Saudi Arabia Fertilizers Co. (SAFCO)
SAFCO Petrochemical Industries Sector SAFCO AB - 2020.SE January 17, 2017
Saudi Arabia Fertilizers Co. (SAFCO) Recommendation
Underweight
52.00
Fair Value (SAR)
Price as of January 16, 2017
71.00
Expected Return
-26.7%
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
82.00
52 Week Low (SAR)
58.00
YTD Change
-3.5%
3-Month Average Volume (Thousand Shares)
223.1
Market Cap. (SAR Million)
29,583
Market Cap. (USD Million)
7,889
Outstanding Shares (Million Shares)
416.7
Saudi Basic Industries Corp. (SABIC)
42.99%
General Organization for Social Insurance
12.20%
Major Shareholders ( > 5% )
52-week Stock Price Movement SAFCO
130
Q4 2016
Saudi Arabian Fertilizer Company (SAFCO) reported its interim financial results of Q4 2016, wherein its net income culminated at SAR 284.5 million slumping 24.9% YoY and surging 56.8% QoQ, which came above Albilad and consensus estimates by 9.3% and 6.7%,respectively. Thus, SAFCO concluded the year with net income of SAR 1,051.3 million tumbling 50.6% YoY. SAFCO attributed the robust decrease in profits due to the declining in selling prices, the increase in costs of feedstock and utilities, in addition to the lower income from Ibn Albaytar, however the increase in the sales volume partially offset the negative impacts. The following table depicts the change in ammonia and urea prices in the fourth quarter of the year. Average Commodity Prices (US$/Ton)
Q4 2016
Q4 2015
YoY
Q3 2016
QoQ
Ammonia (Middle East)
174
422
-58.7%
242
-28.1%
UREA (Middle East)
220
251
-12.2%
190
15.8%
Gross profit in Q4 2016 slid 13.7% YoY and increased by 23.5% QoQ hitting SAR 310.9 million, whereas FY16 gross profits posted SAR 1,049.7 million declining 49.7% YoY.
Tadawul Index
110
Operating profit languished at SAR 290.9 million slipping 15% YoY and jumping 56.8% QoQ, therefore FY16 operating profit hit SAR 980.3 million plummeting 51.3% YoY.
90 70 50
Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales
1,200
ROS
80%
70%
1,000
60%
800
50%
600
40%
400
30%
200
SAFCO’s sales came in at SAR 765 million in Q4 2016, declining 6% YoY. Thus concluding the year with sales of SAR 2,856 million, decreasing by 24% compared to 2015. Mainly, the decline in products prices in addition to the increase in the costs of feedstock and utilities during 2016 squeezed the profit margin to 36.8% compared to 56.9% in 2015. However, the increase in volume sales, may partially contain the negative impact of lower prices, but the persistence of high cost may put pressure on the company’s profits more in the future. Thus, we maintain our valuation at SAR 52 per share assigning an “Underweight” recommendation.
20%
0
10%
Source: Company Filings, Albilad Capital Research Estimates Turki Fadaak Research & Advisory Manager [email protected] Mohammed Alghalbi Financial Analyst [email protected]
FY - Ending December
2014A
2015A
2016E
2017F
EV/EBITDA
8.27
11.52
21.34
19.17
EV/Sales
6.17
7.84
9.94
8.96
P/E
9.32
13.89
31.11
27.09
Dividend Yield
7.9%
8.5%
4.2%
4.2%
P/BV
3.76
3.89
4.43
4.54
P/Revenue
6.64
8.34
10.55
9.57
Revenue Growth
5.1%
-20.4%
-21.0%
10.3%
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector January 17, 2017
SAFCO AB - 2020.SE
Urea and Ammonia Prices
UREA Middle East Spot Price (US$/Ton) 390 370 350 330 310 290 270 250 230 210 190 170 150
Ammonia Middle East Spot Price (US$/Ton) 550 500 450 400 350 300 250
200 150
Source: Bloomberg
2
SAFCO Petrochemical Industries Sector January 17, 2017
SAFCO AB - 2020.SE
Income Statement (SAR mn)
2013A
2014A
2015A
2016E*
2017F
Sales
4,240.4
4,456.1
3,547.3
2,856.0
3,090.9
COGS
987.8
1,034.2
1,061.5
1,406.2
1,543.4
SG&A
81.1
97.4
71.2
91.1
103.5
EBITDA
3,171.4
3,324.5
2,414.5
1,306.2
