Yanbu Cement Company
Yanbu Cement Company Transfer of Coverage
Buy
Limited Growth due to Pricing Pressure
December 14, 2015 Expected Total Return Price as on Dec-13, 2015
SAR 43.40
Upside to Target Price
49.8%
Expected Dividend Yield
10,%
Expected Total Return
,100%
Market Data 52 Week H/L
SAR 42.70/72.25
Market Capitalization
SAR 2,837 mln
Shares Outstanding
157.5 mln
Free Float
75.5%
12-Month ADTV (000’s)
156.3
TASI Weight
0.44%
Reuters Code
3060.SE
Bloomberg Symbol
YNCCO AB
1-Year Price Performance 130 120 110 100 90 80 70 60 D
J
F M A M YCC
J
J
A
TASI
S O N TCEM
Source: Bloomberg Yanbu
TASI
TCEM
34.30
2,72,
4,688
Dec-13, 2015
12-Month Target Price SAR 65
We update our estimates and our outlook for Yanbu Cement Company (YCC) for 2015-2019 due to transfer of coverage. We cut earlier estimates slightly on the anticipation of an unhealthy competitive environment between producers as inventories and pricing pressure mounts. We believe that demand is more correlated to conservative government spending plan. As a result we expect lower realization and a decline in growth rate for YCC with realization decreasing by-7.5% Y/Y for 2015. Revenues for 2015-17E are expected to grow at a CAGR of 2.4% to touch SAR 1.58 billion in 2017, while earnings are expected to grow at 2% CAGR during the same period. With such cut in estimates valuations appear to be attractive with 2016E P/E of 5.9x which is lower than the sector’s P/E of 3..1x and cheaper versus TASI P/E of 33.3x. We base our valuation on Discounted Cash Flow (DCF) and derive a target price of SAR 65, which suggests an upside of 95.8%. Maintain Buy. Advantageous location YCC is strategically located in the western region, Yanbu City. Its proximity to demand centers in Jeddah, Makkah and Madinah projects gives it an advantage over other competitors. Despite the competition from regional counterparts, Yanbu maintained market share in the sector at 11.6%. Accumulated inventory increased +9% YTD, medium term concern We also believe that once construction spending gains pace, it will lead to lower pressure on inventories. As per the latest monthly statistics, YCC inventory has reached 3.3 million tons which is 5..8% of the company’s production capacity. Our estimates show that between 20152.37, YCC’s inventory is expected to deplete at a CAGR of -6.5%. Moreover, the likelihood of lifting the ban on export is a key catalyst to tackle issues with inventory balances and gain growth on realization. Price pressure squeezing margins Pressure on YCC top line is expected to have an impact over gross margin and operating margins. We expect operating margin to stand at 93.9% in 2019 compared to 92.3% in 2014. EBITDA margins are expected at 12.3% compared to 19.8% during the same period. On the other hand, net profit margins are expected at 9.% compared to 93.9% in 2014. Attractive valuation and good yields After using two methods, the DCF and EV/EBITDA, we arrived at our target price at SAR 19.00. Our estimates indicate that a stable dividend yield of 9.2% with a payout ratio of 84 % and DPS of SAR 4.00 for 2015E, to be attractive compared to competitors. We maintain Buy.
Total Change 6-months
(4,02%)
(,20,%)
(400,%)
1-Year
(2909%)
(,104%)
(4109%)
2-Year
(,203%)
(9103%)
(4401%)
F2015E
SAR mln
Key Financials FY December 31 (SARmln)
2014A
2015E
2016E
2017E
Revenue
95,,1
9,506
9,384
9,578
EBITDA
950,,
146
887
139
1,506
Net Profit
80,
752
720
776
Gross Profit
820
EPS (SAR)
,001
3.78
3.57
3.93
Operating Income
776
DPS (SAR)
4.00
4.00
4.00
4.00
BVPS (SAR)
,,02,
,4047
,4.91
,3.81
Revenue
Net Income
752
EPS (SAR)
4.78
Khalid Abdullah Almadhyan [email protected] +966-11-203-6813
ROAA
9801%
18.0%
17.4%
18.3%
ROAE
,,0,%
20.4%
19.1%
19.9%
P/E
8.5x
1.1x
1.5x
8.8x
P/B
901x
9.8x
9.8x
9.7x
EV/ EBITDA
2.8x
7.2x
7.4x
6.9x
EV/ Sales
3.5x
3.5x
3.4x
3.1x
Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37)
Yanbu Cement Company Transfer of Coverage
Transfer of Coverage We transfer coverage of YCC with a Buy rating and target price of SAR 19.00 from SAR 78.00 earlier. This report highlights the performance of the cement sector as well as our outlook for Yanbu Cement Company and our estimate of the company's expected results for the fourth quarter of this year.
Sector Outlook With nearly 16 cement companies operating in the cement space and a combined annual production capacity of 62.2 million tons, Saudi cement sector is the largest one in GCC. Saudi cement producers are geographically dispersed across different provinces and categorically take advantage of its proximity to client location for ease of delivery and compressing cash costs. With a majority of them listed in the Saudi stock market (Tadawul), the sector offers wider array of choices to investors in bottom-up selection. We take a closer look at how the cement sector has shaped over the last few years and include our outlook for 2016-17. Looking at the key trends that drive growth, we observed that the increase in cement demand is correlated to the growing infrastructure projects planned in the country. This is unpretentiously backed by the government’s keen interests to develop infrastructure in the country which started over a decade ago. Saudi Arabia saw its economy expanding through its planned infrastructure spending since 2...’s. However, the start of the oil slide from 3Q2014 has put some doubts on its pace as the Kingdom is expected to slow its large scale infrastructure spending plans. With oil prices retreating over the last 4-5 quarters reaching under US$40/bbl (Brent) and large upside not seen over the short term, concerns emerge on its spending plans affecting the construction sector; which otherwise had joyous ride with the construction boom. In light of such bleak expectations cement sector is poised to witness lower growth rate altering demand-supply scenario for 2016-17.
