Topline Disappoints
April 23, 2018 Rating 12- Month Target Price
Neutral SAR 72.00
YANBU NATIONAL PETROCHEMICAL COMPANY (YANSAB) 1Q2018 First Look
Topline Disappoints
Expected Total Return SAR 72.26 .07 -0.4% 9 4.8%
Price as on Apr-22, 2018 Upside to Target Price Expected Dividend Yield Expected Total Return
4.4%
Market Data SAR 74.5/52.0
52 Week H/L
SAR 40,646 mln
Market Capitalization
562.5 mln
Shares Outstanding
35.6%
Free Float
367.9
12-Month ADTV (000’s)
YANSAB AB
Bloomberg Code
Yanbu National Petrochemical Company (Yansab) reported 1Q2018 results with an EPS of SAR 1.12 missing both our and market expectations of SAR 1.39 and SAR 1.29 respectively. Revenues witnessed a decline due to lower volumetric sales but this was countered by higher average output prices. Topline of SAR 1.8 billion is up +2% Y/Y but down -18% Q/Q. We believe impact of lower revenues flowed through to the bottomline. Gross profit increased by +2% Y/Y. The Company posted a net income of SAR 631 million, +4% higher Y/Y but -19% lower Q/Q. We find the 2018E P/E of 16.6x at elevated levels compared to TASI’s 15.3x. However, divided yield of close to 5% is attractive for value investors. We have revised upwards our 2018 and 2019 forecasts but maintain a Neutral recommendation and SAR 72.00 target price.
Lower volume sales Revenues of SAR 1.8 billion underperformed our expectations on account of lower volumetric sales as reported by the Company. However, the impact of lower volumes was mitigated by an increase in average petrochemical selling prices following the uptrend in oil price. PP is +8% higher Q/Q and +15% Y/Y while PE is up by +8% Q/Q and +14% Y/Y. MEG prices have also increased by +12% Q/Q and +15% Y/Y.
Stable gross margins
1-Year Price Performance
Gross profit increased marginally by +2% Y/Y but decreased by -18% Q/Q to reach SAR 740 million, below our estimate of SAR 904 million. Lower volumes sold coupled with a rise in feedstock prices led to this decline. Ethylene prices grew by +5% Q/Q and +27% Y/Y while propylene went up +6% Q/Q and +21% Y/Y. However, gross margins were stable at 41% both on a quarterly and yearly basis as higher output prices helped mitigate the impact.
140 130 120
110 100
90 80
Lower earnings Q/Q
70 A
M
J
J
A S O YANSAB
N
D
J
F TASI
Operating profit witnessed an increase of +2% Y/Y at SAR 635 million as operating expenses were more or less flat on a yearly basis. Operating margins widened from 35% last year to 36%. Earnings have disappointed both us and the market, coming in at SAR 631 million (+4% Y/Y, -19% Q/Q) and missing our SAR 783 million forecast and streets SAR 723 million expectations. Below par earnings have flowed from a lower topline. Net margins have shrunk marginally from 36% last quarter to 35%, but remain flat compared with last year.
M
Source: Bloomberg 6M
1Y
2Y
80% 70% 60%
50%
Maintain Neutral
40%
The stock performance YTD has outpaced the index after the record earnings last quarter, increasing by +22.5% compared with TASI’s rise of +14.8%. Despite lower earnings Q/Q, we believe reasonable spreads across its product range would continue in 2018. However, valuations have stretched for now with a 2018E P/E of 16.6x, premium to TASI’S of 15.3x. The stock is investor’s favorite on higher dividend yields (DPS 2018E: SAR 3.50) in the KSA petchem space. We maintain neutral with a target price of SAR 72.00.
