United Wire Factories Company 20 January 2016 PDF
United Wire Factories Company 4Q2015 – First Look
Hold
Ending 2015 on a Cautious Note
January 20, 2016 Expected Total Return Price as of Jan-19, 2016
SAR 17.18
Upside to Target Price
(1.0%)
Expected Dividend Yield
5.8%
Expected Total Return
4.8%
Market Data SAR 38.11/16.25
52-Week H/L Market Capitalization
SAR 754 mln
Enterprise Value
SAR 667 mln
Shares Outstanding
43.9 mln
Free Float
88.0%
12-Month ADTV (000’s)
269.7
TASI Weight
0.13%
Reuters Code
1301.SE
Bloomberg Symbol
ASLAK AB
120 110 100 90
70 60 50 J
Aslak
J
A
S O N D
TASI
TBMCI
Source: Bloomberg
Jan 19-2016
Global rout on iron ore prices to affect topline Aslak’s product prices are highly correlated to steel and iron ore prices which has witnessed a retreat since the start of 2H2014, with iron ore prices declining by -39% in 2015 and -11% YTD. Such high correlation to steel prices amid a weakening demand cycle has led to a revision in our topline estimates. Revenue is estimated to fall to SAR 780 million by 2018. Though Aslak has not reported any impact of fuel cost hike, we estimate this soon and expect a 1-2% gross margin impact from 2016. Gross margins are expected to fall to 10% for 2016-18 as a result coupled with lower utilization. Net income of SAR 66 million by 2018 is expected and net margins to average 8% over the next three years.
Revise to Hold; cut target to SAR 17 We expect earnings to be under pressure and in such a scenario a target P/E based approach is ideal to value Aslak. In our view, earnings volatility is yet to subside and poses a challenge to value based on DCF. We assign a target P/E of 11.0x which is a bear case average for the sector and assign a target price of SAR 17.00 from earlier SAR 32.00. The stock has corrected by – 48% at par with sector returns of -47%, while underperfoming to TASI’s -31% return since the start of 2015. The only respite for investors is the 5.8% dividend yield. Revise to Hold from Buy.
80
F M A M
United Wire Factories Company (Aslak) announced preliminary 4Q2015 results on January 18th with an EPS of SAR 0.28 (-6% Y/Y and -43% Q/Q) widely missing our estimates of SAR 0.41. Aslak was at the helm of our priority list since 1Q2015 but with 4Q earnings miss, we turn cautious due to volatility in margins, a scenario witnessed in 2014. With a tough year ahead for building materials sector, we do not expect any large rebound and expect demand to further weaken. The recent correction of -25% YTD in stock prices was in anticipation of a dismal 4Q result. The ongoing global overhang in commodity prices coupled with weakening product demand and fuel cost inflation is set to reflect in 2016-18 earnings. We revise our estimates and recommendation to Hold; cut target price to SAR 17.00 from SAR 32.00. Aslak’s 2016E P/E of 11.0x is expensive to peers such as Saudi Ceramics at 9.1x and Bawan at 10.2x.
Momentum lost in 4Q Revenues are not reported for 4Q2015 but expected to be sharply lower than our SAR 201 million estimate. Gross profit of SAR 24.6 million missed our estimate of SAR 31.8 million. It inclined by +13% Y/Y but was -23% lower Q/Q mainly on margin pressure despite a robust 2Q and 3Q. Earnings of SAR 12.1 million (-6% Y/Y and -43% Q/Q) missed our estimate of SAR 18.0 million.
