Yanbu National Petrochemical Co. (YANSAB) - Aljazira Capital
Yanbu National Petrochemical Co. (YANSAB) Result Flash Note 2Q-2016
July 2016
YANSAB: Q2-2016 earnings came above our expectation with a positive surprise for second consecutive quarter. The company compensated lower product prices by higher operating rate and expanded margin. “Overwieght” recommendation with higher PT. Amount in SAR mn; unless specified Sales revenues Net profit EPS (SAR)
Forecasts 2Q-16 1,577.7 375.1 0.67
Actual 2Q-16 1,900.08 689.3 0.71
Deviation (%) 20.4% 83.7%
Higher than expected operating rate; along with higher production efficiencies contributes to strong performance in 2Q2016: 2Q2016 net profit came significantly above our estimates, and the market consensus of SAR 433.3mn. YANSAB posted net income of SAR 689.3mn; indicating an increase of 203.1%YoY and 71.5%QoQ. The company attributed the YoY stronger profitability to i) the increase in volumetric production and sales due to the completion of maintenance during 2Q-2015. ii) higher other incomes. iii) the reduction in some of feedstock prices, and despite lower average sales prices for majority of the products. We believe that despite the weak average product prices, the higher than expected sales volume and product spreads have strongly revived the financial earnings in 2Q2016.
Please read Disclaimer on the back
Recommendation
Overwieght
Current Price* (SAR)
43.50
Target Price (SAR)
48.10
Upside / (Downside)
10.6% *prices as of 24 of July 2016
Key Financials SARmn (unless specified)
FY14
Revenues Growth % Net Income Growth % EPS
9,511 1.7% 2,478 -6.3% 4.40
FY15
FY16E FY17E
6,911 8,006 -27.3% 15.8% 1,207 2,591 -51.3% 114.6% 2.15 4.60
9,193 14.8% 2,397 -7.5% 4.26
Source: Company reports, Aljazira Capital,
Key Ratios SARmn (unless specified) FY14
FY15
FY16E FY17E
The company reported a 21.5%YoY increase in revenue for 2Q2016 to SAR 1.9bn, which is above our estimate of 1.58bn. Based on our estimates, Yansab continued operating at high operating rate of 113.1% that is higher than our expectation of 101.5%. The higher production and sales volume resulted from normal ramp-up of operation after completion of scheduled maintenance during H1-2015.
Gross Margin 32.5% 25.4% 38.3% 31.2% EBITDA Margin 43.5% 38.9% 50.4% 41.5% Net Margin 26.1% 17.5% 32.4% 26.1% P/E 11.3x 15.10x 9.64x 10.42x P/B 1.80x 1.19x 1.54x 1.47x EV/EBITDA (x) 6.83x 7.26x 6.21x 6.26x We expect the company’s operating rate in 2016 to continue its growth trajectory, due to ROE 16.2% 7.8% 16.4% 14.4% expected higher production efficiency. Furthermore, the revised fuel costs are expected to 10.9% 5.6% 12.3% 11.3% have more impact on the coming quarters due to the company’s grace period that would ROA Dividend Yield 6.3% 6.2% 6.8% 6.8% end after 2Q-2016 for propane (60% of feedstock) and at the end of 2016 for Ethan (40% of Source: Company reports, Aljazira Capital feedstock). During the quarter, Asian average prices of Yansab key products such as, MEG, Polypropylene and PE products average prices increased by 9.6%, 12.1% and 3.2% in Q2-2016 Key Market Data respectively, as compared to 1Q2016 prices. Market Cap (bn) 25.36
1
© All rights reserved
Holding 51.0% Saudi Basic Industries Corp. General Organization for Social Insurance - GOSI 11.92% 37.08% Public Shareholders Pattern
Source: Company reports, Aljazira Capital
Price Performance
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2,591mn in net income (4.60 EPS) for 2016, recording an increase of 114.6%YoY for the year that mainly attributed to higher efficiencies after scheduled maintenance during 2015, and despite impacted by higher electricity cost and low level in product price. We update our recommendation to “Overweight” for the stock with higher target price at SAR 48.10/share; indicating a potential upside of 10.6% over current market price of SAR 43.50/ share (as of 24 July 2016). The company is trading at a forward PE and P/B of 9.64x and 1.54x respectively based on our 2016 earnings forecast. We expect the company to raise dividend payment to SAR 3.0/share (6.8% D/Y) in 2016 and over the next two years owing to a strong operating cash flow and no additional capital expenditure in the near to medium term.
