Saudi Arabia Fertilizers Co. (SAFCO) AWS
SAFCO Petrochemical Industries Sector SAFCO AB - 2020.SE January 29, 2018
Saudi Arabia Fertilizers Co. (SAFCO) Recommendation
Underweight
60.00
Fair Value (SAR)
Price as of 28 January , 2018
67.60
Expected Return
-11.2%
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
57.00
YTD Change
4.00%
3-Month Average Volume (Thousand Shares)
The following table depicts the change in ammonia and urea prices in the first quarter of the year.
207
Market Cap. (SAR Million)
28,169
Market Cap. (USD Million)
7,512
Outstanding Shares (Million Shares)
416.7
Saudi Basic Industries Corp. (SABIC)
42.99%
General Organization for Social Insurance
12.24%
Major Shareholders ( > 5% )
Average commodity Prices (US$/Ton)
52-week Stock Price Movement SAFCO
Saudi Arabian Fertilizer Company (SAFCO) disclosed its Q4 2017 interim results revealing a bottom line of SAR 62.5 million, plummeting 77% from SAR 268.4 million in Q4 2016 and also plunging 67% QoQ. Therefore, the annual bottom line amounted to SAR 879 million compared to SAR 1,036 million in 2016, edging down 15.2%. The company attributed that the annual decline in Q4 2017 to the decrease in volumes for the company's products resulting from the maintenance works in SAFCO 4 and SAFCO 5 factories, in addition to the spike in depreciation and amortization fueled by the amortization of maintenance costs.
73.75
52 Week Low (SAR)
Q4 2017
Current price
Q4 2017 Q4 2016
YoY
Q3 2017
QoQ
Ammonia (Middle East)
350
307
222
%38
186
%65
UREA (Middle East)
260
261
225
%16
228
%14
Sales in Q4 2017 amounted to SAR 616 million sliding 20% from SAR 765 million in Q4 2016. The annual sales hit SAR 2,759 million compared to SAR 2,855 million in 2016 showing a decrease of 3.4%.
Tadawul Index
110
Gross profit in Q4 2017 plunged 59% YoY and 43% QoQ to SAR 150 million, Thus, the annual gross profits posted SAR 1,050 million shrinking 12.3% YoY.
100 90
Operating income (EBIT) amounted to SAR 51 million in Q4 2017 deteriorating 80% YoY and 70% QoQ. On annual basis, the operating profit reached SAR 824 million compared to SAR 986 million in 2016, thus, EBIT margin slid to 30% versus 34.5% in 2016.
80 70
Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales
ROS
1,000
60%
800
50%
40%
600
30%
400
20%
200
10%
0
0%
Source: Company Filings, Albilad Capital Research Estimates
Meshal Alghaylan Financial Analyst [email protected] For more information, please contact: Turki Fadaak Research & Advisory Manager [email protected]
The fourth quarter’s net earnings missed our estimate of SAR 336 million and the analysts’ consensus of SAR 276 million. The shutdown of SAFCO's plants scheduled maintenance works has reduced the profitability of the company and deprived it from capitalizing on the rise in ammonia and urea prices in Q4 2017. We believe that fertilizer prices were boosted by China's tendency to put restrictions on factories to limit emissions to the environment. Furthermore, the excess supply of urea outside China was offset by the decline of Chinese exports, which restores the balance of fertilizer markets. With the return of the company's production to normal capacity and the continued rise in fertilizer prices, the company's operating margins will improve in H1 2018, consequently , we keep our fair value of SAFCO at SAR 60 per share, with an “Underweight” recommendation.
