Saudi Arabia Fertilizers Co. (SAFCO)
SAFCO Petrochemical Industries Sector SAFCO AB - 2020.SE May 3, 2018
Saudi Arabia Fertilizers Co. (SAFCO) Recommendation
Neutral
66.00
Fair Value (SAR) Price as of May 2, 2018
65.01
Expected Return
%1.5
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
73.10
52 Week Low (SAR)
57.00
YTD Change
%0.02
3-Month Average Volume (Thousand Shares)
299
Market Cap. (SAR Million)
27,090
Market Cap. (USD Million)
7,224
Outstanding Shares (Million Shares)
416.7
Saudi Basic Industries Corp. (SABIC)
%42.99
General Organization for Social Insurance
%12.24
Major Shareholders ( > 5% )
52-week Stock Price Movement SAFCO
120
Q1 2018
Saudi Arabian Fertilizer Company (SAFCO) disclosed its Q1 2018 interim results revealing a bottom line of SAR 237 million compared to SAR 423 million in Q1 2017 plummeting 44%, while leaping 280% from SAR 62.5 million in Q4 2017. Thus, the profit margin in Q1 2018 reached 29.3% versus 50% and 10% for Q1 2017 and Q4 2017, respectively. The company attributed that the decline in Q1 2018 to higher costs from the organizational restructuring and a drop in the company’s share from Ibn AlBaytar as well as higher depreciation. Compared with the previous quarter of 2017, the rise in net profits was driven by the completion of maintenance for SAFCO 4 plant, which has affected the company's profits. The following table depicts the change in ammonia and urea prices in Q1 2018: Average commodity Prices (US$/Ton)
Current price
Q1 2018 Q1 2017
YoY
Q4 2017
QoQ
Ammonia (Middle East)
275
322
319
1%
307
5%
UREA (Middle East)
252
258
265
(2%)
261
(1%)
Sales in Q1 2018 amounted to SAR 810 million sliding 4% from SAR 847 million in Q1 2017. The figure spiked 32% from SAR 616 million in Q4 2017.
Tadawul Index
Gross profit Q1 2018 plunged at SAR 358 million compared to SAR 479 million in Q1 2017, tumbling 25% YoY, while surging 141% QoQ.
110 100
Operating income (EBIT) hit SAR 242 million in Q1 2018 compared to SAR 395 million in Q1 2017, falling 40% YoY, while soaring 51% QoQ. Therefore, the operating profit margin in Q1 2018 came in at 30% compared with 47% in Q1 2017 and 8% in Q4 2017.
90 80 70
Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales
ROS
1,000
55%
800
45%
600
35%
400
25%
200
15%
0
5%
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 first quarter’s net earnings missed our estimate of SAR 430 million and the analysts’ consensus of SAR 391 million. We believe SAFCO has not capitalized on the rise in ammonia and urea prices in Q1 2018, which were boosted by China's tendency to put restrictions on facilities 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. Therefore, we believe fertilizer prices will maintain their levels in 2018. It is worthy to mention that the company planned to shutdown SAFCO 2 and SAFCO 3 plants to commence turnarounds in the units for 7 and 9 days in Q2 2018 respectively, which will weigh on the opex margins of SAFCO in the second quarter. According to our DCF model, the fair value of the share stands at SAR 66.
