Saudi Arabian Mining Co. (Ma'aden) - Aljazira Capital
Saudi Arabian Mining Co. (Ma’aden) Result Flash Note 1Q-2016
April 2016
Ma’aden: Q1-2016 results exceeded all market estimates with a positive surprise; lower than expected OPEX and production cost contributed strongly in the quarter result. “Overweight” reiterated Amount in SAR mn; unless specified Sales revenues Net profit EPS (SAR)*
Forecasts 1Q-16 2,480.3 50.4 0.04
Actual 1Q-16 2,259.8 168.9 0.14
Deviation (%) -8.8% 2.35 -
Lower than expected sales volume was offset by controlled operational expenses and higher production sufficiency in 1Q2016: Q1-2016 earnings came above our estimates and showed a net profit of SAR 168.9mn, against AJC estimate of SAR 50.4mn profit and market consensus of SAR 19.5mn profit. Saudi Arabian Mining Company’s (Ma’aden) reported a net profit of SAR 168.9mn; (EPS; SAR 0.14); as compared to a net profit of SAR 260.9mn in Q1-2015 and net losses of SAR 5.6mn in the previous quarter. The company attributed the weak YoY result to i) decrease in sales revenues by 17% ii) lower average realized product prices. However, cost of sales witnessed a decline of 16%YoY through lower raw material costs. Furthermore, the company’s initiative to reduce the OPEX led to a reduction in exploration, technical services expenses and SG & A expenses by 17%. We believe that despite the lower than expected sales revenue, the efficient control of operational expenses had strongly revived the financial earnings in 1Q2016. Gross profit declined 7.6%QoQ to SAR 492.9mn. It was 6.2% higher than our estimate of SAR 464.2mn. Gross margin is expected to stand at 21.8% in 1Q2016 vs. 20.1% in 4Q2015 owing to slight decline in cost of sales which led to higher gross margin. Operating profit fell by 21.8%YoY to SAR 302.6mn, 62.2% higher than our expectation of SAR 186.5mn. The increase in operating profit was due to lower OPEX expenses by 46.1%QoQ and 17.0%YoY, which translated into SAR 162.4mn decline in QoQ OPEX. Poor performance on low commodity prices Aluminum: Aluminum average prices declined to about USD 1,513.3/tonne in 1Q2016 from around USD 1,813.8/tonne in 1Q2015 due to weak global demand and higher inventory levels. Growth in aluminum production outpaced demand by the widest in the last 6 years. We note that aluminum accounts for almost 43.5% of the company’s sales in 2015. Phosphate: Ammonia sales price fell by 34.7%YoY and 27.8%QoQ. DAP-Fertilizer sales price plunged by 21.3%YoY and 14.3%QoQ owing to a large surplus worldwide and weak fundamental in the industry. Gold: Gold prices averaged at about USD 1,184.4 per ounce in 1Q2016. However, it moved in a broad range of about USD 1,072 per ounce to USD 1,285 per ounce. Currently, gold prices are hovering at about USD 1,233 per ounce and they are likely to maintain upside movement in 2016 due to weak dollar.
Please read Disclaimer on the back
Recommendation
‘Overweight’
Current Price* (SAR)
28.50
Key Financials FY14
SARmn (unless specified) Revenues Growth % Net Income* Growth % EPS
Highly leveraged balance sheet, financing cost and depreciation to hurt the company’s net income: Ma’aden is considered to be one of the highly leveraged companies in the Saudi market, with long-term obligation of SAR 43.3bn. Almost 25% shares of the loan are expected to be settled in 2023E. Hence, the high financing cost and depreciation in 2015 of SAR 450.4mn and SAR 2.21bn respectively, the higher the effect on the company’s net income. We expect the company to remain highly leveraged in the near to medium-term, and won’t have capacity to pay dividend in 2016/17 year. However, the margins are expected to positively expand after the commencement of commercial production of Wa’ad Al Shamal, which may lower the impact of finance cost and depreciation on the company’s net income.
