Saudi Industrial Investment Group 25 April 2016 PDF
Saudi Industrial Investment Group 1Q2016 First Look
Hold
Associate’s Direction Unclear
April 25, 2016 Expected Total Return Price as of Apr-24, 2016
SAR 14.15
Upside to Target Price
13.1%
Expected Dividend Yield
N.A
Expected Total Return
13.1%
Market Data 52-Week H/L
SAR 21.70/9.95
Market Capitalization
SAR 6,367 mln
Enterprise Value
SAR 21,545 mln
Shares Outstanding
450.0 mln
Free Float
82.1%
12-Month ADTV (000’s)
1,457.6
TASI Weight
0.8%
Reuters Code
2250.SE
Bloomberg Symbol
SIIG AB
1-Year Price Performance 120 110 100 90 80 70 60 50 40 30 A M J
J
A S O N D
SIIG
TASI
J
Saudi Industrial Investment Group (SIIG) reported its 1Q2016 results with earnings beating our expectations. EPS of SAR 0.20 beat estimates of SAR 0.12. EPS declined by -31% Y/Y but increased by +60% Q/Q. Though results are a comeback but its key subsidiary, Petrochem’s and associate’s (JCP and SCP) outlook remains gloomy for 2016. For now, we maintain our estimates and retain our target price of SAR 20.00 (+13% upside), but revise to Hold on valuation concerns. 2016E P/E of 9.6x is cheaper versus sector P/E of 12.4x, but earnings decline is a concern. Recommend Hold. Revenue beats estimates Revenues of SAR 1.66 billion beat our estimate of SAR 1.47 billion and street’s SAR 1.59 billion. It remained flat Q/Q but declined by -6% Y/Y due to decline in product prices. Average prices (Q/Q) of polypropylene declined by -6% in 1Q2016, while polyethylene have declined by -8%. Margin decline unexplained With product prices drop, there is consequent fall in feedstock prices; propane declined by 8% Q/Q (average). We believe SIIG was unable the reap the benefits of the widening feedstock spreads. Gross profit of SAR 425 million declined by -3% Y/Y and -22% Q/Q missing our expectations of SAR 472 million. Gross margins during the quarter were lower than expected, declined to 26% in 1Q2016 from 33% in 4Q2015, but improved +100 bps from 1Q2015. Earnings beat driven by associates Operating margins declined to 17% in 1Q2016 versus last quarter but improved from 13% in 1Q2015, though operating profit of SAR 326 million was lower than expectations (+2% Y/Y and -4% Q/Q). PCC continues to pressure earnings with a loss impact of SAR 44 million in this quarter. Earnings of SAR 88 million beat expectations of SAR 52 million, fell by -31% Y/Y but increased by +60% Q/Q, with margins improving to 5.3%. 2015 repeat, dividends unlikely for 2016 SIIG has declined dividends for 2015 due to lower than expected performance from its subsidiaries and associates and unlikely to pay dividend in 2016. The key reasons are the shutdown in Saudi Polymers in 4Q2016, loan covenants and absence of any improvement from JCP and SCP. Stock underperformed sector by -3% YTD basis but rallied +44% from its lows and believe valuations have peaked versus its 2016E outlook. For now, we revise to Hold from Buy but may revise our estimate and cut our target price gradually, once we receive detailed filings.
F M
TPCHEM
Source: Bloomberg
Apr-24-2016
12 Month Target Price SAR 16.00
SIIG
TASI
TPCHEM
14.15
6,699
4,485
Total Change
Key Financials FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
7,304
7,691
8,348
8,857
EBITDA
2,891
2,340
2,486
2,576
6-months
(20.0%)
(7.9%)
(10.0%)
Net Profit
727
663
673
718
1-Year
(48.9%)
(30.3%)
(30.7%)
EPS (SAR)
1.62
1.47
1.49
1.60
2-Year
(57.5%)
(29.9%)
(41.8%)
DPS (SAR)
NA
NA
1.00
1.25
BVPS (SAR)
7.09
7.30
7.52
7.68
6%
7%
6%
6%
ROAA 1Q2016 (SAR mln)
Actual
RC Forecast
Revenue
1,659
1,476
Gross Profit
425
472
Net Income
88
52
0.20
0.11
EPS (SAR)
Santhosh Balakrishnan
ROAE
14%
10%
9%
9%
P/E
8.8x
9.6x
9.5x
8.9x
P/B
2.0x
1.9x
1.9x
1.8x
P/S
0.9x
0.8x
0.8x
0.7x
EV/ EBITDA
7.5x
9.2x
8.7x
8.4x
EV/ Sales
2.9x
2.8x
2.6x
2.4x
Yasser Bin Ahmed
[email protected] [email protected] +966-11-203-6005 +966-11-203-6809
Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37)
