Saudi Arabia Fertilizers Co. (SAFCO)
SAFCO Petrochemical Industries Sector SAFCO AB - 2020.SE July 26, 2017
Saudi Arabia Fertilizers Co. (SAFCO) Recommendation
Neutral
60.30
Fair Value (SAR) Price as of July 26, 2017
62.02
Expected Return
-3%
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
82.00
52 Week Low (SAR)
58.50
YTD Change
-19%
3-Month Average Volume (Thousand Shares)
25,844
Market Cap. (USD Million)
6,892
Outstanding Shares (Million Shares)
416.7
Saudi Basic Industries Corp. (SABIC)
42.99%
General Organization for Social Insurance
12.20%
Major Shareholders ( > 5% )
The following table depicts the change in ammonia and urea prices in the first quarter of the year. Average commodity Prices (US$/Ton)
52-week Stock Price Movement SAFCO
150 140 130 120 110 100 90 80 70
Saudi Arabian Fertilizer Company (SAFCO) disclosed its Q2 2017 interim results revealing a bottom line of SAR 204 million, slumping 32.4% from SAR 302 million in Q2 2016 and 52% from the previous quarter. Over the first half, the bottom line jumped 8% hitting SAR 628 million compared to SAR 581 million in H1 2016. The company attributed the slump in the bottom line versus Q2 2016 and Q1 2017 to lower selling prices for the company's products, lower volumes and the company's share in the profits of Ibn al-Baytar, as well as higher cost of sales due to the suspension of some factories for maintenance. On the other hand, first half was driven by higher selling prices and quantities sold for urea.
140
Market Cap. (SAR Million)
Q2 2017
Tad awu l In dex
Current price
Q2 2017 Q2 2016 change Q1 2017 change
Ammonia (Middle East)
180
344
337
%2
315
%9
UREA (Middle East)
190
209
214
(%2)
265
(%21)
Sales in Q2 2017 amounted to SAR 680 million dropping 4.3% from SAR 710 million in Q2 2016. The semiannual sales hit SAR 1,526 million compared to SAR 1,401 million H1 2016 displaying a increase of 9%. Operating profit (EBIT) slumped 28% YoY and 53% QoQ hitting SAR 187 million. However, operating profit margin plummeted to 12% versus 19% in Q2 2016. Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales
1,00 0
ROS
70%
800
60%
600
50%
400
40%
200
30%
0
20%
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 second quarter’s net earnings missed our estimate of SAR 278 million and the analysts’ consensus of SAR 285 million. The company was affected by the deterioration of urea selling prices and some of the company's factories stopped for maintenance, which led to higher cost and lower volumes. China’s export of urea availability in March/April 2017 down year-over-year, but higher than expected due to relatively weak domestic demand, which in turn led to lower urea prices globally.
Taking into account Q2 2017 results and global supply/demand in 2017, we revised our fair value of SAFCO from SAR 64.5 per share to SAR 60.30 , with an “Neutral” recommendation.
FY - Ending December
2013A
2014A
2016A
2017E
EV/EBITDA
7.14
9.97
17.51
18.76
EV/Sales
5.33
6.78
8.76
7.84
P/E
8.14
12.13
24.47
22.33
Dividend Yield
9.0%
9.7%
4.0%
4.8%
P/BV
3.29
3.40
3.70
3.64
P/Revenue
5.80
7.28
9.05
8.24
Revenue Growth
5.1%
-20.4%
-19.5%
9.8%
4.6
2.3
2.5
EPS
6.9
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector July 26, 2017
SAFCO AB - 2020.SE
Urea and Ammonia Prices
UREA Middle East Spot Price (US$/Ton) 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 July 26, 2017
SAFCO AB - 2020.SE Income Statement (SAR mn)
2013A
2014A
2015A
2016A
2017E
Sales
4,240.4
4,456.1
3,547.3
2,855.9
3,136.8
COGS
987.8
1,034.2
1,061.5
1,358.5
1,461.3
SG&A
81.1
97.4
71.2
69.4
364.0
EBITDA
3,171.4
3,324.5
2,414.5
1,428.0
1,311.5
EBITA Margin
74.8%
74.6%
68.1%
50.0%
41.8%
Depreciation and amortization
373.9
368.0
400.7
447.8
315.4
EBIT
2,797.5
2,956.5
2,013.8
980.3
996.1
Investment Income
392.53
241.58
137.15
71.55
122.78
Others Pre-Tax and Zakat Income Tax and Zakat
82.94
55.97
45.45
26.34
62.61
3,272.9
3,254.0
2,196.4
1,078.2
1,181.5
112.5
80.0
66.0
22.5
24.7
Net Income
3,160.5
3,174.0
2,130.4
1,055.7
1,156.8
ROS