FY - Ending December
2015A
2016A
2017A
2018F
EV/EBITDA
10.78
18.88
21.32
17.82
EV/Sales
7.34
9.44
9.65
8.01
P/E
13.05
26.33
31.63
24.91
Dividend Yield
9.0%
3.7%
4.2%
4.5%
P/BV
3.66
3.98
4.05
4.11
P/Revenue
7.83
9.73
10.07
8.36
-20.4%
-19.5%
-3.4%
20.5%
4.6
2.3
1.9
2.4
Revenue Growth EPS
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector January 29, 2018
SAFCO AB - 2020.SE
Urea and Ammonia Prices
UREA Middle East Spot Price (US$/Ton) 310 290 270 250 230 210 190 170
150
Ammonia Middle East Spot Price (US$/Ton) 500 450
400 350 300 250 200
150
Source: Bloomberg
2
SAFCO Petrochemical Industries Sector January 29, 2018
SAFCO AB - 2020.SE Income Statement (SAR mn)
2014A
2015A
2016A
2017E
2018F*
Sales
4,456.1
3,547.3
2,855.9
2,759.5
3,326.3
COGS
1,034.2
1,061.5
1,358.5
1,135.6
1,366.9
COGS/Sales
23.21%
29.92%
47.57%
41.15%
41.09%
SG&A
97.4
71.2
69.4
374.4
464.8
SG&A/Sales
2.2%
2.0%
2.4%
13.6%
14.0%
EBITDA
3,324.5
2,414.5
1,428.0
1,249.4
1,494.6
EBITA Margin
74.6%
68.1%
50.0%
45.3%
44.9%
Depreciation and amortization
368.0
400.7
447.8
424.6
429.9
EBIT
2,956.5
2,013.8
980.3
824.8
1,064.6
Investment Income
213.11
118.17
57.31
76.41
80.24
Others
84.44
64.43
40.58
4.77
5.47
3,254.0
2,196.4
1,078.2
906.0
1,150.4
80.0
66.0
22.5
27.4
34.8
Net Income
3,174.0
2,130.4
1,055.7
878.6
1,115.5
ROS
71.2%
60.1%
37.0%
31.8%
33.5%
Balance Sheet (SAR mn)
2014A
2015A
2016A
2017E
2018F*
Cash and Marketable securities
1,640.1
1,460.0
316.8
637.7
643.4
Inventory
386.9
434.6
505.3
366.0
485.7
Others
754.5
920.6
737.0
712.4
859.2
Total ST Assets
2,781.4
2,815.3
1,559.0
1,716.1
1,988.3
Net Fixed Assets
4,896.5
5,173.2
5,485.9
5,133.2
4,766.7
Long Term Investments
1,193.0
916.6
1,179.2
1,217.4
1,241.5
53.8
107.2
149.6
96.1
110.3
Total LT Assets
6,143.3
6,197.0
6,814.7
6,446.8
6,118.5
Total Assets
8,924.7
9,012.3
8,373.8
8,162.9
8,106.7
Accrued Expenses
159.0
415.1
386.9
373.8
450.6
Dividends Payable
175.7
185.5
178.7
178.7
178.7
Others
175.6
219.5
281.3
273.2
320.9
Total ST Liabilities
510.2
820.2
846.9
825.7
950.2
Other Non-Current Liabilities
552.79
595.96
546.17
476.54
388.72
Equity
7,861.7
7,596.2
6,980.7
6,860.6
6,767.8
Total Liabilities and Equity
8,924.7
9,012.3
8,373.8
8,162.9
8,106.7
Pre-Tax and Zakat Income Tax and Zakat
Others
Cash Flow (SAR mn)
2014A
2015A
2016A
2017E
2018F*
Cash flow from Operations
3,256.6
2,695.8
1,558.2
1,298.8
1,234.3
Cash flow from Financing
(3,313.3)
(2,241.5)
(1,883.2)
(1,000.0)
(1,208.3)
Change in Cash
(499.6)
(180.1)
(1,143.3)
319.6
5.8
Ending Cash
1,640.1
1,460.0
316.8
637.7
643.4
Cash flow from Investing
(442.8)
(634.3)
(818.3)
20.8
(20.2)
Source: Company Filings, Albilad Capital Research Estimates
Presentation of financial statements may differ from the company’s presentation. However, there is no impact on the final results. *Historical financial statements were prepared in accordance with Saudi reporting standards. Some items in 2017 are reclassified according to IFRS.
3
SAFCO Petrochemical Industries Sector January 29, 2018
SAFCO AB - 2020.SE
Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight:
The Target share price exceeds the current share price by ≥ 10%.
Neutral:
The Target share price is either more or less than the current share price by < 10%.
Underweight:
The Target share price is less than the current share price by ≥ 10%.
To be Revised:
No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research.
Albilad Capital Client Services E-mail: Tel:
[email protected] +966-11-203-9888
Research & Advisory
Toll-free: 800-116-0001
E-mail: [email protected] Tel: +966-11-290-6250 Website: www.albilad-capital.com/en/research
Asset Management
Brokerage
Custody
Investment Banking
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6280
[email protected] +966-11-290-6259
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6230
[email protected] +966-11-290-6256
Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital Co., its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Capital. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools. AlBilad Capital preserves all rights associated with this report.
