Sharp Weakness in Topline
May 10, 2017 Rating 12- Month Target Price
Sell SAR 5.00
SAUDI ARABIAN AMIANTIT COMPANY (AMIANTIT) 1Q2017 First Look
Sharp Weakness in Topline
Expected Total Return SAR 6.30 9 (20.6%)
Price as on May-09, 2017 Upside to Target Price Expected Dividend Yield
0.0%
Expected Total Return
(20.6%)
Market Data SAR 9.0/5.0
52 Week H/L Market Capitalization
SAR 728 mln
Enterprise Value
SAR 2,473 mln 115.5 mln
Shares Outstanding Free Float
86.7%
12-Month ADTV (000’s)
810.6 SAAC AB
Bloomberg Code 1-Year Price Performance 120 100
Saudi Arabian Amiantit Company (Amiantit) announced preliminary 1Q2017 results with a loss in 1Q2017, its consecutive loss over the last three quarters. Unlike losses from provisions in the previous quarters, it was due to weakened topline this time. Topline declined by -49% Y/Y and -33% Q/Q, missing expectations widely as impending gloomy situation in the KSA and GCC utility project market intensifies. LPS of SAR (0.40) is a concern but a respite from SAR (1.68) reported in 4Q2016 though we expected a thin profit this quarter. As reiterated, the continued restructuring could result in writeoff in the coming quarters amid added pressure on its topline, we revise 2017-19 estimates. We also cut our target price to SAR 5.00 (earlier SAR 5.75), maintain Sell.
Key focus points We highlight key issues surrounding 1Q2017; i) Amiantit reported net loss of SAR (46) million in this quarter on account of lower sales which halved due to lower realization from local and GCC markets, amid tough competition ii) increased financial charges as part of the debt covenants had aided further pressure on bottom-line iii) the IFRS restatement of 1Q2016 net income to SAR 0.5 million from a loss of SAR (27) million earlier is noteworthy iv) restatement of revenue to SAR 554 million in 1Q2016 from earlier SAR 620 million alters the margins trends historically and v) an unqualified opinion from auditors includes an emphasis of a matter regarding a land ownership is in KSA being legally challenged by third parties, carries a book value of SAR 75 million but a possible risk. We view 1Q2017 to be an operational driven weakness unlike nonoperating issues in the past.
Revenue tumbles to half this quarter Revenue of SAR 284 million missed estimates of SAR 457 million due to subdued demand in local and foreign markets, as project cancellation and downsizing of projects continues. Group revenues declined heavily due to effect of a -55% Y/Y decline in GCC revenue, which reached SAR 190 million in this quarter from SAR 424 million in 1Q2016. We believe revenue slowdown in KSA market continues, while tough competitions in foreign markets remains a key concern.
80 60 M J
J
A S O N D
J
SAAC
F M A TASI
Source: Bloomberg
6M
1Y
Operational driven loss Amiantit reported gross profit of SAR 39 million in 1Q2017 versus SAR 95 million in 1Q2016 and SAR (21) million loss last quarter. Gross margins stood at 13.7% in 1Q still lower by 350 bps from 1Q2016. As revenue tumbles in 1Q, Amiantit reported operating loss of SAR (10) million versus our SAR 1 million estimate. This is relatively an improvement from a loss of SAR (124) million in 4Q2016. On the earnings front, Amianitit managed to cut its losses by one-fourth in 1Q2017 to SAR (46) million from a large loss of SAR (194) million in 4Q2016, due to lower provisions.
2Y
20% 10% 0% -10% -20% -30% -40% -50% -60%
Cutting TP to SAR 5.00 but maintain Sell SAAC
Fig in SAR mln MlnMMln Revenue
TASI
RC. Est Estimates 457
Gross Profit EBIT
84
39
1
(10)
3
(46)
0.03
(0.40)
Net Income EPS (SAR)
Actuals 284
We revise our estimates and target price to SAR 5.00 as 2017 outlook looks bleak. 2017E and 2018E P/E of 181.9x and 14.0x respectively is expensive to TASI’s 14.2x and 13.6x for the same period, which is unconvincing. We do not see any recovery over medium term and unless situation improves, we do not recommend any exposure. Maintain Sell. Key Financial Ratios
Key Financial Figures FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR) BVPS (SAR)
2016A 2,141 79 (251) (2.17) 0.00 11.59
2017E 1,374 48 4 0.03 0.00 11.62
Santhosh Balakrishnan
Faisal S Abaalkhail
[email protected] +966-11-203-6809
[email protected] +966-11-203-6812
2018E 1,411 212 52 0.45 0.00 12.07
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA EV/Sales
2016A NM NM NM 0.5x 31.6x 1.2x
2017E 1% 0% 181.9x 0.6x 52.0x 1.8x
2018E 2% 4% 14.0x 0.5x 11.8x 1.8x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI ARABIAN AMIANTIT COMPANY 1Q2017 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors 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 closed joint stock 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 Page 2 of 4 Arabia (“KSA”). Website: www.riyadcapital.com
Sell SAR 5.00
SAUDI ARABIAN AMIANTIT COMPANY (AMIANTIT) 1Q2017 First Look
Sharp Weakness in Topline
Expected Total Return SAR 6.30 9 (20.6%)
Price as on May-09, 2017 Upside to Target Price Expected Dividend Yield
0.0%
Expected Total Return
(20.6%)
Market Data SAR 9.0/5.0
52 Week H/L Market Capitalization
SAR 728 mln
Enterprise Value
SAR 2,473 mln 115.5 mln
Shares Outstanding Free Float
86.7%
12-Month ADTV (000’s)
810.6 SAAC AB
Bloomberg Code 1-Year Price Performance 120 100
Saudi Arabian Amiantit Company (Amiantit) announced preliminary 1Q2017 results with a loss in 1Q2017, its consecutive loss over the last three quarters. Unlike losses from provisions in the previous quarters, it was due to weakened topline this time. Topline declined by -49% Y/Y and -33% Q/Q, missing expectations widely as impending gloomy situation in the KSA and GCC utility project market intensifies. LPS of SAR (0.40) is a concern but a respite from SAR (1.68) reported in 4Q2016 though we expected a thin profit this quarter. As reiterated, the continued restructuring could result in writeoff in the coming quarters amid added pressure on its topline, we revise 2017-19 estimates. We also cut our target price to SAR 5.00 (earlier SAR 5.75), maintain Sell.
