Yanbu National Petrochemical Co. (YANSAB) AWS
Yanbu National Petrochemical Co. (YANSAB) Result Flash Note 4Q-2017
January 2018
YANSAB: 4Q-2017 earnings came above expectation with a positive surprise due to an increase in operating rate and better than expected gross margin. Operating rate recorded the highest rate since 1H-2016 standing at 106%. Gross margin increased on QoQ basis to 41.37% Vs. 40.36% due to improved production efficiency, despite an increase in feedstock price. Higher average prices of feedstock cost partially was offset by higher average sales prices. The company is expected to continue to benefit from production efficiency and higher capacity in 2018. Dividend payment is expected to increase to SAR 4.0/share in FY2018. Recommendation upgraded to “Overweight” with higher target price of SAR 72.0/share. • Yanbu National Petrochemical Co. (YANSAB) result came above estimates,
Please read Disclaimer on the back
Recommendation
Overweight
Current Price* (SAR)
64.00
Target Price (SAR)
72.00
Upside / (Downside)
12.5%
Source: Tadawul *prices as of 25th of January 2018
Key Financials SARmn (unless specified)
FY15
FY16
FY17
Revenue
6,911
6,230
7,220
Growth %
-27.3%
-9.9%
15.9%
1,207
2,344
2,376
-51.3%
94.4%
1.4%
2.15
4.17
4.22
exceeding AJC and market consensus profits estimates of SAR 622.1mn and SAR
Net Income
628.9mn, respectively. YANSAB posted net income of SAR 777.9mn; indicating
Growth %
an increase of 28.2%YoY and 20.7%QoQ. The company attributed the YoY strong
EPS
profitability to i) higher volumetric production due to improved production efficiency after plants shutdown in 2Q2017. ii) higher average sales prices for most products. iii) a decline in operating expenses by SAR 10mn. However, we
Source: Company reports, Aljazira Capital
Key Ratios FY15
FY16
FY17
Gross Margin
25.4%
46.3%
39.7%
after plants maintenance in 2Q2017. Furthermore, the deviation in 4Q2017
Net Margin
17.5%
37.6%
32.9%
earnings from our estimates is attributed mainly to the higher than expected
P/E
15.10x
13.05x
15.2x
P/B
1.19x
1.88x
1.84x
EV/EBITDA (x)
7.26x
7.92x
8.32x
Dividend Yield
6.2%
5.3%
5.4%
believe that the QoQ strong performance is mainly attributed to an increase in
SARmn (unless specified)
operating rate and lower production cost due to improved production efficiency
volumetric sales by 9.7%. • The company reported a 31.7%YoY increase in revenue for 4Q2017 to SAR 2.17bn, which is higher than our estimate of 1.98bn due to increase in operating rate after plant shutdown. In 2Q2017, Yansab had a 21-day shutdown of its ethylene glycol
Source: Company reports, Aljazira Capital
plant for scheduled maintenance, and also halted production for 10 days at its Key Market Data olefins plant. Market Cap (bn)
36.00
• Based on our estimates, Yansab witnessed high operating rate of 106.3%, higher YTD %
8.8%
than AJC expectation of 97.3% and 97.0% actual utilization in 3Q2017. We expect 52 Week (High ) the company’s operating rate in 2018 and onward to continue improving due 52 Week (Low) to the positive impact after the plants maintenance in 2Q2017. However, gross margin is expected to be slightly squeezed in FY2018 due to feedstock price hikes
65.30 52.00
Shares Outstanding (mn)
562.50 Source: Company reports, Aljazira Capital
by Aramco. During the quarter, average prices of Yansab key products such as, MEG-Asia increased by 3.2%QoQ from USD 877 to USD 906 per MT. Polypropylene Price Performance
increased by only 6.7%QoQ. Consequently, higher increase in propane price than
56 54 50
Jan-18
Dec-17
Nov-17
YANSAB
Oct-17
Sep-17
TASI
Jul-17
52 Aug-17
by 39.8%YoY to an average price of USD 580 per MT, while polypropylene prices
58
Jun-17
margins on Propane-based products. Saudi propane prices in 4Q2017 increased
60
Apr-17
which we believe was due to improved production efficiency, despite lower
62
May-17
14.8%QoQ. Gross margin improved in 4Q2017 to 41.37% vs. 40.36% in 3Q2017,
64
Feb-17
• Gross profit stood at SAR 896.5mn depicting an increase of 22.3%YoY and
66
Mar-17
compared to 3Q2017 prices.