Shareholders Pattern
15
We update our recommendation to “Overweight” on YANSAB with a higher PT of SAR 48.10/share indicating a potential upside of 10.6%: YANSAB Co. is expected to post SAR
33.6% 54.0 23.80 562.50 Source: Company reports, Aljazira Capital
9/
Yansab reports high gross margin of 41.9%; however the current spreads seem unsustainable after grace period: The company benefitted from the high spreads across products, where the increase in profit was primarily ascribed to some high product margins. In 2Q2016, Saudi propane prices rose only by 7.4%QoQ to an average price of USD 325 Per MT. However, polypropylene prices increased more by 13.5%QoQ. Consequently, lower increase in propane price than propylene prices led to expansion in PP-Propane spreads in 2Q2016. PP-Propane spread expanded 13.9%QoQ to USD 714/ton. Yansab is projected to continue to benefit from higher spreads across products in the short-term. However, in the medium to long term, the current spreads seem unsustainable and is likely to narrow further after 2Q2016 with the new pricing of propane and after FY2016 with the new pricing of Ethane.
YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
7/
Gross profit stood at SAR 795.2mn depicting an increase of 113.2%YoY and 52.5%QoQ. Gross margin expanded in 2Q2016 to 41.9% vs. 34.9% in 1Q2016 and 23.9% in 2Q2015, which we believe was due to i) high production efficiency ii) lower increase in some feedstock (propane) compared to its derivatives that revived spreads. Operating Profit stood at SAR 738mn depicting an increase of 133.3%YoY, and 55.8%QoQ; where the company recorded higher OPEX (SG & A) at SAR 57.2mn, as compared to SAR 47.5mn in Q1-2016 and SAR 56.6mn in 2Q2015.
YANSAB
Analyst
Jassim Al-Jubran +966 11 2256248 [email protected]
RESEARCH DIVISION
Acting Head of Research
Talha Nazar +966 11 2256115 [email protected]
+966 11 2256374 [email protected]
Analyst
Jassim Al-Jubran +966 11 2256248 [email protected]
Waleed Al-jubayr +966 11 2256146 [email protected]
BROKERAGE AND INVESTMENT CENTERS DIVISION RESEARCH DIVISION
Sultan Al Kadi
Analyst
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
sales
brokerage
Brokerage
Alaa Al-Yousef
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618400 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
Central Region
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
+966 11 2256364 [email protected]
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1.
RATING TERMINOLOGY
Analyst
2. 3. 4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
July 2016
YANSAB: Q2-2016 earnings came above our expectation with a positive surprise for second consecutive quarter. The company compensated lower product prices by higher operating rate and expanded margin. “Overwieght” recommendation with higher PT. Amount in SAR mn; unless specified Sales revenues Net profit EPS (SAR)
Forecasts 2Q-16 1,577.7 375.1 0.67
Actual 2Q-16 1,900.08 689.3 0.71
Deviation (%) 20.4% 83.7%
Higher than expected operating rate; along with higher production efficiencies contributes to strong performance in 2Q2016: 2Q2016 net profit came significantly above our estimates, and the market consensus of SAR 433.3mn. YANSAB posted net income of SAR 689.3mn; indicating an increase of 203.1%YoY and 71.5%QoQ. The company attributed the YoY stronger profitability to i) the increase in volumetric production and sales due to the completion of maintenance during 2Q-2015. ii) higher other incomes. iii) the reduction in some of feedstock prices, and despite lower average sales prices for majority of the products. We believe that despite the weak average product prices, the higher than expected sales volume and product spreads have strongly revived the financial earnings in 2Q2016.
Please read Disclaimer on the back
Recommendation
Overwieght
Current Price* (SAR)
43.50
Target Price (SAR)
48.10
Upside / (Downside)
10.6% *prices as of 24 of July 2016
Key Financials SARmn (unless specified)
FY14
Revenues Growth % Net Income Growth % EPS
9,511 1.7% 2,478 -6.3% 4.40
FY15
FY16E FY17E
6,911 8,006 -27.3% 15.8% 1,207 2,591 -51.3% 114.6% 2.15 4.60
9,193 14.8% 2,397 -7.5% 4.26
Source: Company reports, Aljazira Capital,
Key Ratios SARmn (unless specified) FY14
FY15
FY16E FY17E
The company reported a 21.5%YoY increase in revenue for 2Q2016 to SAR 1.9bn, which is above our estimate of 1.58bn. Based on our estimates, Yansab continued operating at high operating rate of 113.1% that is higher than our expectation of 101.5%. The higher production and sales volume resulted from normal ramp-up of operation after completion of scheduled maintenance during H1-2015.