Growth trajectory to be limited With such implications and keeping in view such long term consistent demand for cement in the country, producers expanded production capacities since 2007. As a result, the sector recorded growth of 11% during 2009-12. However, the Nitaqat program put a halt to such growth as scarcity in labor on construction sector has resulted in number of projects being stalled and resulted in a large drop in demand. Despite such issues, demand picked up as labor situation improved. The sector recorded volume growth rate of 6% selling 56.6 million tons from 53.5 million tons in 2013. We believe growth rates over the last two years should have been better, had the projects not been stalled. Table 1: Sector's Production And Sales Volumes (mln ton) 2009
2010
2011
2012
2013
2014
2015E
2016E
Number of companies
13
13
13
13
14
15
15
15
15
Production
37.8
43.0
48.4
52.3
55.7
57.2
59.5
60.7
61.6
14%
13%
8%
6%
3%
4%
2%
1%
41.3
47.0
51.8
53.5
56.6
58.5
59.7
61.0
13%
14%
10%
3%
6%
3%
2%
2%
Growth Sales
36.7
Growth
2017E
Source: Company Reports, Riyad Capital
However, the government’s move to a lower spending cycle has led to a fall in cement demand since start of the year with growth expected to be at +3% for 2015E to 58.5 million tons. From our forecast in Table3, we believe that sector’s sales will face slight sluggishness, though +2% growth is achievable in 2016E recording 59.7 million tons. However, a rebound is achievable over 2016 and 2017 recording 59.7 and 61 million tons respectively.
December 14, 2015
|2
Yanbu Cement Company Transfer of Coverage
Consistent growth in production Such voluminous growth in the past has resulted in cement production reporting stellar growth during 2008-12. However recent stats proved that Saudi Arabia recorded reasonable growth during 2014. The key reason for limited upside in production is the inability to run its new capacity with subsidized fuel, while lowering demand has added to concerns affecting utilization rates and increasing cash costs. In light of such an oversupply situation, we expect modest growth rates in production with +4% Y/Y for 2015E to reach 60 million tons and a CAGR of 2% for 2015-17E which could be even higher once new capacities rolls out with Aramco allocating cheap fuel.
Inventory balances mounting With large inventories of 23.5 million tons currently, Saudi cement sector is witnessing challenges with pricing pressure. The labor crisis in 2013 resulted in high inventory pressure following weaker cement demand thus creating a supply demand imbalance in the sector. As a result, clinker inventory reached 21.5 million tons, an increase of +46% compared to the inventory level in 2013 at 14.7 million tons. However in 2009-2012, cement companies continued to deplete their inventory balances at rates ranging between 7%-25%. Table 2: Sector Inventory level (mln ton) 2009
2010
2011
2012
2013
2014
2015E
2016E
Number of companies
13
13
13
13
14
15
15
15
15
Inventory
10.9
10.0
7.5
6.4
14.7
21.6
23.5
22.5
20.5
-7%
-25%
-15%
131%
46%
9%
-5%
-8%
Growth
2017E
Source: Company Reports, Riyad Capital
Our estimates for the sector’s inventory in 2.39E show a growth of +9% Y/Y to reach 23.5 million tons. In 2016 and 2017, we expect cement companies to start depleting their inventory by -5% and -8% Y/Y to arrive to 22.4 million tons and 20.5 million tons respectively. We are optimistic on government revoking the cement export ban providing some relief while positive impact of additional construction resulting from the implementation of fees on white lands should also aid growth in sector.
Yanbu positioned advantageously Overall YCC is positioned reasonably well while comparing the performance of cement companies. Yanbu’s sales currently accounts for 11.4% of the sector enabling it to occupy the fourth place among sector companies listed on the Saudi stock market (Tadawul). However, the second highest inventory in the sector though negative over the mediumterm, revoking export ban helps to fasten the process of exports due to its proximity to MENA markets and its accessibility to ports.
December 14, 2015
|3
Yanbu Cement Company Transfer of Coverage
Company Outlook We revised our estimates following the weak realization which dropped -7% Y/Y. As per table 3, revised revenue is expected to decline by an average of -0.5% for 2015-17E. EPS estimates also revised down by -3% in 2015E. Table 3:Ch an g es in Estimates (SAR Mln ) Old Estimates 2015E
2016E
New Estimates 2017E
2015E
2016E
New vs Old
2017E
2015E
Revenue
1,581
1,626
1,660
1,506
1,483
1,578
Y/Y
1.4%
2.8%
2.1%
-3%
-1%
6%
Gross Profit
859
884
902
820
801
860
Y/Y
1%
3%
2%
-4%
-2%
7%
EBITDA
1,013
1,040
1,052
936
887
939
Y/Y
-1.2%
2.7%
1.2%
-9%
-5.2%
6%
780
803
819
752
720
776
-2.7%
2.9%
2.0%
-6%
-4%
8%
4.95
5.10
5.20
4.78
4.57
4.93
Net Income Y/Y EPS
2016E
-5%
-9%
-5% -8% -4% -3%
-9% -15% -10% -10%
Consensus 2017E
2015E
-5%
2017E
1,581
1,586
1,516
1.4%
0.3%
-4%
858
850
787
1%
-1%
-7%
-5% -11%
2016E
1,040
999
802
1%
-4%
-20%
-5% -5%
787
786
702
5%
-0.1%
-10.6%
5.02
4.83
4.43
Source: Bloomberg Estimates and Riyad Capital
Revenue growth to slowdown Slower growth in revenue is expected as lower realization continues to put pressure across producers and not indifferent with Yanbu. With large price discounts and onsite delivery costs, net realization could take a toll, hence adjust our earlier revenue estimates to 2.4% CAGR for 2015-17. Sales volumes are expected to touch 6.7 million tons by 2017E and grow by +2.3% over the next two years. A notable decline of -7% in realization during 9M2015 continues to be medium term concern signifying the added pressure on topline coupled with marginal growth in volumes. Exhibit 1: Company's Sales (SAR bln) with Growth (%)
Exhibit 2: Company's Sales Volumes (mln ton) with Average Realization (SAR)
1.7
40%
1.6
30%
1.6
20%
1.5
10%
1.5
0%
1.4
-10% 2012
2013
2014
2015E
Sales
2016E
6.8
260
6.6 6.4 6.2 6.0 5.8
250 240
230 220
5.6 5.4
2017E
210 2012
2013
Growth
2014
Sales Volumes
Source: Company Reports, Riyad Capital
2015E
2016E
2017E
Average Realization
Source: Company Reports, Riyad Capital
Cash costs are expected to elevate In 2015-2017, we believe margin pressure is imminent as falling pricing power could add up cash costs with gross profit margin expected to average 54.3%. However, some stability is expected post 2016 as cost of sales is stable while the large pressure on realization has effected net profit margins since the start of this year. We believe net profit is expected to decline owing to the overall cost pressure, hence tweak our earlier estimates for 2015-17. Ex h ibit 3: Gross Profit (SAR mln ) an d Marg in s (%) 54.8%
Ex h ibit 4: Net Profit (SAR mln ) an d Marg in s (%) 900 880
54.6%
860 54.4%
840
54.2%
840 820 800 780 760 740 720 700 680 660
51.0% 50.0%
820 800
54.0%
780 53.8%
49.0% 48.0%
760
53.6%
740
2013
2014
2015E
Gross Profit (RHS) Source: Company Reports, Riyad Capital
December 14, 2015
52.0%
2016E
2017E
Gross Profit Margins (LHS)
47.0%
2013
2014
2015E
Net Profit (RHS)
2016E
2017E
Net Profit Margins (LHS)
Source: Company Reports, Riyad Capital
|4
Yanbu Cement Company Transfer of Coverage Following such revisions, margins are expected to decline by 220 bps for 2015-17 and take earnings to SAR 776 million by 2017E at a CAGR of 2%. We expect Yanbu’s earnings to recover from 2017E as there will be pullback in demand and recovery in realization.