74.5%
71.2%
60.1%
37.0%
36.9%
Balance Sheet (SAR mn)
2013A
2014A
2015A
2016A
2017E
Cash and Marketable securities
2,139.7
1,640.1
1,460.0
316.8
716.8
Inventory
342.3
386.9
434.6
505.3
419.2
Others
886.1
754.5
920.6
737.0
809.8
Total ST Assets
3,368.1
2,781.4
2,815.3
1,559.0
1,945.8
Net Fixed Assets
4,320.5
4,896.5
5,173.2
5,485.9
5,257.5
Long Term Investments
1,527.7
1,193.0
916.6
1,179.2
1,181.5
243.6
53.8
107.2
149.6
96.1
Total LT Assets
6,091.8
6,143.3
6,197.0
6,814.7
6,535.1
Total Assets
9,459.9
8,924.7
9,012.3
8,373.8
8,481.0
Accrued Expenses
309.6
159.0
415.1
386.9
424.9
Dividends Payable
155.7
175.7
185.5
178.7
178.7
Others
222.3
175.6
219.5
281.3
304.9
Total ST Liabilities
687.6
510.2
820.2
846.9
908.6
Other Non-Current Liabilities
503.47
552.79
595.96
546.17
476.54
Equity
8,268.8
7,861.7
7,596.2
6,980.7
7,095.9
Total Liabilities and Equity
9,459.9
8,924.7
9,012.3
8,373.8
8,481.0
Cash Flow (SAR mn)
2013A
2014A
2015A
2016A
2017E
Cash flow from Operations
3,277.8
3,256.6
2,695.8
1,558.2
1,307.3
Cash flow from Financing
(4,015.0)
(3,313.3)
(2,241.5)
(1,883.2)
(1,041.7)
Change in Cash
(1,454.4)
(499.6)
(180.1)
(1,143.3)
400.0
Ending Cash
2,139.7
1,640.1
1,460.0
316.8
716.8
Others
Cash flow from Investing
(717.1)
(442.8)
(634.3)
(818.3)
134.3
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.
3
SAFCO Petrochemical Industries Sector July 26, 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
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
Neutral
60.30
Fair Value (SAR) Price as of July 26, 2017
62.02
Expected Return
-3%
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
82.00
52 Week Low (SAR)
58.50
YTD Change
-19%
3-Month Average Volume (Thousand Shares)
25,844
Market Cap. (USD Million)
6,892
Outstanding Shares (Million Shares)
416.7
Saudi Basic Industries Corp. (SABIC)
42.99%
General Organization for Social Insurance
12.20%
Major Shareholders ( > 5% )
The following table depicts the change in ammonia and urea prices in the first quarter of the year. Average commodity Prices (US$/Ton)
52-week Stock Price Movement SAFCO
150 140 130 120 110 100 90 80 70
Saudi Arabian Fertilizer Company (SAFCO) disclosed its Q2 2017 interim results revealing a bottom line of SAR 204 million, slumping 32.4% from SAR 302 million in Q2 2016 and 52% from the previous quarter. Over the first half, the bottom line jumped 8% hitting SAR 628 million compared to SAR 581 million in H1 2016. The company attributed the slump in the bottom line versus Q2 2016 and Q1 2017 to lower selling prices for the company's products, lower volumes and the company's share in the profits of Ibn al-Baytar, as well as higher cost of sales due to the suspension of some factories for maintenance. On the other hand, first half was driven by higher selling prices and quantities sold for urea.
140
Market Cap. (SAR Million)
Q2 2017
Tad awu l In dex
Current price
Q2 2017 Q2 2016 change Q1 2017 change
Ammonia (Middle East)
180
344
337
%2
315
%9
UREA (Middle East)
190
209
214
(%2)
265
(%21)
Sales in Q2 2017 amounted to SAR 680 million dropping 4.3% from SAR 710 million in Q2 2016. The semiannual sales hit SAR 1,526 million compared to SAR 1,401 million H1 2016 displaying a increase of 9%. Operating profit (EBIT) slumped 28% YoY and 53% QoQ hitting SAR 187 million. However, operating profit margin plummeted to 12% versus 19% in Q2 2016. Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales
1,00 0
ROS
70%
800
60%
600
50%
400
40%
200
30%
0
20%
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 second quarter’s net earnings missed our estimate of SAR 278 million and the analysts’ consensus of SAR 285 million. The company was affected by the deterioration of urea selling prices and some of the company's factories stopped for maintenance, which led to higher cost and lower volumes. China’s export of urea availability in March/April 2017 down year-over-year, but higher than expected due to relatively weak domestic demand, which in turn led to lower urea prices globally.
