommendation on the stock with higher PT. Amount in SAR mn; unless specified Sales revenues Net profit EPS (SAR)
Forecasts 4Q-16 476.2 95.8 0.22
Actual 4Q-16 528.0 159.7 0.36
Deviation (%) 10.8% 66.7% -
4Q2016 earnings were supported by Al-Waha higher operating rate, higher than expected income from associates and controlled OPEX: 4Q2016 net profit came above our estimates and showed a deviation of 66.7% from AJC estimates and 68.0% from the market consensus of SAR 95.05mn. SAHARA posted a net profit of SAR 159.7mn; (EPS; SAR 0.36); as compared with net losses of SAR 47.9mn in 4Q2015, and a net profit of SAR 105.3mn in 3Q2016. We believe the improved results is mainly ascribed to i) better than expected operating rate in Al-Waha Plant ii) higher than expected earnings from associates (TSOC & SAAC) and decline in SAMAPCO losses due to the improvement in caustic soda selling prices. We believe that the higher operating rate from associates and improved product prices has strongly revived the financial earnings in 4Q2016. The income from associates is expected to stand around SAR 118mn, higher than our estimate of SAR 54.4mn and against a net profit of SAR 49.0mn in 3Q2016 and net losses of SAR 92.0mn in 4Q2015. We believe that the start of commercial operation of the Butanol project in 2Q2016 has reduced the production cost of Saudi Acrylic Acid plant (SAAC). Furthermore, the operational improvement of associates’ facilities is considered as a key catalyst for current year growth, along with better operating rate of AlWaha plant and expected improvement in product prices in FY2017. AlWaha’s sales in 4Q2016 stood at SAR 528mn, well above AJC estimates of SAR 476.2mn. Based on our calculation, the plant was running at an operating rate of 123%, higher than our estimates of 111% and 113% in 4Q2015. We believe that the maintenance in 2015 has positively impacted the overall performance in FY2016. Our outlook remains optimistic for FY2017 due to continued improvement in associates and higher average product prices. Gross profit stood at SAR 145.8mn, above AJC estimates of SAR 143mn due to higher than expected operating rate and despite the weak gross margins. Gross margin stood at 27.6% in 4Q2016, as compared to 32.4% in 3Q2016, which we believe was due to higher increase in feedstock price compared to the final product prices that resulted in PP-propane spreads to shrink in QoQ basis. PP-Propane spread contracted 3.9%QoQ to USD 736/ton in 4Q2016 from USD 766/ton in 3Q2016. Operating profits stood at SAR 95.9mn; where the company recorded lower OPEX (SG & A) of SAR 49.9mn, as compared SAR 53.7mn in 4Q2015. During the quarter, average selling prices of PP-Asia hiked by 3.3%QoQ and 12.5%YoY. HDPE prices inched by 2.6%YoY and 1.0%QoQ. LDPE average prices increased by 12.1%YoY and 8.2%QoQ. Global demand for polypropylene is expected to increase at an avg. annual growth rate of 5% per annum up to 2020 according to a report released for GPCA Plasticon 2016. We remain “Overweight” on SAHARA with a higher PT of SAR 15.50/share indicating a potential upside of 12.7%: SAHARA is expected to post SAR 612.4mn in net income (1.40 EPS) for FY2017, recording an increase of 46.9%YoY for the year supported by higher operating rate of Al-Waha plant and improved performance of the associated companies. Therefore, we maintain our ‘Overweight’ for the stock with higher target price at SAR 15.50/share; indicating a potential upside of 12.7% over current market price of SAR 13.75/share (as of 18th January 2017). The company is trading at forward PE and P/B of 10.4x and 1.0x respectively based on our FY2017 earnings forecast.
1
© All rights reserved
Please read Disclaimer on the back
Recommendation
Overweight
Current Price* (SAR)
13.75 15.50
Target Price (SAR)
12.7%
Upside / (Downside)
*prices as of 18nd of January 2017
Key Financials FY14
SARmn (unless specified) Revenues Growth % Net Income Growth % EPS
FY15
FY16
1,898 1,424 1,820 -20.2% -25.0% 27.7% 385.4 43.2 417.0 -32.5% -88.8% 865.7% 0.88 0.10 0.95
FY17E 2,182 19.9% 612.4 46.9% 1.4
Source: Company reports, Aljazira Capital
Key Ratios SARmn (unless specified) FY14 Gross Margin EBITDA Margin Net Margin P/E P/B EV/EBITDA (x) ROE ROA Dividend Yield
FY15
FY16
FY17E
20.6% 25.4% 23.7% 25.9% 20.3% 3.0% 17.34x 104.06x 1.05x 0.74x 16.4x 14.6x 6.1% 0.7% 4.5% 0.5% 5.6% 4.9%
29.6% 31.9% 22.9% 15.52x 1.06x 12.7x 6.8% 4.9% 5.0%
29.9% 31.6% 28.1% 10.39x 1.00x 10.4x 9.8% 7.0% 6.8%
Source: Company reports, Aljazira Capital
Key Market Data Market Cap (bn) YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
6.36 -6.4% 14.95 7.40 438.8 Source: Company reports, Aljazira Capital
Shareholders Pattern Holding
Shareholders Pattern Zamil Group Holding Company Public Pension Agency Public
7.91% 5.95% 86.14%
Source: Company reports, Aljazira Capital
Price Performance 10000
19
9000
17 15
8000
13
7000
11
6000
9
5000
7
1/1/2015 2/1/2015 3/1/2015 4/1/2015 5/1/2015 6/1/2015 7/1/2015 8/1/2015 9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016 2/1/2016 3/1/2016 4/1/2016 5/1/2016 6/1/2016 7/1/2016 8/1/2016 9/1/2016 10/1/2016 11/1/2016 12/1/2016 1/1/2017
Result Flash Note 4Q-2016
SAHARA PETROCHEM
Tadawul
Source: Bloomberg, Aljazira Capital
Analyst
Jassim Al-Jubran +966 11 2256248 [email protected]
RESEARCH DIVISION
Acting Head of Research
RESEARCH DIVISION
BROKERAGE AND INVESTMENT CENTERS DIVISION
Talha Nazar
Sultan Al Kadi
Analyst
Jassim Al-Jubran
+966 11 2256250 [email protected]
+966 11 2256374 [email protected]
Analyst
Analyst
Waleed Al-jubayr
Muhanad Al-Odan
+966 11 2256146 [email protected]
+966 11 2256115 [email protected]
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
sales
brokerage
Brokerage
Alaa Al-Yousef
Luay Jawad Al-Motawa
Mansour Hamad Al-shuaibi
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618443 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
Central Region
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
+966 11 2256364 [email protected]
+966 11 2256248 [email protected]
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1.
RATING TERMINOLOGY
Analyst
2. 3. 4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