Decline in earnings but good payout We estimate YCC’s payout ratio for 2.39-17E at an average of 83% as it portrayed consistency in delivering dividends. DPS of SAR 4.00 is expected for 2015E and expect stability in the coming years. Yanbu has delivered superior performance in adding value to shareholders with ROE of 23.6% higher than the sector average of 19.8%. Return on assets of 18.7% is better compared to the sector average of 15.2%. With an attractive capital structure and lower debt profile, YCC is expected to continue with sustainable growth in free cash flows and help in better growth versus peers. Ex h ibit 5: DPS (SAR) an d Pay ou t Ratio (%) 4.0 3.9
Ex h ibit 6: EPS (SAR) an d Growth (%)
86%
5.4
84%
5.2
82% 4.0
4.0
3.7 4.0
3.5 2013
2014
2015E
DPS
2016E
3.7%
5.0%
4.8
78%
0.0%
4.6
76%
4.0
3.6
10.0%
5
80%
3.8
15.0%
14.0%
74%
4.4
72%
4.2
-2.3%
-4.6%
-10.0% 2013
2017E
2014
2015E EPS
Dividend Payout
Source: Company Reports, Riyad Capital
-5.0%
-5.9% 2016E
2017E
Growth
Source: Company Reports, Riyad Capital
4Q2015 Preview We believe Yanbu is expected to show some improvement unlike the last quarter as impact of Ramadan and Haj holidays has resulted in lower earnings growth in 3Q2015, a seasonality trend widely acceptable in cement sector. We expect to see an improvement in 4Q2015 with sales volumes of 1.4 million tons (+4% Q/Q). However for 4Q2015, we expect net income of SAR 155 million for 4Q2015E and revenues of SAR 319 million. Table 4: 4Q2015 Forecasts (SAR mln ) 4Q2015E Sales
4Q2014
Y/Y
3Q2015
Q/Q
319
378
-15.6%
311
2.7%
Cost of sales
(147)
(168)
-12.6%
(149)
-1.5%
Gross Profit
172
210
-18.1%
162
6.6%
Total Operating Income
163
199
-18.2%
151
7.9%
Net Income
155
193
-19.9%
145
7.1%
EPS (SAR)
0.98
1.23
-20.3%
0.92
6.5%
Source: Company Reports, Riyad Capital
A retake on 3Q2015 performance suggests revenues showed a decline of 29% owing to lower sales volumes of 1.19 million tons, down by -28% Q/Q. Ex hibit 7: Sales Volumes Quarterly and Growth
100%
600
50%
0%
400
0%
-20%
200
-50%
Sales volumes (000 ton)
Oct-15
15-Nov
Sep-15
Jul-15
Aug-15
Jun-15
Apr-15
May-05
Mar-15
-100% Dec-15E
Growth %
0 Jan-15
3Q15
4Q15E
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
Source: Company Reports, Riyad Capital
December 14, 2015
800
20%
-40%
Sales volumes (mln ton)
Ex hibit 8: Sales Volumes Monthly and Growth
40%
Feb-15
2.3 2.0 1.8 1.5 1.3 1.0 0.8 0.5 0.3 0.0
Growth %
Source: Company Reports, Riyad Capital
|5
Yanbu Cement Company Transfer of Coverage
Valuation In this report, we tested two valuation methods being DCF and EV/EBITDA multiple to arrive at YCC’s fair value. We prefer DCF valuation due to its consistent cash flows.
#1 DCF fair value of SAR 07.46 We used DCF model for the period 2017-2019, assuming a terminal growth rate of 3.0% and risk free rate of 3.7%. We have derived cost of equity at 8.5%, while we assume that cost of debt of 5.0% to calculate weighted average cost of capital of 8.5%. Table 5: DCF Valuation Assumptions Risk Free Rate
2017E
2018E 2019E
3.7%
Beta
0.76
FCF (SAR mln)
Risk Premium
6.3%
LT Growth Rate
1.0%
Cost of Equity
8.5%
Cost of Debt
5.0%
Discounted Terminal Value (SAR mln)
8,454 64.70
WACC
8.50%
745
Fair Value Per Share
784
795
Source: Riyad Capital
The key risks would be a concentrated supply from producers to the western region which could alter price and supply imbalances for producers in Western region. The capacity glut in the entire KSA cement space could further lead to large price discounts among producers affecting realization. This could have a volatile impact on our forecasts if prices continues to fall, while upside risk is inherent upon governments stance of revoking the export ban.
