United Wire Factories Company 14 April 2016 PDF
United Wire Factories Company 1Q2016 – First Look
Hold
Beats Estimates on Higher Margins
April 14, 2016 Expected Total Return Price as of Apr-13, 2016
SAR 20.20
Upside to Target Price
(15.8%)
Expected Dividend Yield
6.4%
Expected Total Return
(9.4%)
Market Data 52-Week H/L
SAR 38.80/14.50
Market Capitalization
SAR 889 mln
Enterprise Value
SAR 723 mln
Shares Outstanding
43.9 mln
Free Float
88.0%
12-Month ADTV (000’s)
297.9
TASI Weight
0.14%
Reuters Code
1301.SE
Bloomberg Symbol
ASLAK AB
1-Year Price Performance 130 120 110 100 90 80 70 60 50 40 30 A M J
J
A S O N D
Aslak
12 Month Target Price SAR 17.00
J
TASI
United Wire Factories Company (Aslak) announced preliminary 1Q2016 results with an EPS of SAR 0.39 (+24% Y/Y and +43% Q/Q). Revenues are not reported, but earnings marginally beat our estimates of SAR 0.36, effect of the same was evident as stock rallied by +16% over the last two days. We believe margin expansion and better realization are the likely scenarios as product prices improved. Notably, global iron ore prices witnessed its first quarter of improvement with a +26% Q/Q increase, after two quarters of large declines. A marginal beat in earnings drove investor expectations to a positive zone but valuations do not support. Aslak’s 2016E P/E of 12.9x is expensive versus Bawan at 10.7x but at par with TASI’s 13.1x. We maintain our target price of SAR 17.00 and continue recommending Hold though scope for revision do persist, await more clarity. Realization to see improvement Revenue estimate of SAR 220 million for 1Q is expected to be in-line following a marginal beat in earnings. Earlier in 2015, Aslak was largely impacted by a -16% drop in steel prices. However, the recent hike is an indication of a favorable environment in price growth for producers. Despite industry wide slowdown, benchmark prices increased by +5% M/M to SAR 1,950/ton mimicking global prices. We believe Aslak’s product prices should have improved, despite operating in the lag end of the value chain. Additionally, lifting of export ban on steel products could be a medium term catalyst for Aslak and industry. Costs under control Gross profit of SAR 32.5 million (+30% Y/Y and +28% Q/Q) in 1Q2016 beat our estimate of SAR 29.3 million. We believe margin expansion would have led to the beat as revenues are expected to be in-line. A similar growth trend in operating profit led to an increase of +28% Y/Y and +32% Q/Q. Operating profit of SAR 20.2 million beat our estimate of SAR 18.4 million suggesting costs are under control, despite subsidy impact and added freight costs. Earnings of SAR 17.3 million beat our estimate of SAR 16.0 million by 8%, implying a better start for the year. Yields of 6.4% attractive but total return is -9% We maintain our target price of SAR 17.00 and continue recommending a Hold. The stock has rallied by +39% from its YTD lows. We believe Aslak’s valuations do not support with its 2016E P/E of 12.9x is still expensive versus our target P/E of 11.0x. We revise our dividend expectations to SAR 1.30 for 2016E, yields 6.4% currently.
