Saudi Arabia Fertilizers Co. (SAFCO)
SAFCO Petrochemical Industries Sector SAFCO AB - 2020.SE October 25, 2017
Saudi Arabia Fertilizers Co. (SAFCO) Recommendation
Neutral
60.30
Fair Value (SAR)
Price as of October 25, 2017
57.98
Expected Return
4.00%
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
57.50
YTD Change
-24.2%
3-Month Average Volume (Thousand Shares)
126
Market Cap. (SAR Million)
24,160
Market Cap. (USD Million)
6,443
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
Saudi Arabian Fertilizer Company (SAFCO) disclosed its Q3 2017 interim results revealing a bottom line of SAR 188.4 million, edging up 1.2% from SAR 186 million in Q3 2016 but slumping 7.8% from the previous quarter. Over the first nine months, the bottom line jumped 6.33% hitting SAR 816 million compared to SAR 768 million in 9M 2016. The company attributed the growth in the bottom line compared with Q3 2016 and 9M 2016 to higher urea selling prices, increased volumes and the company's share in the profits of Ibn al-Baytar, as well as lower cost of sales. On the other hand, the decline versus Q2 2017 was fueled by lower selling prices for ammonia and lower sales volume.
82.00
52 Week Low (SAR)
Q3 2017
Current price
Q3 2017 Q3 2016
YoY
Q2 2017
QoQ
Ammonia (Middle East)
270
222
246
(9.8%)
344
(36%)
UREA (Middle East)
281
225
193
16.5%
209
7.7%
Sales in Q3 2017 amounted to SAR 618 million sliding 10.5% from SAR 689.5 million in Q3 2016. The nine-month sales hit SAR 2,143 million compared to SAR 2,091 million 9M 2016 showing an increase of 2.5%.
Tad awu l In dex
140 130
Gross profit in Q3 2017 slid 8% YoY and 7% QoQ to SAR 268.5 million, whereas 9M 2017 gross profits posted SAR 1,050 million jumping 7% YoY.
120 110
Operating profit (EBIT) slumped 14% YoY and 7% QoQ hitting SAR 175 million. Therefore, 9M 2017 operating profit hit SAR 689.3 million increasing 7.2% YoY, thus, the operating profit margin reached 36.11% versus 34.5% in 9M 2016.
100 90
Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales 1,00 0
ROS 60%
800
50%
600
40%
400
30%
200 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 third quarter’s net earnings came higher than our estimate of SAR 177 million and lower than the analysts’ consensus of SAR 195 million. Fertilizer prices deteriorated during the year 2016, which affected the profitability of the company. However, Urea prices saw a marked improvement since the beginning of this year. According to (IFA) the global demand for urea is excepted to increase by 1.5% in 2017 compared with 2016, to reach 187 Mt in 2021. key catalyst for selling prices in lower exports of urea from China and higher demand from India.
As a result, we keep our fair value of SAFCO at SAR 60 per share, with an “Neutral” recommendation.
