Saudi Kayan
Saudi Kayan 1Q2016 – First Look
Hold
Year-end Target Price SAR 6.00
Loss Narrows
April 17, 2016 Expected Total Return Price as of April-14, 2016
SAR 5.23
Upside to Target Price
7.41%
Expected Dividend Yield
-
Expected Total Return
7.41%
Saudi Kayan narrowed its losses both on a Y/Y and Q/Q basis to SAR (216) million for 1Q2016 as it reported interim results. This follows from a record net loss of SAR (624) million in 4Q2015. SAR 78 million in gross profits is an improvement over a gross loss of SAR (368) million last year and is contrary to our expectations of a loss. We believe lower feedstock prices expanded margins. Kayan continues to benefit from parent-support and is exempt from higher feedstock prices until 2H2017 resulting in a minimal cost increase in 1Q2016 versus peers. Rolling over our fair value and tweaking estimates causes a SAR 1 decline in target price to SAR 6.00. Advise Hold stance.
Market Data SAR 12.60/4.40
52 Week H/L Market Capitalization
SAR 7,905 mln
Enterprise Value
SAR 31,303 mln
Shares Outstanding
1,500 mln
Free Float
65.0%
12-Month ADTV (mln)
70411
TASI Weight
04.0%
Reuters Code
2350.SE
Bloomberg Symbol
KAYAN AB
1-Year Price Performance 120 100
Margins expand While top line has not been disclosed yet, we estimate revenues marginally higher Y/Y, close to SAR 1.8 billion. Volumetric production and sales have grown Y/Y but volumes have declined on a Q/Q basis as Kayan experienced a shutdown in 1Q2016. Gross profit at SAR 78 million reverses a gross loss of SAR (368) million both last year and last quarter. Although product prices (the polymer range) has been weaker, butane prices have fallen more expanding margins for the Company. We believe gross margins accrued in the range of 3.5% to 4.5% for the quarter. Highest financial charges Operating expenses have risen +36% Y/Y to SAR 102 million, but are lower than SAR 107 million in the preceding quarter. Loss begins from the operating level, SAR (24) million and continues to flow to the bottom line. Some SAR 27 billion in debt is worrying particularly with rising interest rates and no near time prospects of a significant pay down in debt. Back of envelope calculations point to financial charges north of SAR 180 million, which is the highest on record. Relief measures fail to prop-up bottom line Despite financial relief by Ministry of Petroleum and SABIC as well as higher feedstock prices not applicable until 2H2017, Kayan continues to struggle financially. Impact of higher feedstock prices hitting from 2017 means a tough next year is in store.
80 60 40 20
M
A M
J
J
A
KAYAN
S O
N D
TASI
J
F
Target price down to SAR 6.00 Narrowing net loss to SAR (216) million is welcome but a profit at the net level appears to be difficult unless product prices and margins rise significantly. Tweaking our estimates and rolling forward our forecasts results in a decline in target price from SAR 7.00 to SAR 6.00.
TPCHEM
Source: Bloomberg KAYAN April-14-2016
5.23
TASI 6,509
TPCHEM 4,212
Key Financials
Total Change 6-months
).041(%
1-Year
)..4.(%
2-Year
).041(%
)7.4.(% )4.41( % )4040( %
)474.(%
FY December 31 (SAR mln)
)0044(%
Revenue
)..41(%
2015A
2016E
2017E
2018E
7,796 54A (209)
8,117
9,107
10,293
81
364
206
Net Profit
(1,243)
(724)
(494)
(692)
EPS (SAR)
(0.83)
(0.48)
(0.33)
(0.46)
Net Margin
(16)%
(9)%
(5)%
(7)%
DPS (SAR)
-
-
-
-
Gross Profit
1Q2016 SAR (mln)
Actual
RC Forecast
Gross Profit
78
(52)
-
-
-
-
Net Profit
(216)
(318)
ROAE
(10)%
(6)%
(4)%
(6)%
EPS (SAR)
(0.14)
(0.21)
ROAA
(3)%
(2)% 3.0)% 3.9x
(1)%
(2)%
4.1x
3.5x
3.1x
-
-
-
-
2.7x
4.8x
80.2x
95.1x
-
-
-
-
Payout Ratio
EV / Revenues EV / EBITDA P / CFPS P/E
Muhammad Faisal Potrik [email protected] +966-11-203-6807
Yasser bin Ahmed [email protected] +966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia Capital Market 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
Year-end Target Price SAR 6.00
Loss Narrows
April 17, 2016 Expected Total Return Price as of April-14, 2016
SAR 5.23
Upside to Target Price
7.41%
Expected Dividend Yield
-
Expected Total Return
7.41%
Saudi Kayan narrowed its losses both on a Y/Y and Q/Q basis to SAR (216) million for 1Q2016 as it reported interim results. This follows from a record net loss of SAR (624) million in 4Q2015. SAR 78 million in gross profits is an improvement over a gross loss of SAR (368) million last year and is contrary to our expectations of a loss. We believe lower feedstock prices expanded margins. Kayan continues to benefit from parent-support and is exempt from higher feedstock prices until 2H2017 resulting in a minimal cost increase in 1Q2016 versus peers. Rolling over our fair value and tweaking estimates causes a SAR 1 decline in target price to SAR 6.00. Advise Hold stance.