1-Year Price Performance
J
12 Month Target Price SAR 17.00
ASLAK
TASI
TBMCI
17.18
5,746
1,757
Key Financials FY December 31 (SAR mln)
Total Change
2014A
2015A*
2016E
2017E
Revenue
991
882
829
796
EBITDA
116
95
90
84
90
72
69
64
6-months
(39.3%)
(35.6%)
(46.2%)
1-Year
(40.5%)
(28.8%)
(43.7%)
Net Profit*
2-Year
(47.7%)
(34.3%)
(51.6%)
EPS (SAR)*
2.05
1.64
1.56
1.47
DPS (SAR)
0.50
1.00
1.00
1.00
BVPS (SAR)
7.73
4Q2015 (SAR mln)
Actual
RC Forecast
10.61
9.81
8.92
ROAA
17%
15%
15%
15%
ROAE
19%
16%
17%
18% 11.7x
Gross Profit
24.6
31.8
P/E
8.4x
10.5x
11.0x
Operating Income
14.7
22.4
P/B
1.6x
1.8x
1.9x
2.2x
Net Income
12.1
18.1
P/S
0.8x
0.9x
0.9x
0.9x
EPS (SAR)
0.28
0.41
EV/ EBITDA
4.8x
5.9x
7.7x
8.6x
EV/ Sales
0.7x
0.8x
0.9x
1.0x
*denotes preliminary
Santhosh Balakrishnan
Noura F Al-Kalifah
[email protected] [email protected] +966-11-203-6841 +966-11-203-6809
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
Ending 2015 on a Cautious Note
January 20, 2016 Expected Total Return Price as of Jan-19, 2016
SAR 17.18
Upside to Target Price
(1.0%)
Expected Dividend Yield
5.8%
Expected Total Return
4.8%
Market Data SAR 38.11/16.25
52-Week H/L Market Capitalization
SAR 754 mln
Enterprise Value
SAR 667 mln
Shares Outstanding
43.9 mln
Free Float
88.0%
12-Month ADTV (000’s)
269.7
TASI Weight
0.13%
Reuters Code
1301.SE
Bloomberg Symbol
ASLAK AB
120 110 100 90
70 60 50 J
Aslak
J
A
S O N D
TASI
TBMCI
Source: Bloomberg
Jan 19-2016
Global rout on iron ore prices to affect topline Aslak’s product prices are highly correlated to steel and iron ore prices which has witnessed a retreat since the start of 2H2014, with iron ore prices declining by -39% in 2015 and -11% YTD. Such high correlation to steel prices amid a weakening demand cycle has led to a revision in our topline estimates. Revenue is estimated to fall to SAR 780 million by 2018. Though Aslak has not reported any impact of fuel cost hike, we estimate this soon and expect a 1-2% gross margin impact from 2016. Gross margins are expected to fall to 10% for 2016-18 as a result coupled with lower utilization. Net income of SAR 66 million by 2018 is expected and net margins to average 8% over the next three years.
Revise to Hold; cut target to SAR 17 We expect earnings to be under pressure and in such a scenario a target P/E based approach is ideal to value Aslak. In our view, earnings volatility is yet to subside and poses a challenge to value based on DCF. We assign a target P/E of 11.0x which is a bear case average for the sector and assign a target price of SAR 17.00 from earlier SAR 32.00. The stock has corrected by – 48% at par with sector returns of -47%, while underperfoming to TASI’s -31% return since the start of 2015. The only respite for investors is the 5.8% dividend yield. Revise to Hold from Buy.
80
F M A M
United Wire Factories Company (Aslak) announced preliminary 4Q2015 results on January 18th with an EPS of SAR 0.28 (-6% Y/Y and -43% Q/Q) widely missing our estimates of SAR 0.41. Aslak was at the helm of our priority list since 1Q2015 but with 4Q earnings miss, we turn cautious due to volatility in margins, a scenario witnessed in 2014. With a tough year ahead for building materials sector, we do not expect any large rebound and expect demand to further weaken. The recent correction of -25% YTD in stock prices was in anticipation of a dismal 4Q result. The ongoing global overhang in commodity prices coupled with weakening product demand and fuel cost inflation is set to reflect in 2016-18 earnings. We revise our estimates and recommendation to Hold; cut target price to SAR 17.00 from SAR 32.00. Aslak’s 2016E P/E of 11.0x is expensive to peers such as Saudi Ceramics at 9.1x and Bawan at 10.2x.
Momentum lost in 4Q Revenues are not reported for 4Q2015 but expected to be sharply lower than our SAR 201 million estimate. Gross profit of SAR 24.6 million missed our estimate of SAR 31.8 million. It inclined by +13% Y/Y but was -23% lower Q/Q mainly on margin pressure despite a robust 2Q and 3Q. Earnings of SAR 12.1 million (-6% Y/Y and -43% Q/Q) missed our estimate of SAR 18.0 million.
1-Year Price Performance
J
12 Month Target Price SAR 17.00
ASLAK
TASI
TBMCI
17.18
5,746
1,757
Key Financials FY December 31 (SAR mln)
Total Change
2014A
2015A*
2016E
2017E
Revenue
991
882
829
796
EBITDA
116
95
90
84
90
72
69
64
6-months
(39.3%)
(35.6%)
(46.2%)
1-Year
(40.5%)
(28.8%)
(43.7%)
Net Profit*
2-Year
(47.7%)
(34.3%)
(51.6%)
EPS (SAR)*
2.05
1.64
1.56
1.47
DPS (SAR)
0.50
1.00
1.00
1.00
BVPS (SAR)
7.73
4Q2015 (SAR mln)
Actual
RC Forecast
10.61
9.81
8.92
ROAA
17%
15%
15%
15%
ROAE
19%
16%
17%
18% 11.7x
Gross Profit
24.6
31.8
P/E
8.4x
10.5x
11.0x
Operating Income
14.7
22.4
P/B
1.6x
1.8x
1.9x
2.2x
Net Income
12.1
18.1
P/S
0.8x
0.9x
0.9x
0.9x
EPS (SAR)
0.28
0.41
EV/ EBITDA
4.8x
5.9x
7.7x
8.6x
EV/ Sales
0.7x
0.8x
0.9x
1.0x
*denotes preliminary
Santhosh Balakrishnan
Noura F Al-Kalifah
[email protected] [email protected] +966-11-203-6841 +966-11-203-6809
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