FY - Ending December
2015A
2016A
2017A
2018E
EV/EBITDA
10.57
18.38
20.26
19.00
EV/Sales
7.19
9.27
9.59
9.05
P/E
12.80
26.33
31.05
30.06
Dividend Yield
%9.2
%3.8
%2.7
%3.1
P/BV
3.59
4.09
3.98
3.90
P/Revenue
7.69
9.55
9.89
9.34
%20.4-
%19.5-
%3.4-
%5.8
4.6
2.2
1.9
2.0
Revenue Growth EPS
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector May 3, 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) 450 400 350 300 250 200 150
Source: Bloomberg
2
SAFCO Petrochemical Industries Sector May 3, 2018
SAFCO AB - 2020.SE Income Statement (SAR mn)
2014A
2015A
2016A
2017E
2018E
Sales
4,456.1
3,547.3
2,855.9
2,759.5
2,920.6
COGS
1,034.2
1,061.5
1,358.5
1,078.5
1,137.5
COGS/Sales
23.21%
29.92%
47.57%
39.08%
38.95%
SG&A
97.4
71.2
69.4
374.4
392.3
SG&A/Sales
2.2%
2.0%
2.4%
13.6%
13.4%
EBITDA
3,324.5
2,414.5
1,428.0
1,306.5
1,390.8
EBITA Margin
74.6%
68.1%
50.0%
47.3%
47.6%
Depreciation and amortization
368.0
400.7
447.8
481.7
512.2
EBIT
2,956.5
2,013.8
980.3
824.8
878.6
Investment Income
213.11
118.17
57.31
93.74
70.30
Others
84.44
64.43
40.58
(12.91)
(13.67)
3,254.0
2,196.4
1,078.2
905.6
935.2
80.0
66.0
22.5
27.0
27.9
Net Income
3,174.0
2,130.4
1,055.7
878.6
907.4
ROS
71.2%
60.1%
37.0%
31.8%
31.1%
Balance Sheet (SAR mn)
2014A
2015A
2016A
2017E
2018E
Cash and Marketable securities
1,640.1
1,460.0
285.2
244.8
290.4
Inventory
386.9
434.6
417.5
413.6
420.4
Others
754.5
920.6
737.5
533.9
568.9
Total ST Assets
2,781.4
2,815.3
1,440.2
1,192.3
1,279.7
Net Fixed Assets
4,896.5
5,173.2
5,441.9
5,682.8
5,731.0
Long Term Investments
1,193.0
916.6
1,145.9
1,235.2
1,256.3
53.8
107.2
199.7
236.6
245.7
Total LT Assets
6,143.3
6,197.0
6,787.5
7,154.6
7,233.0
Total Assets
8,924.7
9,012.3
8,227.6
8,346.9
8,512.6
Accrued Expenses
159.0
415.1
420.8
430.7
455.9
Dividends Payable
175.7
185.5
178.7
175.4
175.4
Others
175.6
219.5
278.6
179.2
188.4
Total ST Liabilities
510.2
820.2
878.1
785.3
819.7
Other Non-Current Liabilities
552.79
595.96
682.54
700.94
698.81
Equity
7,861.7
7,596.2
6,667.1
6,860.6
6,994.2
Total Liabilities and Equity
8,924.7
9,012.3
8,227.6
8,346.9
8,512.6
Pre-Tax and Zakat Income Tax and Zakat
Others
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. *The financial statements for the period ( 2016 - 2018) are presented according to IFRS.
3
SAFCO Petrochemical Industries Sector May 3, 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
Neutral
66.00
Fair Value (SAR) Price as of May 2, 2018
65.01
Expected Return
%1.5
Tadawul Symbol
2020.SE
Company Data 52 Week High (SAR)
73.10
52 Week Low (SAR)
57.00
YTD Change
%0.02
3-Month Average Volume (Thousand Shares)
299
Market Cap. (SAR Million)
27,090
Market Cap. (USD Million)
7,224
Outstanding Shares (Million Shares)
416.7
Saudi Basic Industries Corp. (SABIC)
%42.99
General Organization for Social Insurance
%12.24
Major Shareholders ( > 5% )
52-week Stock Price Movement SAFCO
120
Q1 2018
Saudi Arabian Fertilizer Company (SAFCO) disclosed its Q1 2018 interim results revealing a bottom line of SAR 237 million compared to SAR 423 million in Q1 2017 plummeting 44%, while leaping 280% from SAR 62.5 million in Q4 2017. Thus, the profit margin in Q1 2018 reached 29.3% versus 50% and 10% for Q1 2017 and Q4 2017, respectively. The company attributed that the decline in Q1 2018 to higher costs from the organizational restructuring and a drop in the company’s share from Ibn AlBaytar as well as higher depreciation. Compared with the previous quarter of 2017, the rise in net profits was driven by the completion of maintenance for SAFCO 4 plant, which has affected the company's profits. The following table depicts the change in ammonia and urea prices in Q1 2018: Average commodity Prices (US$/Ton)
Current price
Q1 2018 Q1 2017
YoY
Q4 2017
QoQ
Ammonia (Middle East)
275
322
319
1%
307
5%
UREA (Middle East)
252
258
265
(2%)
261
(1%)
Sales in Q1 2018 amounted to SAR 810 million sliding 4% from SAR 847 million in Q1 2017. The figure spiked 32% from SAR 616 million in Q4 2017.
Tadawul Index
Gross profit Q1 2018 plunged at SAR 358 million compared to SAR 479 million in Q1 2017, tumbling 25% YoY, while surging 141% QoQ.
110 100
Operating income (EBIT) hit SAR 242 million in Q1 2018 compared to SAR 395 million in Q1 2017, falling 40% YoY, while soaring 51% QoQ. Therefore, the operating profit margin in Q1 2018 came in at 30% compared with 47% in Q1 2017 and 8% in Q4 2017.