#2 EV/EBITDA fair value of SAR 56.01. We used EV/EBITDA multiple to determine the value of the company in order to arrive to our target price. We assume current sector’s EV/ EBITDA multiple of 9.7x as a target multiple for YCC. Applying it to our EBITDA of SAR 887 million, we arrive at a fair value of SAR 56.01. Table 6:EV/EBITDA Valu ation 2016E EBITDA (SR mln)
887
Target EV/EBITDA multiple
9.7x
EV (SR bln)
8.58
Fair Value Per Share
56.01
Source: Riyad Capital
Out of these two, we prefer to pick DCF and assign a target price of SAR 19.00 for Yanbu Cement.
December 14, 2015
|6
Yanbu Cement Company Transfer of Coverage
Relative valuation suggests Yanbu trades cheaper to peers Yanbu though trading cheaper to sector average, can also be compared to Yamama and Southern Cement due to similar size and range by capacity. On a TTM basis, Yanbu is at least 5-10% cheaper to peers with similar capacity especially its comparison with Yamama Cement. Additionally, it offers one of the largest yields in the sector at 9.2%. Table 7: Sector Key Fin an cials (TTM) Issued Shares
Market
Market
(mln)
Cap (mln)
Cap (%)
202.5
6,930
11%
3.03
11.28
18.28
1.87
Umm Al-Qura Cement
55
1,507
2%
-0.32
NA
9.23
2.96
Saudi Cement
153
10,022
16%
6.76
9.69
20.13
3.25
Eastern Cement
86
2,918
5%
3.76
9.03
26.42
1.28
Qassim Cement
90
6,631
11%
6.45
11.43
20.85
3.53
157.5
6,837
11%
5.03
8.65
22.18
1.95
Arab Cement
100
4,937
8%
5.92
8.34
30.94
1.59
Southern Cement
140
9,933
16%
7.02
10.10
20.92
3.39
Tabuk Cement
90
1,494
2%
1.08
15.30
13.14
1.26
Najran Cement
170
2,644
4%
1.57
9.94
12.21
1.27
189.2
2,861
5%
1.22
12.41
11.46
1.31
180
2,684
4%
1.26
11.81
10.82
1.37
Jouf Cement
130
1,413
2%
0.71
15.37
11.64
0.93
Hail Cement
97.9
1,392
2%
1.27
11.19
10.47
1.35
3.20
11.12
17.0
2.0
Company Yamamah Cement
Yanbu Cement
City Cement Northern Cement
Average
EPS (SAR) P/E (x)
Book Value
P/B (x)
Source: Tadawul
Recommendation We transfer coverage on Yanbu Cement Company with a 12-month target price of SAR 19.00 based on DCF. With an upside of 95.8% to our target price, we recommend a Buy. We believe that YCC will face hard times in short to mid-term due to the impact of lower oil prices on Saudi budget, while the long term outlook remains stable.
December 14, 2015
|7
Yanbu Cement Company Transfer of Coverage
Summary Financials Table 8: Yan bu Su mmary Fin an cials: Income Statement (SAR Mln) Sales
2014
2015E
1,559
2016E
1,505
2017E
1,483
1,577
Cash Flows (SAR mln)
2014
2015E
2016E
2017E
Net Income
802
755
730
749
159
157
155
65
17
Cost of Sales
(706)
(686)
(682)
(718)
Gross Profit
853
820
801
860
Depreciation
210
Selling and Distribution
(13)
(14)
(22)
(23)
Change in working Capital
(81)
General and Admin
(28)
(30)
(49)
(52)
Operating Cash Flow
931
979
884
899
Income from main operaions
813
776
730
784
Other income
21.9
3.1
18.5
19.0
Additions to PPE
(116)
(113)
(119)
(129)
Investing Cash Flow
(116)
(113)
(119)
(134)
Finance exp Income befor Zakat
(9)
(8)
825
771
(4) 744
(2)
(11)
802
Zakat
(22)
(18)
(22)
(24)
Dividends Paid
(551)
(632)
(652)
(652)
Non control
(1.7)
(0.8)
(1.7)
(1.7)
Financing Cash Flow
(836)
(828)
(746)
(686)
Net Income
802
752
720
776 Cash at the Beginning
311
290
328
347
Cash at the end
290
328
347
406
Shares Outstanding (mln)
157.5
157.5
157.5
157.5
EPS
5.09
4.78
4.57
4.93
DPS
4.00
4.00
4.00
4.00
Balance Sheet (SAR mln)
2014
2015E
2016E
2017E
Ratios
2014
2015E
2016E
2017E
Cash in hand & banks
290
328
347
406
Profitability
Account receivables
191
186
182
187
Gross Margins
54.7%
54.5%
54.0%
54.5%
Inventories
551
494
484
495
Operating Margins
52.1%
51.5%
49.2%
49.7%
PPE
3,187
3,141
3,103
3,077
Net Income Margins
51.4%
50.0%
48.5%
49.2%
Total Assets
4,244
4,170
4,148
4,243
ROA
18.9%
18.0%
17.4%
18.3%
22
21
20
21
ROE
22.5%
20.4%
19.1%
19.9%
Long loan - current portion
239
107
51
26
Liquidity
long loan
168
107
51
26
Current Ratio
2.4
3.3
4.0
4.8
66
69
72
76
Cash Ratio
0.9
1.3
1.5
2.0
682
490
382
335
Authorized & fully paid capital
1,575
1,575
1,575
1,575
EBITDA Per Share
6.5
5.9
5.6
6.0
Statutory Reserve
787.5
787.5
787.5
787.5
EV/Revenues
4.5x
4.5x
4.5x
4.4x
Retained Earnings
1,167
1,287
1,363
1,458
TOTAL LIABILITIES & EQUITY
4,244
4,170
4,148
4,243
Accounts Payable
Prov for End of Service Indemnity Total Liabililities
Others
EV/EBITDA Dividend Payout
6.9x
7.3x
7.5x
7.2x
79%
83%
82%
81%
Source: Company Reports, Riyad Capital
December 14, 2015
|8
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
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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
Buy
Limited Growth due to Pricing Pressure
December 14, 2015 Expected Total Return Price as on Dec-13, 2015
SAR 43.40
Upside to Target Price
49.8%
Expected Dividend Yield
10,%
Expected Total Return
,100%
Market Data 52 Week H/L
SAR 42.70/72.25
Market Capitalization
SAR 2,837 mln
Shares Outstanding
157.5 mln
Free Float
75.5%
12-Month ADTV (000’s)
156.3
TASI Weight
0.44%
Reuters Code
3060.SE
Bloomberg Symbol
YNCCO AB
1-Year Price Performance 130 120 110 100 90 80 70 60 D
J
F M A M YCC
J
J
A
TASI
S O N TCEM
Source: Bloomberg Yanbu
TASI
TCEM
34.30
2,72,
4,688
Dec-13, 2015
12-Month Target Price SAR 65
