Sahara Petrochemical
Sahara Petrochemical 3Q2015 – First Look
Buy
12-Month Target Price SAR 16
Record Output at Al Waha
October 19, 2015
Expected Total Return Price as of Oct-18, 2015
SAR 13.06
Upside to Target Price
22.5%
Expected Dividend Yield
1.3%
Expected Total Return
25.2%
Market Data 52 Week H/L
SAR 22.60/10.70
Market Capitalization
SAR 5,731 mln
Enterprise Value
SAR 5,653 mln
Shares Outstanding
438.8 mln
Free Float
86.14%
12-Month ADTV (mln)
3.904
TASI Weight
0.32%
Reuters Code
2260.SE
Bloomberg Symbol
SPC AB
1-Year Price Performance
Sahara Petrochemical Company (SPC) reported a massive increase in gross and net profit for the third quarter beating street estimates by a wide margin. Net income at SAR 121 million was a multiple of SAR 17 million in 3Q2014 (effected by a shutdown) and SAR 11 million in 2Q2015 (also a shutdown). Strong sales at Al Waha coupled with low naphtha prices in 3Q helped take EPS to the strongest in four quarters. We are sticking to our F2015 net income forecast of SAR 122 million. We recently upgraded the stock to a Buy in our Preview note dated September 30th but continue to target a price of SAR 16. Revenues cross SAR 500 million Revenues have risen from SAR 460 million last year and SAR 222 million last quarter to SAR 503 million. Both the comparable quarters had experienced plant shutdowns. However, not only were there no plant problems but Al Waha performed exceedingly well in 3Q helping in boosting revenues. Management had stated recently that all recommended modifications related to the plant cooling problems had been completed and this appears to have had a positive effect raising production to record levels. Sales have been strong Y/Y at SEPC as well since the plant was out for 24 days last year. Margin sustainability is questionable Rocketing gross margins of 35.3% (versus 5.6% last year and 6.9% last quarter) has taken gross profit to SAR 178 million. We believe the Company has benefitted from feed prices declining more than product prices. While polyethylene prices are down -33% Y/Y, naphtha has dropped -50% Y/Y in 3Q2015. It does not appear that these elevated gross margins are sustainable in a low price environment and could just be feed costs lagging product prices. Net income shoots to SAR 121 million Net income has been reported at SAR 121 million, many times the slim bottom line of SAR 17 million and SAR 11 million posted in 3Q2014 and 2Q2015 respectively. SAR 18 million extraordinary other income due to an insurance claim has also helped. Net margins of 24.0% are the highest in two years although we believe the Company has accrued much higher financial charges this quarter.
100
80
60
40
O N D
J
F M A M
SAHARA
J
J
TASI
A
Trial production at Butanol plant The extraordinary performance at Al Waha has been a boon this quarter but it may be unwise to expect similar margins for Sahara in 4Q. For the coming quarter watch out for the start of trial production at the Butanol plant. Buy call with SAR 16 target price remains.
S O
TPCHEM
Source: Bloomberg
Oct-18-2015
SPC
TASI
TPCHEM
13.60
7,793
5,399
Key Financials
Total Change 6-months
(3..3)%
(3..0)%
(3..2)%
1-Year
(1..0)%
(20.1)%
(2..2)%
2-Year
(..3)%
(2.2)%
(32.3)%
FY December 31 (SAR mln)
2014A
2015E
2016E
2017E
1,898
1,125
1,814
2,104
Gross Profit
390
146
313
384
Net Profit
385
122
411
465
EPS (SAR)
0.88
0.28
0.94
1.06
Revenue
Net Margin
20%
11%
23%
22%
DPS (SAR)
0.85
0.40
0.90
1.00
59
Payout Ratio
97%
143%
96%
94%
121
45
ROAE
7%
2%
7%
8%
0.28
0.10
ROAA
5%. 9.1x
2%
5%
6%
16.2x
7.8x
6.8x
14.9x
46.8x
14.0x
12.3x
P / CFPS
4.6x
3.7x
3.6x
3.6x
P/B
1.0x
1.0x
1.0x
1.0x
3Q2015 SAR (mln)
Actual
RC Forecast
Gross Profit
178
Net Profit EPS (SAR)
EV / EBITDA P/E
Muhammad Faisal Potrik [email protected] +966-11-203-6807
Yasser bin Ahmed [email protected] +966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom Saudi Arabia (“KSA”). Website: www.riyadcapital.com Riyad Capital is licensed by the Saudi ArabiaofCapital Markets Authority (No. 07070-37)