Market Data SAR 12.60/4.40
52 Week H/L Market Capitalization
SAR 7,905 mln
Enterprise Value
SAR 31,303 mln
Shares Outstanding
1,500 mln
Free Float
65.0%
12-Month ADTV (mln)
70411
TASI Weight
04.0%
Reuters Code
2350.SE
Bloomberg Symbol
KAYAN AB
1-Year Price Performance 120 100
Margins expand While top line has not been disclosed yet, we estimate revenues marginally higher Y/Y, close to SAR 1.8 billion. Volumetric production and sales have grown Y/Y but volumes have declined on a Q/Q basis as Kayan experienced a shutdown in 1Q2016. Gross profit at SAR 78 million reverses a gross loss of SAR (368) million both last year and last quarter. Although product prices (the polymer range) has been weaker, butane prices have fallen more expanding margins for the Company. We believe gross margins accrued in the range of 3.5% to 4.5% for the quarter. Highest financial charges Operating expenses have risen +36% Y/Y to SAR 102 million, but are lower than SAR 107 million in the preceding quarter. Loss begins from the operating level, SAR (24) million and continues to flow to the bottom line. Some SAR 27 billion in debt is worrying particularly with rising interest rates and no near time prospects of a significant pay down in debt. Back of envelope calculations point to financial charges north of SAR 180 million, which is the highest on record. Relief measures fail to prop-up bottom line Despite financial relief by Ministry of Petroleum and SABIC as well as higher feedstock prices not applicable until 2H2017, Kayan continues to struggle financially. Impact of higher feedstock prices hitting from 2017 means a tough next year is in store.
80 60 40 20
M
A M
J
J
A
KAYAN
S O
N D
TASI
J
F
Target price down to SAR 6.00 Narrowing net loss to SAR (216) million is welcome but a profit at the net level appears to be difficult unless product prices and margins rise significantly. Tweaking our estimates and rolling forward our forecasts results in a decline in target price from SAR 7.00 to SAR 6.00.
TPCHEM
Source: Bloomberg KAYAN April-14-2016
5.23
TASI 6,509
TPCHEM 4,212
Key Financials
Total Change 6-months
).041(%
1-Year
)..4.(%
2-Year
).041(%
)7.4.(% )4.41( % )4040( %
)474.(%
FY December 31 (SAR mln)
)0044(%
Revenue
)..41(%
2015A
2016E
2017E
2018E
7,796 54A (209)
8,117
9,107
10,293
81
364
206
Net Profit
(1,243)
(724)
(494)
(692)
EPS (SAR)
(0.83)
(0.48)
(0.33)
(0.46)
Net Margin
(16)%
(9)%
(5)%
(7)%
DPS (SAR)
-
-
-
-
Gross Profit
1Q2016 SAR (mln)
Actual
RC Forecast
Gross Profit
78
(52)
-
-
-
-
Net Profit
(216)
(318)
ROAE
(10)%
(6)%
(4)%
(6)%
EPS (SAR)
(0.14)
(0.21)
ROAA
(3)%
(2)% 3.0)% 3.9x
(1)%
(2)%
4.1x
3.5x
3.1x
-
-
-
-
2.7x
4.8x
80.2x
95.1x
-
-
-
-
Payout Ratio
EV / Revenues EV / EBITDA P / CFPS P/E
Muhammad Faisal Potrik [email protected] +966-11-203-6807
Yasser bin Ahmed [email protected] +966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia Capital Market 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