We update our estimates and our outlook for Yanbu Cement Company (YCC) for 2015-2019 due to transfer of coverage. We cut earlier estimates slightly on the anticipation of an unhealthy competitive environment between producers as inventories and pricing pressure mounts. We believe that demand is more correlated to conservative government spending plan. As a result we expect lower realization and a decline in growth rate for YCC with realization decreasing by-7.5% Y/Y for 2015. Revenues for 2015-17E are expected to grow at a CAGR of 2.4% to touch SAR 1.58 billion in 2017, while earnings are expected to grow at 2% CAGR during the same period. With such cut in estimates valuations appear to be attractive with 2016E P/E of 5.9x which is lower than the sector’s P/E of 3..1x and cheaper versus TASI P/E of 33.3x. We base our valuation on Discounted Cash Flow (DCF) and derive a target price of SAR 65, which suggests an upside of 95.8%. Maintain Buy. Advantageous location YCC is strategically located in the western region, Yanbu City. Its proximity to demand centers in Jeddah, Makkah and Madinah projects gives it an advantage over other competitors. Despite the competition from regional counterparts, Yanbu maintained market share in the sector at 11.6%. Accumulated inventory increased +9% YTD, medium term concern We also believe that once construction spending gains pace, it will lead to lower pressure on inventories. As per the latest monthly statistics, YCC inventory has reached 3.3 million tons which is 5..8% of the company’s production capacity. Our estimates show that between 20152.37, YCC’s inventory is expected to deplete at a CAGR of -6.5%. Moreover, the likelihood of lifting the ban on export is a key catalyst to tackle issues with inventory balances and gain growth on realization. Price pressure squeezing margins Pressure on YCC top line is expected to have an impact over gross margin and operating margins. We expect operating margin to stand at 93.9% in 2019 compared to 92.3% in 2014. EBITDA margins are expected at 12.3% compared to 19.8% during the same period. On the other hand, net profit margins are expected at 9.% compared to 93.9% in 2014. Attractive valuation and good yields After using two methods, the DCF and EV/EBITDA, we arrived at our target price at SAR 19.00. Our estimates indicate that a stable dividend yield of 9.2% with a payout ratio of 84 % and DPS of SAR 4.00 for 2015E, to be attractive compared to competitors. We maintain Buy.
Total Change 6-months
(4,02%)
(,20,%)
(400,%)
1-Year
(2909%)
(,104%)
(4109%)
2-Year
(,203%)
(9103%)
(4401%)
F2015E
SAR mln
Key Financials FY December 31 (SARmln)
2014A
2015E
2016E
2017E
Revenue
95,,1
9,506
9,384
9,578
EBITDA
950,,
146
887
139
1,506
Net Profit
80,
752
720
776
Gross Profit
820
EPS (SAR)
,001
3.78
3.57
3.93
Operating Income
776
DPS (SAR)
4.00
4.00
4.00
4.00
BVPS (SAR)
,,02,
,4047
,4.91
,3.81
Revenue
Net Income
752
EPS (SAR)
4.78
Khalid Abdullah Almadhyan [email protected] +966-11-203-6813
ROAA
9801%
18.0%
17.4%
18.3%
ROAE
,,0,%
20.4%
19.1%
19.9%
P/E
8.5x
1.1x
1.5x
8.8x
P/B
901x
9.8x
9.8x
9.7x
EV/ EBITDA
2.8x
7.2x
7.4x
6.9x
EV/ Sales
3.5x
3.5x
3.4x
3.1x
Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37)
Yanbu Cement Company Transfer of Coverage
Transfer of Coverage We transfer coverage of YCC with a Buy rating and target price of SAR 19.00 from SAR 78.00 earlier. This report highlights the performance of the cement sector as well as our outlook for Yanbu Cement Company and our estimate of the company's expected results for the fourth quarter of this year.
Sector Outlook With nearly 16 cement companies operating in the cement space and a combined annual production capacity of 62.2 million tons, Saudi cement sector is the largest one in GCC. Saudi cement producers are geographically dispersed across different provinces and categorically take advantage of its proximity to client location for ease of delivery and compressing cash costs. With a majority of them listed in the Saudi stock market (Tadawul), the sector offers wider array of choices to investors in bottom-up selection. We take a closer look at how the cement sector has shaped over the last few years and include our outlook for 2016-17. Looking at the key trends that drive growth, we observed that the increase in cement demand is correlated to the growing infrastructure projects planned in the country. This is unpretentiously backed by the government’s keen interests to develop infrastructure in the country which started over a decade ago. Saudi Arabia saw its economy expanding through its planned infrastructure spending since 2...’s. However, the start of the oil slide from 3Q2014 has put some doubts on its pace as the Kingdom is expected to slow its large scale infrastructure spending plans. With oil prices retreating over the last 4-5 quarters reaching under US$40/bbl (Brent) and large upside not seen over the short term, concerns emerge on its spending plans affecting the construction sector; which otherwise had joyous ride with the construction boom. In light of such bleak expectations cement sector is poised to witness lower growth rate altering demand-supply scenario for 2016-17.
