Sahara Petrochemical
Sahara Petrochemical 1Q2016 – First Look
Buy
12-Month Target Price SAR 12.00
Swings to Profit on Alwaha Stable Operations
April 24, 2016
Expected Total Return Price as of April-54, 2016
SAR 57.02
Upside to Target Price
55.1%
Expected Dividend Yield
4.0%
Expected Total Return
52.4%
Market Data 52 Week H/L
SAR 51.02/0.47
Market Capitalization
SAR 4,585 mln
Enterprise Value
SAR 5,591 mln
Shares Outstanding
438.8 mln
Free Float
92.1%
12-Month ADTV (mln)
3.221
TASI Weight
7.30%
Reuters Code
2260.SE
Bloomberg Symbol
SPC AB
1-Year Price Performance 140
Sahara Petrochemical Company (SPC) reported upbeat 1Q results on Alwaha record performance, beating street estimates by a wide margin. Net income of SAR 54.4 million came ahead of our expectation of SAR 33 million. Gross Profit increased by more than three times compared to last year though feed stock prices has also increased. Although Polypropylene prices are down, strong sales coupled with low naphtha prices in 1Q helped take EPS to SAR 0.12 versus negative performance last quarter and last year. Alwaha, Sahara’s key subsidiary, has performed exceptionally well but income from associate has continued to be in red. We maintain our Buy rating and SAR 12.00 target. Margins expected close to 24% While revenue has not been disclosed yet, we estimate revenues higher Y/Y and Q/Q, close to SAR 500 million. Gross profit is three times higher Y/Y but -7.3% Q/Q. Y/Y rise is magnified due to a low base effect. Gross margins are expected to hover around 24%. Polypropylene declined by –3% Q/Q to an average of USD 936.6/ton which limited margin growth. Sahara mentiond an increase of +3% on total cost on the back of feedstock and energy hike, which according to our model could be around SAR 13 million this quarter. Opex doubles from 1Q2015 Financial charges appear to have fallen significantly below last year which included refinance charges of SAR 37 million, we will wait for detailed financial to ascertain the impact of financial charges and income from associate which is expected to have reduced the negative impact on 1Q2016. Opex were spot at SAR 49, inline with our expectations. Operating income of SAR 59 million is down -7% Q/Q due to energy prices increases. Operating margin is expected to be left to 13% levels. Net income shoots to SAR 54 million Net income has been reported at SAR 54 million, ahead of street expectations of SAR 37 million and ours of SAR 33 million. Absence of extraordinary items has helped, unlike previous quarter (SAR 30 million on affiliates restructuring) and 1Q2015 (SAR 36.9 million refinance charge). Net margin shall come above 11% which we expected.
120 100 80 60 40
A M
J
J
A
S O
SAHARA
N D
J
TASI
F M
Butanol Plant Eased the Burden on Acrylic Although Butanol plant came online this quarter, Acrylic is still suffering. We are sticking to our F2016 net income forecast unless major change in oil/product prices happened. Buy call with SAR 12 target price remains.
TPCHEM
Source: Bloomberg SPC April-54-2016 57.02
TASI 1,195
TPCHEM 4,459
Key Financials
Total Change (9.4)%
(55.9)%
FY December 31 (SAR mln)
2015
2016E
2017E
1-Year (47.3)%
(47.5)%
(47.4)%
Revenue
1,424
1,374
1,562
1,903
2-Year (54.2)%
(47.4)%
(45.4)%
EBITDA
352
245
684
824,4
6-months (54.4)%
Net Profit 1Q2016 SAR (mln)
Actual
RC Forecast
Gross Profit
579
35
Net Profit
24
44
EPS (SAR)
7.55
0.73
44
154
277
367
EPS (SAR)
0.08
0.35
0.63
0.84
DPS (SAR)
0.50
0.40
0.58
0.79
BVPS (SAR)
13.82
13.89
14.10
14.32
ROAA
0%
2%
3%
4.6%
ROAE
1%
3%
4%
5.8%
P/E
114.3x
25.9x
14.4x
10.9x
P/B
0.5x
0.5x
0.5x
0.5x
Div. Yield
Yasser bin Ahmed [email protected] +966-11-203-6805
2018E
5%
4%
6%
8.7%
EV/ EBITDA
11.4x
7.4x
5.9x
4.9x
EV/ Sales
2.8x
2.9x
2.6x
2.1x
Riyad Capital is licensed by the Saudi Arabia Capital Markets 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