1,444.0
EBITA Margin
74.8%
74.6%
68.1%
%46.6
%46.7
Depreciation and amortization
373.9
368.0
400.7
461.1
465.8
EBIT
2,797.5
2,956.5
2,013.8
980.3
978.2
Investment Income
392.53
241.58
137.15
111.62
122.78
Others
82.94
55.97
45.45
26.63
28.55
3,272.9
3,254.0
2,196.4
983.3
1,129.5
112.5
80.0
66.0
32.5
37.3
Net Income
3,160.5
3,174.0
2,130.4
1,051.3
1,092.2
ROS
74.5%
71.2%
60.1%
%36.8
%35.3
Pre-Tax and Zakat Income Tax and Zakat
Balance Sheet (SAR mn)
2013A
2014A
2015A
2016E
2017F
Cash and Marketable securities
2,139.7
1,640.1
1,460.0
1,399.4
1,591.7
342.3
386.9
434.6
333.9
341.0
886.1
754.5
920.6
656.7
724.1
Total ST Assets
3,368.1
2,781.4
2,815.3
2,390.0
2,656.8
Net Fixed Assets
4,320.5
4,896.5
5,173.2
4,489.2
4,093.1
1,527.7
1,193.0
916.6
945.0
976.2
Inventory Others
Long Term Investments
243.6
53.8
107.2
64.8
71.7
Total LT Assets
6,091.8
6,143.3
6,197.0
5,499.0
5,141.0
Total Assets
9,459.9
8,924.7
9,012.3
7,889.0
7,797.8
Accrued Expenses
309.6
159.0
415.1
210.9
232.6
Dividends Payable
Others
155.7
175.7
185.5
185.5
185.5
Others
222.3
175.6
219.5
188.3
200.4
Total ST Liabilities
687.6
510.2
820.2
584.8
618.5
503.47
552.79
595.96
632.16
665.19
Equity
8,268.8
7,861.7
7,596.2
6,672.0
6,514.2
Total Liabilities and Equity
9,459.9
8,924.7
9,012.3
7,889.0
7,797.8
Cash Flow (SAR mn)
2013A
2014A
2015A
2016E
2017F
Other Non-Current Liabilities
Cash flow from Operations
3,277.8
3,256.6
2,695.8
1,459.3
1,420.8
Cash flow from Financing
(4,015.0)
(3,313.3)
(2,241.5)
(1,875.0)
(1,250.0)
Cash flow from Investing
(717.1)
(442.8)
(634.3)
355.1
21.4
Change in Cash
(1,454.4)
(499.6)
(180.1)
(60.6)
192.3
Ending Cash
2,139.7
1,640.1
1,460.0
1,399.4
1,591.7
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. *Estimated numbers except for sales, EBIT and Net income.
3
SAFCO Petrochemical Industries Sector January 17, 2017
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
Toll-free: 800-116-0001
Research & Advisory
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
52.00
Fair Value (SAR)
Price as of January 16, 2017
71.00
Expected Return
-26.7%
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
82.00
52 Week Low (SAR)
58.00
YTD Change
-3.5%
3-Month Average Volume (Thousand Shares)
223.1
Market Cap. (SAR Million)
29,583
Market Cap. (USD Million)
7,889
Outstanding Shares (Million Shares)
416.7
Saudi Basic Industries Corp. (SABIC)
42.99%
General Organization for Social Insurance
12.20%
Major Shareholders ( > 5% )
52-week Stock Price Movement SAFCO
130
Q4 2016
Saudi Arabian Fertilizer Company (SAFCO) reported its interim financial results of Q4 2016, wherein its net income culminated at SAR 284.5 million slumping 24.9% YoY and surging 56.8% QoQ, which came above Albilad and consensus estimates by 9.3% and 6.7%,respectively. Thus, SAFCO concluded the year with net income of SAR 1,051.3 million tumbling 50.6% YoY. SAFCO attributed the robust decrease in profits due to the declining in selling prices, the increase in costs of feedstock and utilities, in addition to the lower income from Ibn Albaytar, however the increase in the sales volume partially offset the negative impacts. The following table depicts the change in ammonia and urea prices in the fourth quarter of the year. Average Commodity Prices (US$/Ton)
Q4 2016
Q4 2015
YoY
Q3 2016
QoQ
Ammonia (Middle East)
174
422
-58.7%
242
-28.1%
UREA (Middle East)
220
251
-12.2%
190
15.8%
Gross profit in Q4 2016 slid 13.7% YoY and increased by 23.5% QoQ hitting SAR 310.9 million, whereas FY16 gross profits posted SAR 1,049.7 million declining 49.7% YoY.
Tadawul Index
110
Operating profit languished at SAR 290.9 million slipping 15% YoY and jumping 56.8% QoQ, therefore FY16 operating profit hit SAR 980.3 million plummeting 51.3% YoY.