Growth trajectory to be limited With such implications and keeping in view such long term consistent demand for cement in the country, producers expanded production capacities since 2007. As a result, the sector recorded growth of 11% during 2009-12. However, the Nitaqat program put a halt to such growth as scarcity in labor on construction sector has resulted in number of projects being stalled and resulted in a large drop in demand. Despite such issues, demand picked up as labor situation improved. The sector recorded volume growth rate of 6% selling 56.6 million tons from 53.5 million tons in 2013. We believe growth rates over the last two years should have been better, had the projects not been stalled. Table 1: Sector's Production And Sales Volumes (mln ton) 2009
2010
2011
2012
2013
2014
2015E
2016E
Number of companies
13
13
13
13
14
15
15
15
15
Production
37.8
43.0
48.4
52.3
55.7
57.2
59.5
60.7
61.6
14%
13%
8%
6%
3%
4%
2%
1%
41.3
47.0
51.8
53.5
56.6
58.5
59.7
61.0
13%
14%
10%
3%
6%
3%
2%
2%
Growth Sales
36.7
Growth
2017E
Source: Company Reports, Riyad Capital
However, the government’s move to a lower spending cycle has led to a fall in cement demand since start of the year with growth expected to be at +3% for 2015E to 58.5 million tons. From our forecast in Table3, we believe that sector’s sales will face slight sluggishness, though +2% growth is achievable in 2016E recording 59.7 million tons. However, a rebound is achievable over 2016 and 2017 recording 59.7 and 61 million tons respectively.
December 14, 2015
|2
Yanbu Cement Company Transfer of Coverage
Consistent growth in production Such voluminous growth in the past has resulted in cement production reporting stellar growth during 2008-12. However recent stats proved that Saudi Arabia recorded reasonable growth during 2014. The key reason for limited upside in production is the inability to run its new capacity with subsidized fuel, while lowering demand has added to concerns affecting utilization rates and increasing cash costs. In light of such an oversupply situation, we expect modest growth rates in production with +4% Y/Y for 2015E to reach 60 million tons and a CAGR of 2% for 2015-17E which could be even higher once new capacities rolls out with Aramco allocating cheap fuel.
Inventory balances mounting With large inventories of 23.5 million tons currently, Saudi cement sector is witnessing challenges with pricing pressure. The labor crisis in 2013 resulted in high inventory pressure following weaker cement demand thus creating a supply demand imbalance in the sector. As a result, clinker inventory reached 21.5 million tons, an increase of +46% compared to the inventory level in 2013 at 14.7 million tons. However in 2009-2012, cement companies continued to deplete their inventory balances at rates ranging between 7%-25%. Table 2: Sector Inventory level (mln ton) 2009
2010
2011
2012
2013
2014
2015E
2016E
Number of companies
13
13
13
13
14
15
15
15
15
Inventory
10.9
10.0
7.5
6.4
14.7
21.6
23.5
22.5
20.5
-7%
-25%
-15%
131%
46%
9%
-5%
-8%
Growth
2017E
Source: Company Reports, Riyad Capital
Our estimates for the sector’s inventory in 2.39E show a growth of +9% Y/Y to reach 23.5 million tons. In 2016 and 2017, we expect cement companies to start depleting their inventory by -5% and -8% Y/Y to arrive to 22.4 million tons and 20.5 million tons respectively. We are optimistic on government revoking the cement export ban providing some relief while positive impact of additional construction resulting from the implementation of fees on white lands should also aid growth in sector.
Yanbu positioned advantageously Overall YCC is positioned reasonably well while comparing the performance of cement companies. Yanbu’s sales currently accounts for 11.4% of the sector enabling it to occupy the fourth place among sector companies listed on the Saudi stock market (Tadawul). However, the second highest inventory in the sector though negative over the mediumterm, revoking export ban helps to fasten the process of exports due to its proximity to MENA markets and its accessibility to ports.
December 14, 2015
|3
Yanbu Cement Company Transfer of Coverage
Company Outlook We revised our estimates following the weak realization which dropped -7% Y/Y. As per table 3, revised revenue is expected to decline by an average of -0.5% for 2015-17E. EPS estimates also revised down by -3% in 2015E. Table 3:Ch an g es in Estimates (SAR Mln ) Old Estimates 2015E
2016E
New Estimates 2017E
2015E
2016E
New vs Old
2017E
2015E
Revenue
1,581
1,626
1,660
1,506
1,483
1,578
Y/Y
1.4%
2.8%
2.1%
-3%
-1%
6%
Gross Profit
859
884
902
820
801
860
Y/Y
1%
3%
2%
-4%
-2%
7%
EBITDA
1,013
1,040
1,052
936
887
939
Y/Y
-1.2%
2.7%
1.2%
-9%
-5.2%
6%
780
803
819
752
720
776
-2.7%
2.9%
2.0%
-6%
-4%
8%
4.95
5.10
5.20
4.78
4.57
4.93
Net Income Y/Y EPS
2016E
-5%
-9%
-5% -8% -4% -3%
-9% -15% -10% -10%
Consensus 2017E
2015E
-5%
2017E
1,581
1,586
1,516
1.4%
0.3%
-4%
858
850
787
1%
-1%
-7%
-5% -11%
2016E
1,040
999
802
1%
-4%
-20%
-5% -5%
787
786
702
5%
-0.1%
-10.6%
5.02
4.83
4.43
Source: Bloomberg Estimates and Riyad Capital
Revenue growth to slowdown Slower growth in revenue is expected as lower realization continues to put pressure across producers and not indifferent with Yanbu. With large price discounts and onsite delivery costs, net realization could take a toll, hence adjust our earlier revenue estimates to 2.4% CAGR for 2015-17. Sales volumes are expected to touch 6.7 million tons by 2017E and grow by +2.3% over the next two years. A notable decline of -7% in realization during 9M2015 continues to be medium term concern signifying the added pressure on topline coupled with marginal growth in volumes. Exhibit 1: Company's Sales (SAR bln) with Growth (%)
Exhibit 2: Company's Sales Volumes (mln ton) with Average Realization (SAR)
1.7
40%
1.6
30%
1.6
20%
1.5
10%
1.5
0%
1.4
-10% 2012
2013
2014
2015E
Sales
2016E
6.8
260
6.6 6.4 6.2 6.0 5.8
250 240
230 220
5.6 5.4
2017E
210 2012
2013
Growth
2014
Sales Volumes
Source: Company Reports, Riyad Capital
2015E
2016E
2017E
Average Realization
Source: Company Reports, Riyad Capital
Cash costs are expected to elevate In 2015-2017, we believe margin pressure is imminent as falling pricing power could add up cash costs with gross profit margin expected to average 54.3%. However, some stability is expected post 2016 as cost of sales is stable while the large pressure on realization has effected net profit margins since the start of this year. We believe net profit is expected to decline owing to the overall cost pressure, hence tweak our earlier estimates for 2015-17. Ex h ibit 3: Gross Profit (SAR mln ) an d Marg in s (%) 54.8%
Ex h ibit 4: Net Profit (SAR mln ) an d Marg in s (%) 900 880
54.6%
860 54.4%
840
54.2%
840 820 800 780 760 740 720 700 680 660
51.0% 50.0%
820 800
54.0%
780 53.8%
49.0% 48.0%
760
53.6%
740
2013
2014
2015E
Gross Profit (RHS) Source: Company Reports, Riyad Capital
December 14, 2015
52.0%
2016E
2017E
Gross Profit Margins (LHS)
47.0%
2013
2014
2015E
Net Profit (RHS)
2016E
2017E
Net Profit Margins (LHS)
Source: Company Reports, Riyad Capital
|4
Yanbu Cement Company Transfer of Coverage Following such revisions, margins are expected to decline by 220 bps for 2015-17 and take earnings to SAR 776 million by 2017E at a CAGR of 2%. We expect Yanbu’s earnings to recover from 2017E as there will be pullback in demand and recovery in realization.