Taking into account Q2 2017 results and global supply/demand in 2017, we revised our fair value of SAFCO from SAR 64.5 per share to SAR 60.30 , with an “Neutral” recommendation.
FY - Ending December
2013A
2014A
2016A
2017E
EV/EBITDA
7.14
9.97
17.51
18.76
EV/Sales
5.33
6.78
8.76
7.84
P/E
8.14
12.13
24.47
22.33
Dividend Yield
9.0%
9.7%
4.0%
4.8%
P/BV
3.29
3.40
3.70
3.64
P/Revenue
5.80
7.28
9.05
8.24
Revenue Growth
5.1%
-20.4%
-19.5%
9.8%
4.6
2.3
2.5
EPS
6.9
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector July 26, 2017
SAFCO AB - 2020.SE
Urea and Ammonia Prices
UREA Middle East Spot Price (US$/Ton) 290 270
250 230 210 190 170
150
Ammonia Middle East Spot Price (US$/Ton) 500 450 400 350 300 250 200 150
Source: Bloomberg
2
SAFCO Petrochemical Industries Sector July 26, 2017
SAFCO AB - 2020.SE Income Statement (SAR mn)
2013A
2014A
2015A
2016A
2017E
Sales
4,240.4
4,456.1
3,547.3
2,855.9
3,136.8
COGS
987.8
1,034.2
1,061.5
1,358.5
1,461.3
SG&A
81.1
97.4
71.2
69.4
364.0
EBITDA
3,171.4
3,324.5
2,414.5
1,428.0
1,311.5
EBITA Margin
74.8%
74.6%
68.1%
50.0%
41.8%
Depreciation and amortization
373.9
368.0
400.7
447.8
315.4
EBIT
2,797.5
2,956.5
2,013.8
980.3
996.1
Investment Income
392.53
241.58
137.15
71.55
122.78
Others Pre-Tax and Zakat Income Tax and Zakat
82.94
55.97
45.45
26.34
62.61
3,272.9
3,254.0
2,196.4
1,078.2
1,181.5
112.5
80.0
66.0
22.5
24.7
Net Income
3,160.5
3,174.0
2,130.4
1,055.7
1,156.8
ROS
74.5%
71.2%
60.1%
37.0%
36.9%
Balance Sheet (SAR mn)
2013A
2014A
2015A
2016A
2017E
Cash and Marketable securities
2,139.7
1,640.1
1,460.0
316.8
716.8
Inventory
342.3
386.9
434.6
505.3
419.2
Others
886.1
754.5
920.6
737.0
809.8
Total ST Assets
3,368.1
2,781.4
2,815.3
1,559.0
1,945.8
Net Fixed Assets
4,320.5
4,896.5
5,173.2
5,485.9
5,257.5
Long Term Investments
1,527.7
1,193.0
916.6
1,179.2
1,181.5
243.6
53.8
107.2
149.6
96.1
Total LT Assets
6,091.8
6,143.3
6,197.0
6,814.7
6,535.1
Total Assets
9,459.9
8,924.7
9,012.3
8,373.8
8,481.0
Accrued Expenses
309.6
159.0
415.1
386.9
424.9
Dividends Payable
155.7
175.7
185.5
178.7
178.7
Others
222.3
175.6
219.5
281.3
304.9
Total ST Liabilities
687.6
510.2
820.2
846.9
908.6
Other Non-Current Liabilities
503.47
552.79
595.96
546.17
476.54
Equity
8,268.8
7,861.7
7,596.2
6,980.7
7,095.9
Total Liabilities and Equity
9,459.9
8,924.7
9,012.3
8,373.8
8,481.0
Cash Flow (SAR mn)
2013A
2014A
2015A
2016A
2017E
Cash flow from Operations
3,277.8
3,256.6
2,695.8
1,558.2
1,307.3
Cash flow from Financing
(4,015.0)
(3,313.3)
(2,241.5)
(1,883.2)
(1,041.7)
Change in Cash
(1,454.4)
(499.6)
(180.1)
(1,143.3)
400.0
Ending Cash
2,139.7
1,640.1
1,460.0
316.8
716.8
Others
Cash flow from Investing
(717.1)
(442.8)
(634.3)
(818.3)
134.3
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.
3
SAFCO Petrochemical Industries Sector July 26, 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
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