Buy
12-Month Target Price SAR 12.00
Swings to Profit on Alwaha Stable Operations
April 24, 2016
Expected Total Return Price as of April-54, 2016
SAR 57.02
Upside to Target Price
55.1%
Expected Dividend Yield
4.0%
Expected Total Return
52.4%
Market Data 52 Week H/L
SAR 51.02/0.47
Market Capitalization
SAR 4,585 mln
Enterprise Value
SAR 5,591 mln
Shares Outstanding
438.8 mln
Free Float
92.1%
12-Month ADTV (mln)
3.221
TASI Weight
7.30%
Reuters Code
2260.SE
Bloomberg Symbol
SPC AB
1-Year Price Performance 140
Sahara Petrochemical Company (SPC) reported upbeat 1Q results on Alwaha record performance, beating street estimates by a wide margin. Net income of SAR 54.4 million came ahead of our expectation of SAR 33 million. Gross Profit increased by more than three times compared to last year though feed stock prices has also increased. Although Polypropylene prices are down, strong sales coupled with low naphtha prices in 1Q helped take EPS to SAR 0.12 versus negative performance last quarter and last year. Alwaha, Sahara’s key subsidiary, has performed exceptionally well but income from associate has continued to be in red. We maintain our Buy rating and SAR 12.00 target. Margins expected close to 24% While revenue has not been disclosed yet, we estimate revenues higher Y/Y and Q/Q, close to SAR 500 million. Gross profit is three times higher Y/Y but -7.3% Q/Q. Y/Y rise is magnified due to a low base effect. Gross margins are expected to hover around 24%. Polypropylene declined by –3% Q/Q to an average of USD 936.6/ton which limited margin growth. Sahara mentiond an increase of +3% on total cost on the back of feedstock and energy hike, which according to our model could be around SAR 13 million this quarter. Opex doubles from 1Q2015 Financial charges appear to have fallen significantly below last year which included refinance charges of SAR 37 million, we will wait for detailed financial to ascertain the impact of financial charges and income from associate which is expected to have reduced the negative impact on 1Q2016. Opex were spot at SAR 49, inline with our expectations. Operating income of SAR 59 million is down -7% Q/Q due to energy prices increases. Operating margin is expected to be left to 13% levels. Net income shoots to SAR 54 million Net income has been reported at SAR 54 million, ahead of street expectations of SAR 37 million and ours of SAR 33 million. Absence of extraordinary items has helped, unlike previous quarter (SAR 30 million on affiliates restructuring) and 1Q2015 (SAR 36.9 million refinance charge). Net margin shall come above 11% which we expected.
120 100 80 60 40
A M
J
J
A
S O
SAHARA
N D
J
TASI
F M
Butanol Plant Eased the Burden on Acrylic Although Butanol plant came online this quarter, Acrylic is still suffering. We are sticking to our F2016 net income forecast unless major change in oil/product prices happened. Buy call with SAR 12 target price remains.
TPCHEM
Source: Bloomberg SPC April-54-2016 57.02
TASI 1,195
TPCHEM 4,459
Key Financials
Total Change (9.4)%
(55.9)%
FY December 31 (SAR mln)
2015
2016E
2017E
1-Year (47.3)%
(47.5)%
(47.4)%
Revenue
1,424
1,374
1,562
1,903
2-Year (54.2)%
(47.4)%
(45.4)%
EBITDA
352
245
684
824,4
6-months (54.4)%
Net Profit 1Q2016 SAR (mln)
Actual
RC Forecast
Gross Profit
579
35
Net Profit
24
44
EPS (SAR)
7.55
0.73
44
154
277
367
EPS (SAR)
0.08
0.35
0.63
0.84
DPS (SAR)
0.50
0.40
0.58
0.79
BVPS (SAR)
13.82
13.89
14.10
14.32
ROAA
0%
2%
3%
4.6%
ROAE
1%
3%
4%
5.8%
P/E
114.3x
25.9x
14.4x
10.9x
P/B
0.5x
0.5x
0.5x
0.5x
Div. Yield
Yasser bin Ahmed [email protected] +966-11-203-6805
2018E
5%
4%
6%
8.7%
EV/ EBITDA
11.4x
7.4x
5.9x
4.9x
EV/ Sales
2.8x
2.9x
2.6x
2.1x
Riyad Capital is licensed by the Saudi Arabia Capital Markets 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