Decline in earnings but good payout We estimate YCC’s payout ratio for 2.39-17E at an average of 83% as it portrayed consistency in delivering dividends. DPS of SAR 4.00 is expected for 2015E and expect stability in the coming years. Yanbu has delivered superior performance in adding value to shareholders with ROE of 23.6% higher than the sector average of 19.8%. Return on assets of 18.7% is better compared to the sector average of 15.2%. With an attractive capital structure and lower debt profile, YCC is expected to continue with sustainable growth in free cash flows and help in better growth versus peers. Ex h ibit 5: DPS (SAR) an d Pay ou t Ratio (%) 4.0 3.9
Ex h ibit 6: EPS (SAR) an d Growth (%)
86%
5.4
84%
5.2
82% 4.0
4.0
3.7 4.0
3.5 2013
2014
2015E
DPS
2016E
3.7%
5.0%
4.8
78%
0.0%
4.6
76%
4.0
3.6
10.0%
5
80%
3.8
15.0%
14.0%
74%
4.4
72%
4.2
-2.3%
-4.6%
-10.0% 2013
2017E
2014
2015E EPS
Dividend Payout
Source: Company Reports, Riyad Capital
-5.0%
-5.9% 2016E
2017E
Growth
Source: Company Reports, Riyad Capital
4Q2015 Preview We believe Yanbu is expected to show some improvement unlike the last quarter as impact of Ramadan and Haj holidays has resulted in lower earnings growth in 3Q2015, a seasonality trend widely acceptable in cement sector. We expect to see an improvement in 4Q2015 with sales volumes of 1.4 million tons (+4% Q/Q). However for 4Q2015, we expect net income of SAR 155 million for 4Q2015E and revenues of SAR 319 million. Table 4: 4Q2015 Forecasts (SAR mln ) 4Q2015E Sales
4Q2014
Y/Y
3Q2015
Q/Q
319
378
-15.6%
311
2.7%
Cost of sales
(147)
(168)
-12.6%
(149)
-1.5%
Gross Profit
172
210
-18.1%
162
6.6%
Total Operating Income
163
199
-18.2%
151
7.9%
Net Income
155
193
-19.9%
145
7.1%
EPS (SAR)
0.98
1.23
-20.3%
0.92
6.5%
Source: Company Reports, Riyad Capital
A retake on 3Q2015 performance suggests revenues showed a decline of 29% owing to lower sales volumes of 1.19 million tons, down by -28% Q/Q. Ex hibit 7: Sales Volumes Quarterly and Growth
100%
600
50%
0%
400
0%
-20%
200
-50%
Sales volumes (000 ton)
Oct-15
15-Nov
Sep-15
Jul-15
Aug-15
Jun-15
Apr-15
May-05
Mar-15
-100% Dec-15E
Growth %
0 Jan-15
3Q15
4Q15E
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
Source: Company Reports, Riyad Capital
December 14, 2015
800
20%
-40%
Sales volumes (mln ton)
Ex hibit 8: Sales Volumes Monthly and Growth
40%
Feb-15
2.3 2.0 1.8 1.5 1.3 1.0 0.8 0.5 0.3 0.0
Growth %
Source: Company Reports, Riyad Capital
|5
Yanbu Cement Company Transfer of Coverage
Valuation In this report, we tested two valuation methods being DCF and EV/EBITDA multiple to arrive at YCC’s fair value. We prefer DCF valuation due to its consistent cash flows.
#1 DCF fair value of SAR 07.46 We used DCF model for the period 2017-2019, assuming a terminal growth rate of 3.0% and risk free rate of 3.7%. We have derived cost of equity at 8.5%, while we assume that cost of debt of 5.0% to calculate weighted average cost of capital of 8.5%. Table 5: DCF Valuation Assumptions Risk Free Rate
2017E
2018E 2019E
3.7%
Beta
0.76
FCF (SAR mln)
Risk Premium
6.3%
LT Growth Rate
1.0%
Cost of Equity
8.5%
Cost of Debt
5.0%
Discounted Terminal Value (SAR mln)
8,454 64.70
WACC
8.50%
745
Fair Value Per Share
784
795
Source: Riyad Capital
The key risks would be a concentrated supply from producers to the western region which could alter price and supply imbalances for producers in Western region. The capacity glut in the entire KSA cement space could further lead to large price discounts among producers affecting realization. This could have a volatile impact on our forecasts if prices continues to fall, while upside risk is inherent upon governments stance of revoking the export ban.