CMA Authorization Number 08100-37
4
Saudi Arabia Fertilizers Co. (SAFCO) Recommendation
Underweight
60.00
Fair Value (SAR)
Price as of 28 January , 2018
67.60
Expected Return
-11.2%
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
57.00
YTD Change
4.00%
3-Month Average Volume (Thousand Shares)
The following table depicts the change in ammonia and urea prices in the first quarter of the year.
207
Market Cap. (SAR Million)
28,169
Market Cap. (USD Million)
7,512
Outstanding Shares (Million Shares)
416.7
Saudi Basic Industries Corp. (SABIC)
42.99%
General Organization for Social Insurance
12.24%
Major Shareholders ( > 5% )
Average commodity Prices (US$/Ton)
52-week Stock Price Movement SAFCO
Saudi Arabian Fertilizer Company (SAFCO) disclosed its Q4 2017 interim results revealing a bottom line of SAR 62.5 million, plummeting 77% from SAR 268.4 million in Q4 2016 and also plunging 67% QoQ. Therefore, the annual bottom line amounted to SAR 879 million compared to SAR 1,036 million in 2016, edging down 15.2%. The company attributed that the annual decline in Q4 2017 to the decrease in volumes for the company's products resulting from the maintenance works in SAFCO 4 and SAFCO 5 factories, in addition to the spike in depreciation and amortization fueled by the amortization of maintenance costs.
73.75
52 Week Low (SAR)
Q4 2017
Current price
Q4 2017 Q4 2016
YoY
Q3 2017
QoQ
Ammonia (Middle East)
350
307
222
%38
186
%65
UREA (Middle East)
260
261
225
%16
228
%14
Sales in Q4 2017 amounted to SAR 616 million sliding 20% from SAR 765 million in Q4 2016. The annual sales hit SAR 2,759 million compared to SAR 2,855 million in 2016 showing a decrease of 3.4%.
Tadawul Index
110
Gross profit in Q4 2017 plunged 59% YoY and 43% QoQ to SAR 150 million, Thus, the annual gross profits posted SAR 1,050 million shrinking 12.3% YoY.
100 90
Operating income (EBIT) amounted to SAR 51 million in Q4 2017 deteriorating 80% YoY and 70% QoQ. On annual basis, the operating profit reached SAR 824 million compared to SAR 986 million in 2016, thus, EBIT margin slid to 30% versus 34.5% in 2016.
80 70
Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales
ROS
1,000
60%
800
50%
40%
600
30%
400
20%
200
10%
0
0%
Source: Company Filings, Albilad Capital Research Estimates
Meshal Alghaylan Financial Analyst [email protected] For more information, please contact: Turki Fadaak Research & Advisory Manager [email protected]
The fourth quarter’s net earnings missed our estimate of SAR 336 million and the analysts’ consensus of SAR 276 million. The shutdown of SAFCO's plants scheduled maintenance works has reduced the profitability of the company and deprived it from capitalizing on the rise in ammonia and urea prices in Q4 2017. We believe that fertilizer prices were boosted by China's tendency to put restrictions on factories to limit emissions to the environment. Furthermore, the excess supply of urea outside China was offset by the decline of Chinese exports, which restores the balance of fertilizer markets. With the return of the company's production to normal capacity and the continued rise in fertilizer prices, the company's operating margins will improve in H1 2018, consequently , we keep our fair value of SAFCO at SAR 60 per share, with an “Underweight” recommendation.