Key focus points We highlight key issues surrounding 1Q2017; i) Amiantit reported net loss of SAR (46) million in this quarter on account of lower sales which halved due to lower realization from local and GCC markets, amid tough competition ii) increased financial charges as part of the debt covenants had aided further pressure on bottom-line iii) the IFRS restatement of 1Q2016 net income to SAR 0.5 million from a loss of SAR (27) million earlier is noteworthy iv) restatement of revenue to SAR 554 million in 1Q2016 from earlier SAR 620 million alters the margins trends historically and v) an unqualified opinion from auditors includes an emphasis of a matter regarding a land ownership is in KSA being legally challenged by third parties, carries a book value of SAR 75 million but a possible risk. We view 1Q2017 to be an operational driven weakness unlike nonoperating issues in the past.
Revenue tumbles to half this quarter Revenue of SAR 284 million missed estimates of SAR 457 million due to subdued demand in local and foreign markets, as project cancellation and downsizing of projects continues. Group revenues declined heavily due to effect of a -55% Y/Y decline in GCC revenue, which reached SAR 190 million in this quarter from SAR 424 million in 1Q2016. We believe revenue slowdown in KSA market continues, while tough competitions in foreign markets remains a key concern.
80 60 M J
J
A S O N D
J
SAAC
F M A TASI
Source: Bloomberg
6M
1Y
Operational driven loss Amiantit reported gross profit of SAR 39 million in 1Q2017 versus SAR 95 million in 1Q2016 and SAR (21) million loss last quarter. Gross margins stood at 13.7% in 1Q still lower by 350 bps from 1Q2016. As revenue tumbles in 1Q, Amiantit reported operating loss of SAR (10) million versus our SAR 1 million estimate. This is relatively an improvement from a loss of SAR (124) million in 4Q2016. On the earnings front, Amianitit managed to cut its losses by one-fourth in 1Q2017 to SAR (46) million from a large loss of SAR (194) million in 4Q2016, due to lower provisions.
2Y
20% 10% 0% -10% -20% -30% -40% -50% -60%
Cutting TP to SAR 5.00 but maintain Sell SAAC
Fig in SAR mln MlnMMln Revenue
TASI
RC. Est Estimates 457
Gross Profit EBIT
84
39
1
(10)
3
(46)
0.03
(0.40)
Net Income EPS (SAR)
Actuals 284
We revise our estimates and target price to SAR 5.00 as 2017 outlook looks bleak. 2017E and 2018E P/E of 181.9x and 14.0x respectively is expensive to TASI’s 14.2x and 13.6x for the same period, which is unconvincing. We do not see any recovery over medium term and unless situation improves, we do not recommend any exposure. Maintain Sell. Key Financial Ratios
Key Financial Figures FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR) BVPS (SAR)
2016A 2,141 79 (251) (2.17) 0.00 11.59
2017E 1,374 48 4 0.03 0.00 11.62
Santhosh Balakrishnan
Faisal S Abaalkhail
[email protected] +966-11-203-6809
[email protected] +966-11-203-6812
2018E 1,411 212 52 0.45 0.00 12.07
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA EV/Sales
2016A NM NM NM 0.5x 31.6x 1.2x
2017E 1% 0% 181.9x 0.6x 52.0x 1.8x
2018E 2% 4% 14.0x 0.5x 11.8x 1.8x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
SAUDI ARABIAN AMIANTIT COMPANY 1Q2017 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors 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 closed joint stock 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 Page 2 of 4 Arabia (“KSA”). Website: www.riyadcapital.com