#2 EV/EBITDA fair value of SAR 56.01. We used EV/EBITDA multiple to determine the value of the company in order to arrive to our target price. We assume current sector’s EV/ EBITDA multiple of 9.7x as a target multiple for YCC. Applying it to our EBITDA of SAR 887 million, we arrive at a fair value of SAR 56.01. Table 6:EV/EBITDA Valu ation 2016E EBITDA (SR mln)
887
Target EV/EBITDA multiple
9.7x
EV (SR bln)
8.58
Fair Value Per Share
56.01
Source: Riyad Capital
Out of these two, we prefer to pick DCF and assign a target price of SAR 19.00 for Yanbu Cement.
December 14, 2015
|6
Yanbu Cement Company Transfer of Coverage
Relative valuation suggests Yanbu trades cheaper to peers Yanbu though trading cheaper to sector average, can also be compared to Yamama and Southern Cement due to similar size and range by capacity. On a TTM basis, Yanbu is at least 5-10% cheaper to peers with similar capacity especially its comparison with Yamama Cement. Additionally, it offers one of the largest yields in the sector at 9.2%. Table 7: Sector Key Fin an cials (TTM) Issued Shares
Market
Market
(mln)
Cap (mln)
Cap (%)
202.5
6,930
11%
3.03
11.28
18.28
1.87
Umm Al-Qura Cement
55
1,507
2%
-0.32
NA
9.23
2.96
Saudi Cement
153
10,022
16%
6.76
9.69
20.13
3.25
Eastern Cement
86
2,918
5%
3.76
9.03
26.42
1.28
Qassim Cement
90
6,631
11%
6.45
11.43
20.85
3.53
157.5
6,837
11%
5.03
8.65
22.18
1.95
Arab Cement
100
4,937
8%
5.92
8.34
30.94
1.59
Southern Cement
140
9,933
16%
7.02
10.10
20.92
3.39
Tabuk Cement
90
1,494
2%
1.08
15.30
13.14
1.26
Najran Cement
170
2,644
4%
1.57
9.94
12.21
1.27
189.2
2,861
5%
1.22
12.41
11.46
1.31
180
2,684
4%
1.26
11.81
10.82
1.37
Jouf Cement
130
1,413
2%
0.71
15.37
11.64
0.93
Hail Cement
97.9
1,392
2%
1.27
11.19
10.47
1.35
3.20
11.12
17.0
2.0
Company Yamamah Cement
Yanbu Cement
City Cement Northern Cement
Average
EPS (SAR) P/E (x)
Book Value
P/B (x)
Source: Tadawul
Recommendation We transfer coverage on Yanbu Cement Company with a 12-month target price of SAR 19.00 based on DCF. With an upside of 95.8% to our target price, we recommend a Buy. We believe that YCC will face hard times in short to mid-term due to the impact of lower oil prices on Saudi budget, while the long term outlook remains stable.
December 14, 2015
|7
Yanbu Cement Company Transfer of Coverage
Summary Financials Table 8: Yan bu Su mmary Fin an cials: Income Statement (SAR Mln) Sales
2014
2015E
1,559
2016E
1,505
2017E
1,483
1,577
Cash Flows (SAR mln)
2014
2015E
2016E
2017E
Net Income
802
755
730
749
159
157
155
65
17
Cost of Sales
(706)
(686)
(682)
(718)
Gross Profit
853
820
801
860
Depreciation
210
Selling and Distribution
(13)
(14)
(22)
(23)
Change in working Capital
(81)
General and Admin
(28)
(30)
(49)
(52)
Operating Cash Flow
931
979
884
899
Income from main operaions
813
776
730
784
Other income
21.9
3.1
18.5
19.0
Additions to PPE
(116)
(113)
(119)
(129)
Investing Cash Flow
(116)
(113)
(119)
(134)
Finance exp Income befor Zakat
(9)
(8)
825
771
(4) 744
(2)
(11)
802
Zakat
(22)
(18)
(22)
(24)
Dividends Paid
(551)
(632)
(652)
(652)
Non control
(1.7)
(0.8)
(1.7)
(1.7)
Financing Cash Flow
(836)
(828)
(746)
(686)
Net Income
802
752
720
776 Cash at the Beginning
311
290
328
347
Cash at the end
290
328
347
406
Shares Outstanding (mln)
157.5
157.5
157.5
157.5
EPS
5.09
4.78
4.57
4.93
DPS
4.00
4.00
4.00
4.00
Balance Sheet (SAR mln)
2014
2015E
2016E
2017E
Ratios
2014
2015E
2016E
2017E
Cash in hand & banks
290
328
347
406
Profitability
Account receivables
191
186
182
187
Gross Margins
54.7%
54.5%
54.0%
54.5%
Inventories
551
494
484
495
Operating Margins
52.1%
51.5%
49.2%
49.7%
PPE
3,187
3,141
3,103
3,077
Net Income Margins
51.4%
50.0%
48.5%
49.2%
Total Assets
4,244
4,170
4,148
4,243
ROA
18.9%
18.0%
17.4%
18.3%
22
21
20
21
ROE
22.5%
20.4%
19.1%
19.9%
Long loan - current portion
239
107
51
26
Liquidity
long loan
168
107
51
26
Current Ratio
2.4
3.3
4.0
4.8
66
69
72
76
Cash Ratio
0.9
1.3
1.5
2.0
682
490
382
335
Authorized & fully paid capital
1,575
1,575
1,575
1,575
EBITDA Per Share
6.5
5.9
5.6
6.0
Statutory Reserve
787.5
787.5
787.5
787.5
EV/Revenues
4.5x
4.5x
4.5x
4.4x
Retained Earnings
1,167
1,287
1,363
1,458
TOTAL LIABILITIES & EQUITY
4,244
4,170
4,148
4,243
Accounts Payable
Prov for End of Service Indemnity Total Liabililities
Others
EV/EBITDA Dividend Payout
6.9x
7.3x
7.5x
7.2x
79%
83%
82%
81%
Source: Company Reports, Riyad Capital
December 14, 2015
|8
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
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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