90 80 70
Source: Tadawul
Quarterly Sales (SAR mn) and ROS Sales
ROS
1,000
55%
800
45%
600
35%
400
25%
200
15%
0
5%
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 first quarter’s net earnings missed our estimate of SAR 430 million and the analysts’ consensus of SAR 391 million. We believe SAFCO has not capitalized on the rise in ammonia and urea prices in Q1 2018, which were boosted by China's tendency to put restrictions on facilities 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. Therefore, we believe fertilizer prices will maintain their levels in 2018. It is worthy to mention that the company planned to shutdown SAFCO 2 and SAFCO 3 plants to commence turnarounds in the units for 7 and 9 days in Q2 2018 respectively, which will weigh on the opex margins of SAFCO in the second quarter. According to our DCF model, the fair value of the share stands at SAR 66.
FY - Ending December
2015A
2016A
2017A
2018E
EV/EBITDA
10.57
18.38
20.26
19.00
EV/Sales
7.19
9.27
9.59
9.05
P/E
12.80
26.33
31.05
30.06
Dividend Yield
%9.2
%3.8
%2.7
%3.1
P/BV
3.59
4.09
3.98
3.90
P/Revenue
7.69
9.55
9.89
9.34
%20.4-
%19.5-
%3.4-
%5.8
4.6
2.2
1.9
2.0
Revenue Growth EPS
Source: Company Filings, Albilad Capital Research Estimates
1
SAFCO Petrochemical Industries Sector May 3, 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) 450 400 350 300 250 200 150
Source: Bloomberg
2
SAFCO Petrochemical Industries Sector May 3, 2018
SAFCO AB - 2020.SE Income Statement (SAR mn)
2014A
2015A
2016A
2017E
2018E
Sales
4,456.1
3,547.3
2,855.9
2,759.5
2,920.6
COGS
1,034.2
1,061.5
1,358.5
1,078.5
1,137.5
COGS/Sales
23.21%
29.92%
47.57%
39.08%
38.95%
SG&A
97.4
71.2
69.4
374.4
392.3
SG&A/Sales
2.2%
2.0%
2.4%
13.6%
13.4%
EBITDA
3,324.5
2,414.5
1,428.0
1,306.5
1,390.8
EBITA Margin
74.6%
68.1%
50.0%
47.3%
47.6%
Depreciation and amortization
368.0
400.7
447.8
481.7
512.2
EBIT
2,956.5
2,013.8
980.3
824.8
878.6
Investment Income
213.11
118.17
57.31
93.74
70.30
Others
84.44
64.43
40.58
(12.91)
(13.67)
3,254.0
2,196.4
1,078.2
905.6
935.2
80.0
66.0
22.5
27.0
27.9
Net Income
3,174.0
2,130.4
1,055.7
878.6
907.4
ROS
71.2%
60.1%
37.0%
31.8%
31.1%
Balance Sheet (SAR mn)
2014A
2015A
2016A
2017E
2018E
Cash and Marketable securities
1,640.1
1,460.0
285.2
244.8
290.4
Inventory
386.9
434.6
417.5
413.6
420.4
Others
754.5
920.6
737.5
533.9
568.9
Total ST Assets
2,781.4
2,815.3
1,440.2
1,192.3
1,279.7
Net Fixed Assets
4,896.5
5,173.2
5,441.9
5,682.8
5,731.0
Long Term Investments
1,193.0
916.6
1,145.9
1,235.2
1,256.3
53.8
107.2
199.7
236.6
245.7
Total LT Assets
6,143.3
6,197.0
6,787.5
7,154.6
7,233.0
Total Assets
8,924.7
9,012.3
8,227.6
8,346.9
8,512.6
Accrued Expenses
159.0
415.1
420.8
430.7
455.9
Dividends Payable
175.7
185.5
178.7
175.4
175.4
Others
175.6
219.5
278.6
179.2
188.4
Total ST Liabilities
510.2
820.2
878.1
785.3
819.7
Other Non-Current Liabilities
552.79
595.96
682.54
700.94
698.81
Equity
7,861.7
7,596.2
6,667.1
6,860.6
6,994.2
Total Liabilities and Equity
8,924.7
9,012.3
8,227.6
8,346.9
8,512.6
Pre-Tax and Zakat Income Tax and Zakat
Others
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. *The financial statements for the period ( 2016 - 2018) are presented according to IFRS.
3
SAFCO Petrochemical Industries Sector May 3, 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