1
© All rights reserved
FY15
10,792 10,956 78.5% 1.5% 1,357 605.2 -19.3% -55.4% 1.16 0.52
FY16E FY17E 10,931 -0.2% 941.9 55.6% 0.81
15,439 41.2% 1,875.7 99.1% 1.61
Source: Company reports, Aljazira Capital, *After minority interest
Key Ratios SARmn (unless specified) FY14
FY15
FY16E FY17E
Gross Margin EBITDA Margin Net Margin P/E P/B EV/EBITDA (x) ROE ROA
22.3% 32.1% 5.5% 64.0x 1.13x 19.3x 2.38% 0.96%
23.6% 35.2% 8.6% 35.4x 0.91x 18.4x 3.92% 1.60%
28.9% 32.7% 12.6% 26.9x 1.09x 19.1x 5.93% 2.34%
23.2% 35.4% 12.1% 17.8x 0.86x 12.3x 6.41% 2.73%
Source: Company reports, Aljazira Capital
Key Market Data Market Cap (bn) YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
33.30 -12.6% 48.40 25.70 1,168.48 Source: Company reports, Aljazira Capital
Shareholders Pattern Shareholders Pattern Public Pension Agency General Organization for Social Insurance Public Investment Fund Public
Holding 7.45% 7.98% 49.99% 34.58%
Source: Company reports, Aljazira Capital
Price Performance 50
11000
45
10000
40
9000
35
8000 7000
30
6000
25
5000
20
Ja nM 14 ar M 14 ay -1 Ju 4 l-1 Se 4 pN 14 ov Ja 14 nM 15 ar M 15 ay -1 Ju 5 lSe 15 pN 15 ov Ja 15 nM 16 ar -1 6
Wa’ad Al Shamal: The Wa’ad Al Shamal project is progressing well, with the construction being expected to be completed by the end of 4Q2016. According to the management presentation, around 85% of ammonia plant and almost 65% of overall phosphate complex have been completed in 2015. The total production capacity of these plants would be about 16mn tonnes per year.
15.0% *prices as of 17th of April 2016
New ray of hope, new projects: Ad Duwayhi: Ad Duwayhi, the largest gold mine in Saudi Arabia, initiated commercial production in 1st April 2016. The rated production capacity of Ad-Duwayhi is 180,000 ounces per annum and over 1.9mn ounces over the life of the mine. According to the company, production capacity will gradually ramp up to reach 100% by the end 2016.
32.80
Target Price (SAR) Upside / (Downside)
Tadawul
MA’ADEN
Source: Company reports, Aljazira Capital
Analyst
Jassim Al-Jubran +966 11 2256248 [email protected]
RESEARCH DIVISION
Acting Head of Research
RESEARCH DIVISION
BROKERAGE AND INVESTMENT CENTERS DIVISION
Talha Nazar
Sultan Al Kadi
Analyst
Jassim Al-Jubran
+966 11 2256115 [email protected]
+966 11 2256374 [email protected]
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
sales
brokerage
Brokerage
Alaa Al-Yousef
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618400 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
Central Region
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
+966 11 2256364 [email protected]
+966 11 2256248 [email protected]
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1.
RATING TERMINOLOGY
Analyst
2. 3. 4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
April 2016
Ma’aden: Q1-2016 results exceeded all market estimates with a positive surprise; lower than expected OPEX and production cost contributed strongly in the quarter result. “Overweight” reiterated Amount in SAR mn; unless specified Sales revenues Net profit EPS (SAR)*
Forecasts 1Q-16 2,480.3 50.4 0.04
Actual 1Q-16 2,259.8 168.9 0.14
Deviation (%) -8.8% 2.35 -
Lower than expected sales volume was offset by controlled operational expenses and higher production sufficiency in 1Q2016: Q1-2016 earnings came above our estimates and showed a net profit of SAR 168.9mn, against AJC estimate of SAR 50.4mn profit and market consensus of SAR 19.5mn profit. Saudi Arabian Mining Company’s (Ma’aden) reported a net profit of SAR 168.9mn; (EPS; SAR 0.14); as compared to a net profit of SAR 260.9mn in Q1-2015 and net losses of SAR 5.6mn in the previous quarter. The company attributed the weak YoY result to i) decrease in sales revenues by 17% ii) lower average realized product prices. However, cost of sales witnessed a decline of 16%YoY through lower raw material costs. Furthermore, the company’s initiative to reduce the OPEX led to a reduction in exploration, technical services expenses and SG & A expenses by 17%. We believe that despite the lower than expected sales revenue, the efficient control of operational expenses had strongly revived the financial earnings in 1Q2016. Gross profit declined 7.6%QoQ to SAR 492.9mn. It was 6.2% higher than our estimate of SAR 464.2mn. Gross margin is expected to stand at 21.8% in 1Q2016 vs. 20.1% in 4Q2015 owing to slight decline in cost of sales which led to higher gross margin. Operating profit fell by 21.8%YoY to SAR 302.6mn, 62.2% higher than our expectation of SAR 186.5mn. The increase in operating profit was due to lower OPEX expenses by 46.1%QoQ and 17.0%YoY, which translated into SAR 162.4mn decline in QoQ OPEX. Poor performance on low commodity prices Aluminum: Aluminum average prices declined to about USD 1,513.3/tonne in 1Q2016 from around USD 1,813.8/tonne in 1Q2015 due to weak global demand and higher inventory levels. Growth in aluminum production outpaced demand by the widest in the last 6 years. We note that aluminum accounts for almost 43.5% of the company’s sales in 2015. Phosphate: Ammonia sales price fell by 34.7%YoY and 27.8%QoQ. DAP-Fertilizer sales price plunged by 21.3%YoY and 14.3%QoQ owing to a large surplus worldwide and weak fundamental in the industry. Gold: Gold prices averaged at about USD 1,184.4 per ounce in 1Q2016. However, it moved in a broad range of about USD 1,072 per ounce to USD 1,285 per ounce. Currently, gold prices are hovering at about USD 1,233 per ounce and they are likely to maintain upside movement in 2016 due to weak dollar.