90 70 50
Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales
1,200
ROS
80%
70%
1,000
60%
800
50%
600
40%
400
30%
200
SAFCO’s sales came in at SAR 765 million in Q4 2016, declining 6% YoY. Thus concluding the year with sales of SAR 2,856 million, decreasing by 24% compared to 2015. Mainly, the decline in products prices in addition to the increase in the costs of feedstock and utilities during 2016 squeezed the profit margin to 36.8% compared to 56.9% in 2015. However, the increase in volume sales, may partially contain the negative impact of lower prices, but the persistence of high cost may put pressure on the company’s profits more in the future. Thus, we maintain our valuation at SAR 52 per share assigning an “Underweight” recommendation.
20%
0
10%
Source: Company Filings, Albilad Capital Research Estimates Turki Fadaak Research & Advisory Manager [email protected] Mohammed Alghalbi Financial Analyst [email protected]
FY - Ending December
2014A
2015A
2016E
2017F
EV/EBITDA
8.27
11.52
21.34
19.17
EV/Sales
6.17
7.84
9.94
8.96
P/E
9.32
13.89
31.11
27.09
Dividend Yield
7.9%
8.5%
4.2%
4.2%
P/BV
3.76
3.89
4.43
4.54
P/Revenue
6.64
8.34
10.55
9.57
Revenue Growth
5.1%
-20.4%
-21.0%
10.3%
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector January 17, 2017
SAFCO AB - 2020.SE
Urea and Ammonia Prices
UREA Middle East Spot Price (US$/Ton) 390 370 350 330 310 290 270 250 230 210 190 170 150
Ammonia Middle East Spot Price (US$/Ton) 550 500 450 400 350 300 250
200 150
Source: Bloomberg
2
SAFCO Petrochemical Industries Sector January 17, 2017
SAFCO AB - 2020.SE
Income Statement (SAR mn)
2013A
2014A
2015A
2016E*
2017F
Sales
4,240.4
4,456.1
3,547.3
2,856.0
3,090.9
COGS
987.8
1,034.2
1,061.5
1,406.2
1,543.4
SG&A
81.1
97.4
71.2
91.1
103.5
EBITDA
3,171.4
3,324.5
2,414.5
1,306.2
1,444.0
EBITA Margin
74.8%
74.6%
68.1%
%46.6
%46.7
Depreciation and amortization
373.9
368.0
400.7
461.1
465.8
EBIT
2,797.5
2,956.5
2,013.8
980.3
978.2
Investment Income
392.53
241.58
137.15
111.62
122.78
Others
82.94
55.97
45.45
26.63
28.55
3,272.9
3,254.0
2,196.4
983.3
1,129.5
112.5
80.0
66.0
32.5
37.3
Net Income
3,160.5
3,174.0
2,130.4
1,051.3
1,092.2
ROS
74.5%
71.2%
60.1%
%36.8
%35.3
Pre-Tax and Zakat Income Tax and Zakat
Balance Sheet (SAR mn)
2013A
2014A
2015A
2016E
2017F
Cash and Marketable securities
2,139.7
1,640.1
1,460.0
1,399.4
1,591.7
342.3
386.9
434.6
333.9
341.0
886.1
754.5
920.6
656.7
724.1
Total ST Assets
3,368.1
2,781.4
2,815.3
2,390.0
2,656.8
Net Fixed Assets
4,320.5
4,896.5
5,173.2
4,489.2
4,093.1
1,527.7
1,193.0
916.6
945.0
976.2
Inventory Others
Long Term Investments
243.6
53.8
107.2
64.8
71.7
Total LT Assets
6,091.8
6,143.3
6,197.0
5,499.0
5,141.0
Total Assets
9,459.9
8,924.7
9,012.3
7,889.0
7,797.8
Accrued Expenses
309.6
159.0
415.1
210.9
232.6
Dividends Payable
Others
155.7
175.7
185.5
185.5
185.5
Others
222.3
175.6
219.5
188.3
200.4
Total ST Liabilities
687.6
510.2
820.2
584.8
618.5
503.47
552.79
595.96
632.16
665.19
Equity
8,268.8
7,861.7
7,596.2
6,672.0
6,514.2
Total Liabilities and Equity
9,459.9
8,924.7
9,012.3
7,889.0
7,797.8
Cash Flow (SAR mn)
2013A
2014A
2015A
2016E
2017F
Other Non-Current Liabilities
Cash flow from Operations
3,277.8
3,256.6
2,695.8
1,459.3
1,420.8
Cash flow from Financing
(4,015.0)
(3,313.3)
(2,241.5)
(1,875.0)
(1,250.0)
Cash flow from Investing
(717.1)
(442.8)
(634.3)
355.1
21.4
Change in Cash
(1,454.4)
(499.6)
(180.1)
(60.6)
192.3
Ending Cash
2,139.7
1,640.1
1,460.0
1,399.4
1,591.7
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. *Estimated numbers except for sales, EBIT and Net income.
3
SAFCO Petrochemical Industries Sector January 17, 2017
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
Toll-free: 800-116-0001
Research & Advisory
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