Buy
12-Month Target Price SAR 16
Record Output at Al Waha
October 19, 2015
Expected Total Return Price as of Oct-18, 2015
SAR 13.06
Upside to Target Price
22.5%
Expected Dividend Yield
1.3%
Expected Total Return
25.2%
Market Data 52 Week H/L
SAR 22.60/10.70
Market Capitalization
SAR 5,731 mln
Enterprise Value
SAR 5,653 mln
Shares Outstanding
438.8 mln
Free Float
86.14%
12-Month ADTV (mln)
3.904
TASI Weight
0.32%
Reuters Code
2260.SE
Bloomberg Symbol
SPC AB
1-Year Price Performance
Sahara Petrochemical Company (SPC) reported a massive increase in gross and net profit for the third quarter beating street estimates by a wide margin. Net income at SAR 121 million was a multiple of SAR 17 million in 3Q2014 (effected by a shutdown) and SAR 11 million in 2Q2015 (also a shutdown). Strong sales at Al Waha coupled with low naphtha prices in 3Q helped take EPS to the strongest in four quarters. We are sticking to our F2015 net income forecast of SAR 122 million. We recently upgraded the stock to a Buy in our Preview note dated September 30th but continue to target a price of SAR 16. Revenues cross SAR 500 million Revenues have risen from SAR 460 million last year and SAR 222 million last quarter to SAR 503 million. Both the comparable quarters had experienced plant shutdowns. However, not only were there no plant problems but Al Waha performed exceedingly well in 3Q helping in boosting revenues. Management had stated recently that all recommended modifications related to the plant cooling problems had been completed and this appears to have had a positive effect raising production to record levels. Sales have been strong Y/Y at SEPC as well since the plant was out for 24 days last year. Margin sustainability is questionable Rocketing gross margins of 35.3% (versus 5.6% last year and 6.9% last quarter) has taken gross profit to SAR 178 million. We believe the Company has benefitted from feed prices declining more than product prices. While polyethylene prices are down -33% Y/Y, naphtha has dropped -50% Y/Y in 3Q2015. It does not appear that these elevated gross margins are sustainable in a low price environment and could just be feed costs lagging product prices. Net income shoots to SAR 121 million Net income has been reported at SAR 121 million, many times the slim bottom line of SAR 17 million and SAR 11 million posted in 3Q2014 and 2Q2015 respectively. SAR 18 million extraordinary other income due to an insurance claim has also helped. Net margins of 24.0% are the highest in two years although we believe the Company has accrued much higher financial charges this quarter.
100
80
60
40
O N D
J
F M A M
SAHARA
J
J
TASI
A
Trial production at Butanol plant The extraordinary performance at Al Waha has been a boon this quarter but it may be unwise to expect similar margins for Sahara in 4Q. For the coming quarter watch out for the start of trial production at the Butanol plant. Buy call with SAR 16 target price remains.
S O
TPCHEM
Source: Bloomberg
Oct-18-2015
SPC
TASI
TPCHEM
13.60
7,793
5,399
Key Financials
Total Change 6-months
(3..3)%
(3..0)%
(3..2)%
1-Year
(1..0)%
(20.1)%
(2..2)%
2-Year
(..3)%
(2.2)%
(32.3)%
FY December 31 (SAR mln)
2014A
2015E
2016E
2017E
1,898
1,125
1,814
2,104
Gross Profit
390
146
313
384
Net Profit
385
122
411
465
EPS (SAR)
0.88
0.28
0.94
1.06
Revenue
Net Margin
20%
11%
23%
22%
DPS (SAR)
0.85
0.40
0.90
1.00
59
Payout Ratio
97%
143%
96%
94%
121
45
ROAE
7%
2%
7%
8%
0.28
0.10
ROAA
5%. 9.1x
2%
5%
6%
16.2x
7.8x
6.8x
14.9x
46.8x
14.0x
12.3x
P / CFPS
4.6x
3.7x
3.6x
3.6x
P/B
1.0x
1.0x
1.0x
1.0x
3Q2015 SAR (mln)
Actual
RC Forecast
Gross Profit
178
Net Profit EPS (SAR)
EV / EBITDA P/E
Muhammad Faisal Potrik [email protected] +966-11-203-6807
Yasser bin Ahmed [email protected] +966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom Saudi Arabia (“KSA”). Website: www.riyadcapital.com Riyad Capital is licensed by the Saudi ArabiaofCapital Markets Authority (No. 07070-37)