FY - Ending December
2015A
2016A
2017A
2018F
EV/EBITDA
10.78
18.88
21.32
17.82
EV/Sales
7.34
9.44
9.65
8.01
P/E
13.05
26.33
31.63
24.91
Dividend Yield
9.0%
3.7%
4.2%
4.5%
P/BV
3.66
3.98
4.05
4.11
P/Revenue
7.83
9.73
10.07
8.36
-20.4%
-19.5%
-3.4%
20.5%
4.6
2.3
1.9
2.4
Revenue Growth EPS
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector January 29, 2018
SAFCO AB - 2020.SE
Urea and Ammonia Prices
UREA Middle East Spot Price (US$/Ton) 310 290 270 250 230 210 190 170
150
Ammonia Middle East Spot Price (US$/Ton) 500 450
400 350 300 250 200
150
Source: Bloomberg
2
SAFCO Petrochemical Industries Sector January 29, 2018
SAFCO AB - 2020.SE Income Statement (SAR mn)
2014A
2015A
2016A
2017E
2018F*
Sales
4,456.1
3,547.3
2,855.9
2,759.5
3,326.3
COGS
1,034.2
1,061.5
1,358.5
1,135.6
1,366.9
COGS/Sales
23.21%
29.92%
47.57%
41.15%
41.09%
SG&A
97.4
71.2
69.4
374.4
464.8
SG&A/Sales
2.2%
2.0%
2.4%
13.6%
14.0%
EBITDA
3,324.5
2,414.5
1,428.0
1,249.4
1,494.6
EBITA Margin
74.6%
68.1%
50.0%
45.3%
44.9%
Depreciation and amortization
368.0
400.7
447.8
424.6
429.9
EBIT
2,956.5
2,013.8
980.3
824.8
1,064.6
Investment Income
213.11
118.17
57.31
76.41
80.24
Others
84.44
64.43
40.58
4.77
5.47
3,254.0
2,196.4
1,078.2
906.0
1,150.4
80.0
66.0
22.5
27.4
34.8
Net Income
3,174.0
2,130.4
1,055.7
878.6
1,115.5
ROS
71.2%
60.1%
37.0%
31.8%
33.5%
Balance Sheet (SAR mn)
2014A
2015A
2016A
2017E
2018F*
Cash and Marketable securities
1,640.1
1,460.0
316.8
637.7
643.4
Inventory
386.9
434.6
505.3
366.0
485.7
Others
754.5
920.6
737.0
712.4
859.2
Total ST Assets
2,781.4
2,815.3
1,559.0
1,716.1
1,988.3
Net Fixed Assets
4,896.5
5,173.2
5,485.9
5,133.2
4,766.7
Long Term Investments
1,193.0
916.6
1,179.2
1,217.4
1,241.5
53.8
107.2
149.6
96.1
110.3
Total LT Assets
6,143.3
6,197.0
6,814.7
6,446.8
6,118.5
Total Assets
8,924.7
9,012.3
8,373.8
8,162.9
8,106.7
Accrued Expenses
159.0
415.1
386.9
373.8
450.6
Dividends Payable
175.7
185.5
178.7
178.7
178.7
Others
175.6
219.5
281.3
273.2
320.9
Total ST Liabilities
510.2
820.2
846.9
825.7
950.2
Other Non-Current Liabilities
552.79
595.96
546.17
476.54
388.72
Equity
7,861.7
7,596.2
6,980.7
6,860.6
6,767.8
Total Liabilities and Equity
8,924.7
9,012.3
8,373.8
8,162.9
8,106.7
Pre-Tax and Zakat Income Tax and Zakat
Others
Cash Flow (SAR mn)
2014A
2015A
2016A
2017E
2018F*
Cash flow from Operations
3,256.6
2,695.8
1,558.2
1,298.8
1,234.3
Cash flow from Financing
(3,313.3)
(2,241.5)
(1,883.2)
(1,000.0)
(1,208.3)
Change in Cash
(499.6)
(180.1)
(1,143.3)
319.6
5.8
Ending Cash
1,640.1
1,460.0
316.8
637.7
643.4
Cash flow from Investing
(442.8)
(634.3)
(818.3)
20.8
(20.2)
Source: Company Filings, Albilad Capital Research Estimates
Presentation of financial statements may differ from the company’s presentation. However, there is no impact on the final results. *Historical financial statements were prepared in accordance with Saudi reporting standards. Some items in 2017 are reclassified according to IFRS.
3
SAFCO Petrochemical Industries Sector January 29, 2018
SAFCO AB - 2020.SE
Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight:
The Target share price exceeds the current share price by ≥ 10%.
Neutral:
The Target share price is either more or less than the current share price by < 10%.
Underweight:
The Target share price is less than the current share price by ≥ 10%.
To be Revised:
No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research.
Albilad Capital Client Services E-mail: Tel:
[email protected] +966-11-203-9888
Research & Advisory
Toll-free: 800-116-0001
E-mail: [email protected] Tel: +966-11-290-6250 Website: www.albilad-capital.com/en/research
Asset Management
Brokerage
Custody
Investment Banking
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6280
[email protected] +966-11-290-6259
E-mail: Tel:
E-mail: Tel:
[email protected] +966-11-290-6230
[email protected] +966-11-290-6256
Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Capital Co., its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Capital. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools. AlBilad Capital preserves all rights associated with this report.
CMA Authorization Number 08100-37
4