30% 20% 10% 0%
YANSAB
Fig in SAR mln MlnMMln Revenue
TASI
RC. Est Estimates 2,232
Actuals 1,787
Gross Profit
904
740
EBIT
793
635
Net Income
783
631
EPS (SAR)
1.39
1.12
Key Financial Figures FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR) BVPS (SAR)
2017A 7,221 3,154 2,376 4.22 3.25 32.94
Key Financial Ratios 2018E 8,195 3,265 2,449 4.35 3.50 35.29
Muhammad Faisal Potrik
Abdullah A. Alrayes
[email protected] +966-11-203-6807
[email protected] +966-11-203-6814
2019E 8,318 3,313 2,503 4.45 3.50 37.24
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA EV/Sales
2017A 11% 13% 17.1x 2.2x 12.3x 5.4x
2018E 10% 12% 16.6x 2.1x 11.3x 4.5x
2019E 10% 12% 16.2x 1.9x 12.3x 4.9x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
YANBU NATIONAL PETROCHEMICAL COMPANY 1Q2018 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
Neutral SAR 72.00
YANBU NATIONAL PETROCHEMICAL COMPANY (YANSAB) 1Q2018 First Look
Topline Disappoints
Expected Total Return SAR 72.26 .07 -0.4% 9 4.8%
Price as on Apr-22, 2018 Upside to Target Price Expected Dividend Yield Expected Total Return
4.4%
Market Data SAR 74.5/52.0
52 Week H/L
SAR 40,646 mln
Market Capitalization
562.5 mln
Shares Outstanding
35.6%
Free Float
367.9
12-Month ADTV (000’s)
YANSAB AB
Bloomberg Code
Yanbu National Petrochemical Company (Yansab) reported 1Q2018 results with an EPS of SAR 1.12 missing both our and market expectations of SAR 1.39 and SAR 1.29 respectively. Revenues witnessed a decline due to lower volumetric sales but this was countered by higher average output prices. Topline of SAR 1.8 billion is up +2% Y/Y but down -18% Q/Q. We believe impact of lower revenues flowed through to the bottomline. Gross profit increased by +2% Y/Y. The Company posted a net income of SAR 631 million, +4% higher Y/Y but -19% lower Q/Q. We find the 2018E P/E of 16.6x at elevated levels compared to TASI’s 15.3x. However, divided yield of close to 5% is attractive for value investors. We have revised upwards our 2018 and 2019 forecasts but maintain a Neutral recommendation and SAR 72.00 target price.
Lower volume sales Revenues of SAR 1.8 billion underperformed our expectations on account of lower volumetric sales as reported by the Company. However, the impact of lower volumes was mitigated by an increase in average petrochemical selling prices following the uptrend in oil price. PP is +8% higher Q/Q and +15% Y/Y while PE is up by +8% Q/Q and +14% Y/Y. MEG prices have also increased by +12% Q/Q and +15% Y/Y.
Stable gross margins
1-Year Price Performance
Gross profit increased marginally by +2% Y/Y but decreased by -18% Q/Q to reach SAR 740 million, below our estimate of SAR 904 million. Lower volumes sold coupled with a rise in feedstock prices led to this decline. Ethylene prices grew by +5% Q/Q and +27% Y/Y while propylene went up +6% Q/Q and +21% Y/Y. However, gross margins were stable at 41% both on a quarterly and yearly basis as higher output prices helped mitigate the impact.
140 130 120
110 100
90 80
Lower earnings Q/Q
70 A
M
J
J
A S O YANSAB
N
D
J
F TASI
Operating profit witnessed an increase of +2% Y/Y at SAR 635 million as operating expenses were more or less flat on a yearly basis. Operating margins widened from 35% last year to 36%. Earnings have disappointed both us and the market, coming in at SAR 631 million (+4% Y/Y, -19% Q/Q) and missing our SAR 783 million forecast and streets SAR 723 million expectations. Below par earnings have flowed from a lower topline. Net margins have shrunk marginally from 36% last quarter to 35%, but remain flat compared with last year.
M
Source: Bloomberg 6M
1Y
2Y
80% 70% 60%
50%
Maintain Neutral
40%
The stock performance YTD has outpaced the index after the record earnings last quarter, increasing by +22.5% compared with TASI’s rise of +14.8%. Despite lower earnings Q/Q, we believe reasonable spreads across its product range would continue in 2018. However, valuations have stretched for now with a 2018E P/E of 16.6x, premium to TASI’S of 15.3x. The stock is investor’s favorite on higher dividend yields (DPS 2018E: SAR 3.50) in the KSA petchem space. We maintain neutral with a target price of SAR 72.00.
30% 20% 10% 0%
YANSAB
Fig in SAR mln MlnMMln Revenue
TASI
RC. Est Estimates 2,232
Actuals 1,787
Gross Profit
904
740
EBIT
793
635
Net Income
783
631
EPS (SAR)
1.39
1.12
Key Financial Figures FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR) BVPS (SAR)
2017A 7,221 3,154 2,376 4.22 3.25 32.94
Key Financial Ratios 2018E 8,195 3,265 2,449 4.35 3.50 35.29
Muhammad Faisal Potrik
Abdullah A. Alrayes
[email protected] +966-11-203-6807
[email protected] +966-11-203-6814
2019E 8,318 3,313 2,503 4.45 3.50 37.24
FY Dec31 ROAA ROAE P/E P/B EV/EBITDA EV/Sales
2017A 11% 13% 17.1x 2.2x 12.3x 5.4x
2018E 10% 12% 16.6x 2.1x 11.3x 4.5x
2019E 10% 12% 16.2x 1.9x 12.3x 4.9x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
YANBU NATIONAL PETROCHEMICAL COMPANY 1Q2018 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