FY - Ending December
2013A
2014A
2016A
2017E
EV/EBITDA
6.74
9.41
16.58
15.68
EV/Sales
5.03
6.41
8.29
7.66
P/E
7.72
11.50
23.21
20.29
Dividend Yield
9.5%
10.2%
4.3%
4.8%
P/BV
3.12
3.23
3.51
3.41
P/Revenue
5.50
6.91
8.58
8.11
Revenue Growth
5.1%
-20.4%
-19.5%
5.8%
6.9
4.6
2.3
2.6
EPS
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector October 25, 2017
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 October 25, 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
3,021.9
COGS COGS/Sales
987.8
1,034.2
1,061.5
1,358.5
1,164.6
23.30%
23.21%
29.92%
47.57%
38.54%
SG&A
81.1
97.4
71.2
69.4
381.8
SG&A/Sales
1.9%
2.2%
2.0%
2.4%
12.6%
EBITDA
3,171.4
3,324.5
2,414.5
1,428.0
1,475.6
EBITA Margin
74.8%
74.6%
68.1%
50.0%
48.8%
Depreciation and amortization
373.9
368.0
400.7
447.8
362.5
EBIT
2,797.5
2,956.5
2,013.8
980.3
1,113.0
Investment Income
364.05
213.11
118.17
57.31
76.41
Others
111.41
84.44
64.43
40.58
43.79
Pre-Tax and Zakat Income
3,272.9
3,254.0
2,196.4
1,078.2
1,233.3
Tax and Zakat
112.5
80.0
66.0
22.5
25.7
Net Income
3,160.5
3,174.0
2,130.4
1,055.7
1,207.5
ROS
74.5%
71.2%
60.1%
37.0%
40.0%
Balance Sheet (SAR mn)
2013A
2014A
2015A
2016A
2017E*
Cash and Marketable securities
2,139.7
1,640.1
1,460.0
316.8
845.7
Inventory
342.3
386.9
434.6
505.3
402.8
Others
886.1
754.5
920.6
737.0
780.2
Total ST Assets
3,368.1
2,781.4
2,815.3
1,559.0
2,028.7
Net Fixed Assets
4,320.5
4,896.5
5,173.2
5,485.9
5,205.8
Long Term Investments
1,527.7
1,193.0
916.6
1,179.2
1,217.4
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
6,519.4
Total Assets
9,459.9
8,924.7
9,012.3
8,373.8
8,548.1
Accrued Expenses
309.6
159.0
415.1
386.9
409.4
Dividends Payable
155.7
175.7
185.5
178.7
178.7
Others
222.3
175.6
219.5
281.3
295.3
Total ST Liabilities
687.6
510.2
820.2
846.9
883.3
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
7,188.2
Total Liabilities and Equity
9,459.9
8,924.7
9,012.3
8,373.8
8,548.1
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
1,505.7
Cash flow from Financing
(4,015.0)
(3,313.3)
(2,241.5)
(1,883.2)
(1,000.0)
Change in Cash
(1,454.4)
(499.6)
(180.1)
(1,143.3)
529.0
Ending Cash
2,139.7
1,640.1
1,460.0
316.8
845.7
Others
Cash flow from Investing
(717.1)
(442.8)
(634.3)
(818.3)
23.3
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. *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 October 25, 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 October 25, 2017
57.98
Expected Return
4.00%
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
57.50
YTD Change
-24.2%
3-Month Average Volume (Thousand Shares)
126
Market Cap. (SAR Million)
24,160
Market Cap. (USD Million)
6,443
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
Saudi Arabian Fertilizer Company (SAFCO) disclosed its Q3 2017 interim results revealing a bottom line of SAR 188.4 million, edging up 1.2% from SAR 186 million in Q3 2016 but slumping 7.8% from the previous quarter. Over the first nine months, the bottom line jumped 6.33% hitting SAR 816 million compared to SAR 768 million in 9M 2016. The company attributed the growth in the bottom line compared with Q3 2016 and 9M 2016 to higher urea selling prices, increased volumes and the company's share in the profits of Ibn al-Baytar, as well as lower cost of sales. On the other hand, the decline versus Q2 2017 was fueled by lower selling prices for ammonia and lower sales volume.
82.00
52 Week Low (SAR)
Q3 2017
Current price
Q3 2017 Q3 2016
YoY
Q2 2017
QoQ
Ammonia (Middle East)
270
222
246
(9.8%)
344
(36%)
UREA (Middle East)
281
225
193
16.5%
209
7.7%
Sales in Q3 2017 amounted to SAR 618 million sliding 10.5% from SAR 689.5 million in Q3 2016. The nine-month sales hit SAR 2,143 million compared to SAR 2,091 million 9M 2016 showing an increase of 2.5%.
Tad awu l In dex
140 130
Gross profit in Q3 2017 slid 8% YoY and 7% QoQ to SAR 268.5 million, whereas 9M 2017 gross profits posted SAR 1,050 million jumping 7% YoY.
120 110
Operating profit (EBIT) slumped 14% YoY and 7% QoQ hitting SAR 175 million. Therefore, 9M 2017 operating profit hit SAR 689.3 million increasing 7.2% YoY, thus, the operating profit margin reached 36.11% versus 34.5% in 9M 2016.