F M
TBMCI
Source: Bloomberg
Apr-13-2016
ASLAK
TASI
TBMCI
20.20
6,442
2,029
Total Change
Key Financials FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
882
829
796
810
EBITDA
95
90
84
88
6-months
(21.3%)
(16.0%)
(23.2%)
Net Profit
1-Year
(33.0%)
(28.7%)
(43.0%)
EPS (SAR)
2-Year
(42.2%)
(31.6%)
(49.8%)
DPS (SAR) BVPS (SAR) ROAA
15%
1Q2016
RC Forecast
69
64
67
1.56
1.47
1.53
1.45
1.30
1.30
1.30
9.81
8.92
7.73
8.15
15%
15%
16%
ROAE
29%
26%
26%
18%
P/E
12.3x
12.9x
13.9x
13.3x
P/B
2.1x
2.3x
2.6x
2.5x
P/S
1.0x
1.1x
1.1x
1.1x
16.0
EV/ EBITDA
7.6x
8.0x
8.6x
8.2x
0.36
EV/ Sales
0.8x
0.9x
0.9x
0.9x
(SAR mln)
Actual
Gross Profit
32.5
29.3
Operating Income
20.2
18.4
Net Income
17.3
EPS (SAR)
0.39
Santhosh Balakrishnan
72 1.64
Noura F Al-Kalifah
[email protected] [email protected] +966-11-203-6809 +966-11-203-6841
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
Beats Estimates on Higher Margins
April 14, 2016 Expected Total Return Price as of Apr-13, 2016
SAR 20.20
Upside to Target Price
(15.8%)
Expected Dividend Yield
6.4%
Expected Total Return
(9.4%)
Market Data 52-Week H/L
SAR 38.80/14.50
Market Capitalization
SAR 889 mln
Enterprise Value
SAR 723 mln
Shares Outstanding
43.9 mln
Free Float
88.0%
12-Month ADTV (000’s)
297.9
TASI Weight
0.14%
Reuters Code
1301.SE
Bloomberg Symbol
ASLAK AB
1-Year Price Performance 130 120 110 100 90 80 70 60 50 40 30 A M J
J
A S O N D
Aslak
12 Month Target Price SAR 17.00
J
TASI
United Wire Factories Company (Aslak) announced preliminary 1Q2016 results with an EPS of SAR 0.39 (+24% Y/Y and +43% Q/Q). Revenues are not reported, but earnings marginally beat our estimates of SAR 0.36, effect of the same was evident as stock rallied by +16% over the last two days. We believe margin expansion and better realization are the likely scenarios as product prices improved. Notably, global iron ore prices witnessed its first quarter of improvement with a +26% Q/Q increase, after two quarters of large declines. A marginal beat in earnings drove investor expectations to a positive zone but valuations do not support. Aslak’s 2016E P/E of 12.9x is expensive versus Bawan at 10.7x but at par with TASI’s 13.1x. We maintain our target price of SAR 17.00 and continue recommending Hold though scope for revision do persist, await more clarity. Realization to see improvement Revenue estimate of SAR 220 million for 1Q is expected to be in-line following a marginal beat in earnings. Earlier in 2015, Aslak was largely impacted by a -16% drop in steel prices. However, the recent hike is an indication of a favorable environment in price growth for producers. Despite industry wide slowdown, benchmark prices increased by +5% M/M to SAR 1,950/ton mimicking global prices. We believe Aslak’s product prices should have improved, despite operating in the lag end of the value chain. Additionally, lifting of export ban on steel products could be a medium term catalyst for Aslak and industry. Costs under control Gross profit of SAR 32.5 million (+30% Y/Y and +28% Q/Q) in 1Q2016 beat our estimate of SAR 29.3 million. We believe margin expansion would have led to the beat as revenues are expected to be in-line. A similar growth trend in operating profit led to an increase of +28% Y/Y and +32% Q/Q. Operating profit of SAR 20.2 million beat our estimate of SAR 18.4 million suggesting costs are under control, despite subsidy impact and added freight costs. Earnings of SAR 17.3 million beat our estimate of SAR 16.0 million by 8%, implying a better start for the year. Yields of 6.4% attractive but total return is -9% We maintain our target price of SAR 17.00 and continue recommending a Hold. The stock has rallied by +39% from its YTD lows. We believe Aslak’s valuations do not support with its 2016E P/E of 12.9x is still expensive versus our target P/E of 11.0x. We revise our dividend expectations to SAR 1.30 for 2016E, yields 6.4% currently.
F M
TBMCI
Source: Bloomberg
Apr-13-2016
ASLAK
TASI
TBMCI
20.20
6,442
2,029
Total Change
Key Financials FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
882
829
796
810
EBITDA
95
90
84
88
6-months
(21.3%)
(16.0%)
(23.2%)
Net Profit
1-Year
(33.0%)
(28.7%)
(43.0%)
EPS (SAR)
2-Year
(42.2%)
(31.6%)
(49.8%)
DPS (SAR) BVPS (SAR) ROAA
15%
1Q2016
RC Forecast
69
64
67
1.56
1.47
1.53
1.45
1.30
1.30
1.30
9.81
8.92
7.73
8.15
15%
15%
16%
ROAE
29%
26%
26%
18%
P/E
12.3x
12.9x
13.9x
13.3x
P/B
2.1x
2.3x
2.6x
2.5x
P/S
1.0x
1.1x
1.1x
1.1x
16.0
EV/ EBITDA
7.6x
8.0x
8.6x
8.2x
0.36
EV/ Sales
0.8x
0.9x
0.9x
0.9x
(SAR mln)
Actual
Gross Profit
32.5
29.3
Operating Income
20.2
18.4
Net Income
17.3
EPS (SAR)
0.39
Santhosh Balakrishnan
72 1.64
Noura F Al-Kalifah
[email protected] [email protected] +966-11-203-6809 +966-11-203-6841
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