Please read Disclaimer on the back
Recommendation
‘Overweight’
Current Price* (SAR)
28.50
Key Financials FY14
SARmn (unless specified) Revenues Growth % Net Income* Growth % EPS
Highly leveraged balance sheet, financing cost and depreciation to hurt the company’s net income: Ma’aden is considered to be one of the highly leveraged companies in the Saudi market, with long-term obligation of SAR 43.3bn. Almost 25% shares of the loan are expected to be settled in 2023E. Hence, the high financing cost and depreciation in 2015 of SAR 450.4mn and SAR 2.21bn respectively, the higher the effect on the company’s net income. We expect the company to remain highly leveraged in the near to medium-term, and won’t have capacity to pay dividend in 2016/17 year. However, the margins are expected to positively expand after the commencement of commercial production of Wa’ad Al Shamal, which may lower the impact of finance cost and depreciation on the company’s net income.
1
© All rights reserved
FY15
10,792 10,956 78.5% 1.5% 1,357 605.2 -19.3% -55.4% 1.16 0.52
FY16E FY17E 10,931 -0.2% 941.9 55.6% 0.81
15,439 41.2% 1,875.7 99.1% 1.61
Source: Company reports, Aljazira Capital, *After minority interest
Key Ratios SARmn (unless specified) FY14
FY15
FY16E FY17E
Gross Margin EBITDA Margin Net Margin P/E P/B EV/EBITDA (x) ROE ROA
22.3% 32.1% 5.5% 64.0x 1.13x 19.3x 2.38% 0.96%
23.6% 35.2% 8.6% 35.4x 0.91x 18.4x 3.92% 1.60%
28.9% 32.7% 12.6% 26.9x 1.09x 19.1x 5.93% 2.34%
23.2% 35.4% 12.1% 17.8x 0.86x 12.3x 6.41% 2.73%
Source: Company reports, Aljazira Capital
Key Market Data Market Cap (bn) YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
33.30 -12.6% 48.40 25.70 1,168.48 Source: Company reports, Aljazira Capital
Shareholders Pattern Shareholders Pattern Public Pension Agency General Organization for Social Insurance Public Investment Fund Public
Holding 7.45% 7.98% 49.99% 34.58%
Source: Company reports, Aljazira Capital
Price Performance 50
11000
45
10000
40
9000
35
8000 7000
30
6000
25
5000
20
Ja nM 14 ar M 14 ay -1 Ju 4 l-1 Se 4 pN 14 ov Ja 14 nM 15 ar M 15 ay -1 Ju 5 lSe 15 pN 15 ov Ja 15 nM 16 ar -1 6
Wa’ad Al Shamal: The Wa’ad Al Shamal project is progressing well, with the construction being expected to be completed by the end of 4Q2016. According to the management presentation, around 85% of ammonia plant and almost 65% of overall phosphate complex have been completed in 2015. The total production capacity of these plants would be about 16mn tonnes per year.
15.0% *prices as of 17th of April 2016
New ray of hope, new projects: Ad Duwayhi: Ad Duwayhi, the largest gold mine in Saudi Arabia, initiated commercial production in 1st April 2016. The rated production capacity of Ad-Duwayhi is 180,000 ounces per annum and over 1.9mn ounces over the life of the mine. According to the company, production capacity will gradually ramp up to reach 100% by the end 2016.
32.80
Target Price (SAR) Upside / (Downside)
Tadawul
MA’ADEN
Source: Company reports, Aljazira Capital
Analyst
Jassim Al-Jubran +966 11 2256248 [email protected]
RESEARCH DIVISION
Acting Head of Research
RESEARCH DIVISION
BROKERAGE AND INVESTMENT CENTERS DIVISION
Talha Nazar
Sultan Al Kadi
Analyst
Jassim Al-Jubran
+966 11 2256115 [email protected]
+966 11 2256374 [email protected]
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
sales
brokerage
Brokerage
Alaa Al-Yousef
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618400 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
Central Region
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
+966 11 2256364 [email protected]
+966 11 2256248 [email protected]
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1.
RATING TERMINOLOGY
Analyst
2. 3. 4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