100 90
Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales 1,00 0
ROS 60%
800
50%
600
40%
400
30%
200 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 third quarter’s net earnings came higher than our estimate of SAR 177 million and lower than the analysts’ consensus of SAR 195 million. Fertilizer prices deteriorated during the year 2016, which affected the profitability of the company. However, Urea prices saw a marked improvement since the beginning of this year. According to (IFA) the global demand for urea is excepted to increase by 1.5% in 2017 compared with 2016, to reach 187 Mt in 2021. key catalyst for selling prices in lower exports of urea from China and higher demand from India.
As a result, we keep our fair value of SAFCO at SAR 60 per share, with an “Neutral” recommendation.
FY - Ending December
2013A
2014A
2016A
2017E
EV/EBITDA
6.74
9.41
16.58
15.68
EV/Sales
5.03
6.41
8.29
7.66
P/E
7.72
11.50
23.21
20.29
Dividend Yield
9.5%
10.2%
4.3%
4.8%
P/BV
3.12
3.23
3.51
3.41
P/Revenue
5.50
6.91
8.58
8.11
Revenue Growth
5.1%
-20.4%
-19.5%
5.8%
6.9
4.6
2.3
2.6
EPS
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector October 25, 2017
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 October 25, 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
3,021.9
COGS COGS/Sales
987.8
1,034.2
1,061.5
1,358.5
1,164.6
23.30%
23.21%
29.92%
47.57%
38.54%
SG&A
81.1
97.4
71.2
69.4
381.8
SG&A/Sales
1.9%
2.2%
2.0%
2.4%
12.6%
EBITDA
3,171.4
3,324.5
2,414.5
1,428.0
1,475.6
EBITA Margin
74.8%
74.6%
68.1%
50.0%
48.8%
Depreciation and amortization
373.9
368.0
400.7
447.8
362.5
EBIT
2,797.5
2,956.5
2,013.8
980.3
1,113.0
Investment Income
364.05
213.11
118.17
57.31
76.41
Others
111.41
84.44
64.43
40.58
43.79
Pre-Tax and Zakat Income
3,272.9
3,254.0
2,196.4
1,078.2
1,233.3
Tax and Zakat
112.5
80.0
66.0
22.5
25.7
Net Income
3,160.5
3,174.0
2,130.4
1,055.7
1,207.5
ROS
74.5%
71.2%
60.1%
37.0%
40.0%
Balance Sheet (SAR mn)
2013A
2014A
2015A
2016A
2017E*
Cash and Marketable securities
2,139.7
1,640.1
1,460.0
316.8
845.7
Inventory
342.3
386.9
434.6
505.3
402.8
Others
886.1
754.5
920.6
737.0
780.2
Total ST Assets
3,368.1
2,781.4
2,815.3
1,559.0
2,028.7
Net Fixed Assets
4,320.5
4,896.5
5,173.2
5,485.9
5,205.8
Long Term Investments
1,527.7
1,193.0
916.6
1,179.2
1,217.4
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
6,519.4
Total Assets
9,459.9
8,924.7
9,012.3
8,373.8
8,548.1
Accrued Expenses
309.6
159.0
415.1
386.9
409.4
Dividends Payable
155.7
175.7
185.5
178.7
178.7
Others
222.3
175.6
219.5
281.3
295.3
Total ST Liabilities
687.6
510.2
820.2
846.9
883.3
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
7,188.2
Total Liabilities and Equity
9,459.9
8,924.7
9,012.3
8,373.8
8,548.1
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
1,505.7
Cash flow from Financing
(4,015.0)
(3,313.3)
(2,241.5)
(1,883.2)
(1,000.0)
Change in Cash
(1,454.4)
(499.6)
(180.1)
(1,143.3)
529.0
Ending Cash
2,139.7
1,640.1
1,460.0
316.8
845.7
Others
Cash flow from Investing
(717.1)
(442.8)
(634.3)
(818.3)
23.3
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. *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 October 25, 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
