Sahara Petrochemical Co
Sahara Petrochemical Co. Result Flash Note 1Q-2016
April 2016
Sahara Petrochemical: Q1-2016 earnings were above our expectation; operational efficiency and lower losses from some associates to improve profits. “Neutral” recommendation on the stock. Amount in SAR mn; unless specified Sales revenues Net profit EPS (SAR)
Forecasts 1Q-16 404.5 40.9 0.09
Actual 1Q-16 NA 54.5 0.12
Deviation (%) 33.3% *Not Available
Al Waha higher operating rates was supported by higher than expected income from associates in 1Q2016: Q1-16 net profit came above our estimates and showed a deviation of 33.3% from AJC estimates and 93.2% from the market consensus of SAR 28.20mn. SAHARA posted a net profit of SAR 54.5mn; (EPS; SAR 0.12); as compared with net loss of SAR 49.5mn in 1Q2015, and SAR 47.9mn in 4Q2015. We believe the improved results is mainly ascribed to i) higher than expected operating rate ii) decrease in losses from new projects (SAAC), (SAPCO) and (SAMAPCO) ii) the commencement of the commercial operation for the Butanol project vi) SAR 30mn impact from restructure program in the previous quarter. We believe that despite the weak average Polypropylene price, the higher income from associates has strongly revived the financial earnings in 1Q2016. The income from associates is expected to stand at SAR 28.6mn, higher than our estimate of SAR 7.5mn losses and against a net loss of SAR 92.2mn in 4Q2015 and SAR 4.8mn in 1Q2015. The company attributed the strong earnings to i) decrease in the losses of its affiliates that had lately entered the commercial phase. Ii) The financial impact from the start of commercial operation for the Butanol project, which could reduce the production cost of Saudi Acrylic Acid plant (SAAC). AlWaha’s sales in 1Q2016 stood at SAR 418.6mn, slightly higher than AJC estimates of SAR 404.5mn. Based on our calculation, the plant was running with operating rate of 116%, higher than our estimates of 112% and against operating rate of 60% in 1Q2015 and almost 113% in the previous quarter. We believe that the maintenance in 2015 had positively impacted the overall performance and we expect a more normalized and stable performance in 2016 and despite the current oil price fluctuations risks.
Please read Disclaimer on the back
Recommendation
‘Neutral’
Current Price* (SAR)
10.20
Target Price (SAR)
10.70 4.9%
Upside / (Downside)
*prices as of 20nd of April 2016
Key Financials FY14
FY15
FY16E
1,898 -20.2% 385.4 -32.5% 0.88
1,424 -25.0% 43.2 -88.8% 0.10
2,120 48.8% 284.5 615.1% 0.65
SARmn (unless specified) Revenues Growth % Net Income Growth % EPS
Source: Company reports, Aljazira Capital, *NM: Not Meaningful
Key Ratios FY14
FY15
FY16E
20.6% 23.7% 20.3% 17.34x 1.05x 16.4x 6.1% 4.5% 5.6%
25.4% 25.9% 3.0% 104.06x 0.74x 14.6x 0.7% 0.5% 4.9%
22.7% 23.2% 13.4% 15.73x 0.75x 11.3x 4.7% 3.3% 4.9%
SARmn (unless specified) Gross Margin EBITDA Margin Net Margin P/E P/B EV/EBITDA (x) ROE ROA Dividend Yield
Source: Company reports, Aljazira Capital
Key Market Data Market Cap (bn) YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
4.47 0.60% 16.75 7.40 438.8 Source: Company reports, Aljazira Capital
Shareholders Pattern Holding
Shareholders Pattern
During the quarter, average selling prices of PP declined by 19.6%YoY and Zamil Group Holding Company 7.91% 5.95% 5.3%QoQ. HDPE prices fell by 7.7%YoY and 1.8%QoQ. LDPE decreased 4.8%YoY Public Pension Agency 86.14% Public and 0.7%QoQ. Whereas, Ethylene price increased 3.6%QoQ and 8.2%YoY due Source: Company reports, Aljazira Capital to continued tight supply and rising feedstock prices. Gross profit stood at SAR 108.6mn, below AJC estimates of SAR 110.5mn due Price Performance to higher than expected production cost that contracted profit margins. Gross 11000 margin stood at 25.8% in 1Q2016, as compared to 27.1% in 4Q2015, which we 10000 believe was due to the reduction of subsidy on fuel and weak product prices. 9000 Operating profits stood at SAR 59.2mn; where the company recorded OPEX (SG 8000 7000 & A) of SAR 49.4mn, as compared SAR 53.6mn in 4Q2015 due to one-off charge 6000 of restructuring its affiliates in 4Q2015.