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia (“KSA”). Website: www.riyadcapital.com
Hold
Associate’s Direction Unclear
April 25, 2016 Expected Total Return Price as of Apr-24, 2016
SAR 14.15
Upside to Target Price
13.1%
Expected Dividend Yield
N.A
Expected Total Return
13.1%
Market Data 52-Week H/L
SAR 21.70/9.95
Market Capitalization
SAR 6,367 mln
Enterprise Value
SAR 21,545 mln
Shares Outstanding
450.0 mln
Free Float
82.1%
12-Month ADTV (000’s)
1,457.6
TASI Weight
0.8%
Reuters Code
2250.SE
Bloomberg Symbol
SIIG AB
1-Year Price Performance 120 110 100 90 80 70 60 50 40 30 A M J
J
A S O N D
SIIG
TASI
J
Saudi Industrial Investment Group (SIIG) reported its 1Q2016 results with earnings beating our expectations. EPS of SAR 0.20 beat estimates of SAR 0.12. EPS declined by -31% Y/Y but increased by +60% Q/Q. Though results are a comeback but its key subsidiary, Petrochem’s and associate’s (JCP and SCP) outlook remains gloomy for 2016. For now, we maintain our estimates and retain our target price of SAR 20.00 (+13% upside), but revise to Hold on valuation concerns. 2016E P/E of 9.6x is cheaper versus sector P/E of 12.4x, but earnings decline is a concern. Recommend Hold. Revenue beats estimates Revenues of SAR 1.66 billion beat our estimate of SAR 1.47 billion and street’s SAR 1.59 billion. It remained flat Q/Q but declined by -6% Y/Y due to decline in product prices. Average prices (Q/Q) of polypropylene declined by -6% in 1Q2016, while polyethylene have declined by -8%. Margin decline unexplained With product prices drop, there is consequent fall in feedstock prices; propane declined by 8% Q/Q (average). We believe SIIG was unable the reap the benefits of the widening feedstock spreads. Gross profit of SAR 425 million declined by -3% Y/Y and -22% Q/Q missing our expectations of SAR 472 million. Gross margins during the quarter were lower than expected, declined to 26% in 1Q2016 from 33% in 4Q2015, but improved +100 bps from 1Q2015. Earnings beat driven by associates Operating margins declined to 17% in 1Q2016 versus last quarter but improved from 13% in 1Q2015, though operating profit of SAR 326 million was lower than expectations (+2% Y/Y and -4% Q/Q). PCC continues to pressure earnings with a loss impact of SAR 44 million in this quarter. Earnings of SAR 88 million beat expectations of SAR 52 million, fell by -31% Y/Y but increased by +60% Q/Q, with margins improving to 5.3%. 2015 repeat, dividends unlikely for 2016 SIIG has declined dividends for 2015 due to lower than expected performance from its subsidiaries and associates and unlikely to pay dividend in 2016. The key reasons are the shutdown in Saudi Polymers in 4Q2016, loan covenants and absence of any improvement from JCP and SCP. Stock underperformed sector by -3% YTD basis but rallied +44% from its lows and believe valuations have peaked versus its 2016E outlook. For now, we revise to Hold from Buy but may revise our estimate and cut our target price gradually, once we receive detailed filings.
F M
TPCHEM
Source: Bloomberg
Apr-24-2016
12 Month Target Price SAR 16.00
SIIG
TASI
TPCHEM
14.15
6,699
4,485
Total Change
Key Financials FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
7,304
7,691
8,348
8,857
EBITDA
2,891
2,340
2,486
2,576
6-months
(20.0%)
(7.9%)
(10.0%)
Net Profit
727
663
673
718
1-Year
(48.9%)
(30.3%)
(30.7%)
EPS (SAR)
1.62
1.47
1.49
1.60
2-Year
(57.5%)
(29.9%)
(41.8%)
DPS (SAR)
NA
NA
1.00
1.25
BVPS (SAR)
7.09
7.30
7.52
7.68
6%
7%
6%
6%
ROAA 1Q2016 (SAR mln)
Actual
RC Forecast
Revenue
1,659
1,476
Gross Profit
425
472
Net Income
88
52
0.20
0.11
EPS (SAR)
Santhosh Balakrishnan
ROAE
14%
10%
9%
9%
P/E
8.8x
9.6x
9.5x
8.9x
P/B
2.0x
1.9x
1.9x
1.8x
P/S
0.9x
0.8x
0.8x
0.7x
EV/ EBITDA
7.5x
9.2x
8.7x
8.4x
EV/ Sales
2.9x
2.8x
2.6x
2.4x
Yasser Bin Ahmed
[email protected] [email protected] +966-11-203-6005 +966-11-203-6809
Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37)
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia (“KSA”). Website: www.riyadcapital.com