Gross Margin 32.5% 25.4% 38.3% 31.2% EBITDA Margin 43.5% 38.9% 50.4% 41.5% Net Margin 26.1% 17.5% 32.4% 26.1% P/E 11.3x 15.10x 9.64x 10.42x P/B 1.80x 1.19x 1.54x 1.47x EV/EBITDA (x) 6.83x 7.26x 6.21x 6.26x We expect the company’s operating rate in 2016 to continue its growth trajectory, due to ROE 16.2% 7.8% 16.4% 14.4% expected higher production efficiency. Furthermore, the revised fuel costs are expected to 10.9% 5.6% 12.3% 11.3% have more impact on the coming quarters due to the company’s grace period that would ROA Dividend Yield 6.3% 6.2% 6.8% 6.8% end after 2Q-2016 for propane (60% of feedstock) and at the end of 2016 for Ethan (40% of Source: Company reports, Aljazira Capital feedstock). During the quarter, Asian average prices of Yansab key products such as, MEG, Polypropylene and PE products average prices increased by 9.6%, 12.1% and 3.2% in Q2-2016 Key Market Data respectively, as compared to 1Q2016 prices. Market Cap (bn) 25.36
1
© All rights reserved
Holding 51.0% Saudi Basic Industries Corp. General Organization for Social Insurance - GOSI 11.92% 37.08% Public Shareholders Pattern
Source: Company reports, Aljazira Capital
Price Performance
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2,591mn in net income (4.60 EPS) for 2016, recording an increase of 114.6%YoY for the year that mainly attributed to higher efficiencies after scheduled maintenance during 2015, and despite impacted by higher electricity cost and low level in product price. We update our recommendation to “Overweight” for the stock with higher target price at SAR 48.10/share; indicating a potential upside of 10.6% over current market price of SAR 43.50/ share (as of 24 July 2016). The company is trading at a forward PE and P/B of 9.64x and 1.54x respectively based on our 2016 earnings forecast. We expect the company to raise dividend payment to SAR 3.0/share (6.8% D/Y) in 2016 and over the next two years owing to a strong operating cash flow and no additional capital expenditure in the near to medium term.
Shareholders Pattern
15
We update our recommendation to “Overweight” on YANSAB with a higher PT of SAR 48.10/share indicating a potential upside of 10.6%: YANSAB Co. is expected to post SAR
33.6% 54.0 23.80 562.50 Source: Company reports, Aljazira Capital
9/
Yansab reports high gross margin of 41.9%; however the current spreads seem unsustainable after grace period: The company benefitted from the high spreads across products, where the increase in profit was primarily ascribed to some high product margins. In 2Q2016, Saudi propane prices rose only by 7.4%QoQ to an average price of USD 325 Per MT. However, polypropylene prices increased more by 13.5%QoQ. Consequently, lower increase in propane price than propylene prices led to expansion in PP-Propane spreads in 2Q2016. PP-Propane spread expanded 13.9%QoQ to USD 714/ton. Yansab is projected to continue to benefit from higher spreads across products in the short-term. However, in the medium to long term, the current spreads seem unsustainable and is likely to narrow further after 2Q2016 with the new pricing of propane and after FY2016 with the new pricing of Ethane.
YTD % 52 Week (High ) 52 Week (Low) Shares Outstanding (mn)
7/
Gross profit stood at SAR 795.2mn depicting an increase of 113.2%YoY and 52.5%QoQ. Gross margin expanded in 2Q2016 to 41.9% vs. 34.9% in 1Q2016 and 23.9% in 2Q2015, which we believe was due to i) high production efficiency ii) lower increase in some feedstock (propane) compared to its derivatives that revived spreads. Operating Profit stood at SAR 738mn depicting an increase of 133.3%YoY, and 55.8%QoQ; where the company recorded higher OPEX (SG & A) at SAR 57.2mn, as compared to SAR 47.5mn in Q1-2016 and SAR 56.6mn in 2Q2015.
YANSAB
Analyst
Jassim Al-Jubran +966 11 2256248 [email protected]
RESEARCH DIVISION
Acting Head of Research
Talha Nazar +966 11 2256115 [email protected]
+966 11 2256374 [email protected]
Analyst
Jassim Al-Jubran +966 11 2256248 [email protected]
Waleed Al-jubayr +966 11 2256146 [email protected]
BROKERAGE AND INVESTMENT CENTERS DIVISION RESEARCH DIVISION
Sultan Al Kadi
Analyst
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
sales
brokerage
Brokerage
Alaa Al-Yousef
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
+966 12 6618400 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
Central Region
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 16 3617547 [email protected]
+966 11 2256364 [email protected]
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1.
RATING TERMINOLOGY
Analyst
2. 3. 4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