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Strong balance sheet position to maintain a healthy dividend of at least SAR 0.5 DPS in 2016: By the end of FY2015, Sahara’s debt-to-equity ratio stood at 0.33x, with a total debt of around SAR 2.03bn and cash and equivalents of SAR 1.38bn. During 2015, the management reduced its dividend payment to SAR 0.50 per share from 0.85 per share in 2014, resulting in dividend yield of 4.9%. We believe a strong balance sheet and sustainable cash flows should adequate to maintain a healthy dividend of at least SAR 0.5 DPS in 2016. Sahara is trading at a P/E of 15.7x for 2016E, which is higher than the current multiple of the petrochemical sector 14.5x. © All rights reserved
Ja nM 14 ar M 14 ay -1 Ju 4 l-1 Se 4 pN 14 ov Ja 14 nM 15 ar M 15 ay -1 Ju 5 l-1 Se 5 pN 15 ov Ja 15 nM 16 ar -1 6
5000
Tadawul
SAHARA Petrochemical
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 2256115 [email protected]
+966 11 2256374 [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
Abdullah Q. Al-Misbani
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618400 [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
April 2016
Sahara Petrochemical: Q1-2016 earnings were above our expectation; operational efficiency and lower losses from some associates to improve profits. “Neutral” recommendation on the stock. Amount in SAR mn; unless specified Sales revenues Net profit EPS (SAR)
Forecasts 1Q-16 404.5 40.9 0.09
Actual 1Q-16 NA 54.5 0.12
Deviation (%) 33.3% *Not Available
Al Waha higher operating rates was supported by higher than expected income from associates in 1Q2016: Q1-16 net profit came above our estimates and showed a deviation of 33.3% from AJC estimates and 93.2% from the market consensus of SAR 28.20mn. SAHARA posted a net profit of SAR 54.5mn; (EPS; SAR 0.12); as compared with net loss of SAR 49.5mn in 1Q2015, and SAR 47.9mn in 4Q2015. We believe the improved results is mainly ascribed to i) higher than expected operating rate ii) decrease in losses from new projects (SAAC), (SAPCO) and (SAMAPCO) ii) the commencement of the commercial operation for the Butanol project vi) SAR 30mn impact from restructure program in the previous quarter. We believe that despite the weak average Polypropylene price, the higher income from associates has strongly revived the financial earnings in 1Q2016. The income from associates is expected to stand at SAR 28.6mn, higher than our estimate of SAR 7.5mn losses and against a net loss of SAR 92.2mn in 4Q2015 and SAR 4.8mn in 1Q2015. The company attributed the strong earnings to i) decrease in the losses of its affiliates that had lately entered the commercial phase. Ii) The financial impact from the start of commercial operation for the Butanol project, which could reduce the production cost of Saudi Acrylic Acid plant (SAAC). AlWaha’s sales in 1Q2016 stood at SAR 418.6mn, slightly higher than AJC estimates of SAR 404.5mn. Based on our calculation, the plant was running with operating rate of 116%, higher than our estimates of 112% and against operating rate of 60% in 1Q2015 and almost 113% in the previous quarter. We believe that the maintenance in 2015 had positively impacted the overall performance and we expect a more normalized and stable performance in 2016 and despite the current oil price fluctuations risks.
Please read Disclaimer on the back
Recommendation
‘Neutral’
Current Price* (SAR)
10.20
Target Price (SAR)
10.70 4.9%
Upside / (Downside)
*prices as of 20nd of April 2016
Key Financials FY14
FY15
FY16E
1,898 -20.2% 385.4 -32.5% 0.88
1,424 -25.0% 43.2 -88.8% 0.10
2,120 48.8% 284.5 615.1% 0.65
SARmn (unless specified) Revenues Growth % Net Income Growth % EPS
Source: Company reports, Aljazira Capital, *NM: Not Meaningful
Key Ratios FY14
FY15
FY16E
20.6% 23.7% 20.3% 17.34x 1.05x 16.4x 6.1% 4.5% 5.6%
25.4% 25.9% 3.0% 104.06x 0.74x 14.6x 0.7% 0.5% 4.9%
22.7% 23.2% 13.4% 15.73x 0.75x 11.3x 4.7% 3.3% 4.9%
SARmn (unless specified) Gross Margin EBITDA Margin Net Margin P/E P/B EV/EBITDA (x) ROE ROA Dividend Yield
Source: Company reports, Aljazira Capital
Key Market Data Market Cap (bn) YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
4.47 0.60% 16.75 7.40 438.8 Source: Company reports, Aljazira Capital
Shareholders Pattern Holding
Shareholders Pattern
During the quarter, average selling prices of PP declined by 19.6%YoY and Zamil Group Holding Company 7.91% 5.95% 5.3%QoQ. HDPE prices fell by 7.7%YoY and 1.8%QoQ. LDPE decreased 4.8%YoY Public Pension Agency 86.14% Public and 0.7%QoQ. Whereas, Ethylene price increased 3.6%QoQ and 8.2%YoY due Source: Company reports, Aljazira Capital to continued tight supply and rising feedstock prices. Gross profit stood at SAR 108.6mn, below AJC estimates of SAR 110.5mn due Price Performance to higher than expected production cost that contracted profit margins. Gross 11000 margin stood at 25.8% in 1Q2016, as compared to 27.1% in 4Q2015, which we 10000 believe was due to the reduction of subsidy on fuel and weak product prices. 9000 Operating profits stood at SAR 59.2mn; where the company recorded OPEX (SG 8000 7000 & A) of SAR 49.4mn, as compared SAR 53.6mn in 4Q2015 due to one-off charge 6000 of restructuring its affiliates in 4Q2015.
26 21 16 11 6
1
Strong balance sheet position to maintain a healthy dividend of at least SAR 0.5 DPS in 2016: By the end of FY2015, Sahara’s debt-to-equity ratio stood at 0.33x, with a total debt of around SAR 2.03bn and cash and equivalents of SAR 1.38bn. During 2015, the management reduced its dividend payment to SAR 0.50 per share from 0.85 per share in 2014, resulting in dividend yield of 4.9%. We believe a strong balance sheet and sustainable cash flows should adequate to maintain a healthy dividend of at least SAR 0.5 DPS in 2016. Sahara is trading at a P/E of 15.7x for 2016E, which is higher than the current multiple of the petrochemical sector 14.5x. © All rights reserved
Ja nM 14 ar M 14 ay -1 Ju 4 l-1 Se 4 pN 14 ov Ja 14 nM 15 ar M 15 ay -1 Ju 5 l-1 Se 5 pN 15 ov Ja 15 nM 16 ar -1 6
5000
Tadawul
SAHARA Petrochemical
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 2256115 [email protected]
+966 11 2256374 [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
Abdullah Q. Al-Misbani
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618400 [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