7600 7500 7400 7300 7200 7100 7000 6900 6800 6700 6600
Jan-17
and PE derivatives products inched by 6.7% and 6.8% in 4Q-2017 respectively, as
Source: Bloomberg, Aljazira Capital
PP prices led to margin contraction on PP-Propane spreads in 4Q2017. PP-Propane spread declined 14.2%QoQ to USD 561/ton from 654/ton in 3Q2017. OPEX stood at
1
SAR 116.9mn; lower than SAR 126.7mn in 3Q2017 and our estimates of SAR 113mn. © All rights reserved
Analyst
Jassim Al-Jubran +966 11 2256248 [email protected]
Yanbu National Petrochemical Co. (YANSAB) Result Flash Note 4Q-2017
January 2018
Please read Disclaimer on the back
AJC view: We believe that the improvement on the company’s sales and margins was mainly attributed to plants shutdown in 2Q2017 and higher product prices, thus; the company is expected to continue to benefit from production efficiency and higher capacity in FY2018 and forward. YANSAB Co. is expected to post SAR 3,009mn in net income (5.35 EPS) for FY2018, recording an increase of 26.6%YoY for the year due to the positive impact of plants shutdown during 2Q2017; despite the lower expected margin. The company is trading at a forward PE and P/B of 12.0x and 1.84x respectively based on our FY2018 earnings forecast. We expect the company to increase dividend payment to SAR 4.0/share (6.3% D/Y). We upgraded our recommendation to “Overweight” on YANSAB with higher PT of SAR 72.0/share indicating a potential upside of 12.5% over current market price of SAR 64.0/ share.
Results Summary SARmn (unless specified)
4Q-2016
Q3-2017
Q4-2017
Change YoY
Change QoQ
Deviation from AJC Estimates
1,645.1
1933.4
2,166.8
31.7%
12.07%
9.7%
732.6
780.3
896.5
22.3%
14.8%
20.4%
44.53%
40.36%
41.37%
-
-
-
587.7
653.6
779.6
32.65
19.3%
23.3%
Net Profit
607
644.6
777.9
28.15
20.7%
25.0%
EPS
1.08
1.15
1.38
-
-
-
Revenue Gross Profit Gross Margin EBIT
Source: Company reports, Aljazira Capital
2
© All rights reserved
RESEARCH DIVISION
Head of Research
RESEARCH DIVISION
BROKERAGE AND INVESTMENT CENTERS DIVISION
Talha Nazar
Sultan Al Kadi, CAIA
Analyst
Jassim Al-Jubran
+966 11 2256250 [email protected]
+966 11 2256374 [email protected]
Analyst
Analyst
Waleed Al-jubayr
Muhanad Al-Odan
+966 11 2256146 [email protected]
+966 11 2256115 [email protected]
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment
sales
brokerage
Centers
Alaa Al-Yousef
Luay Jawad Al-Motawa
Mansour Hamad Al-shuaibi
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
+966 11 2256248 [email protected]
+966 12 6618443 [email protected]
Central Region
Sultan Ibrahim AL-Mutawa
Abdullah Al-Rahit
+966 11 2256364 [email protected]
+966 16 3617547 [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
January 2018
YANSAB: 4Q-2017 earnings came above expectation with a positive surprise due to an increase in operating rate and better than expected gross margin. Operating rate recorded the highest rate since 1H-2016 standing at 106%. Gross margin increased on QoQ basis to 41.37% Vs. 40.36% due to improved production efficiency, despite an increase in feedstock price. Higher average prices of feedstock cost partially was offset by higher average sales prices. The company is expected to continue to benefit from production efficiency and higher capacity in 2018. Dividend payment is expected to increase to SAR 4.0/share in FY2018. Recommendation upgraded to “Overweight” with higher target price of SAR 72.0/share. • Yanbu National Petrochemical Co. (YANSAB) result came above estimates,
Please read Disclaimer on the back
Recommendation
Overweight
Current Price* (SAR)
64.00
Target Price (SAR)
72.00
Upside / (Downside)
12.5%
Source: Tadawul *prices as of 25th of January 2018
Key Financials SARmn (unless specified)
FY15
FY16
FY17
Revenue
6,911
6,230
7,220
Growth %
-27.3%
-9.9%
15.9%
1,207
2,344
2,376
-51.3%
94.4%
1.4%
2.15
4.17
4.22
exceeding AJC and market consensus profits estimates of SAR 622.1mn and SAR
Net Income
628.9mn, respectively. YANSAB posted net income of SAR 777.9mn; indicating
Growth %
an increase of 28.2%YoY and 20.7%QoQ. The company attributed the YoY strong
EPS
profitability to i) higher volumetric production due to improved production efficiency after plants shutdown in 2Q2017. ii) higher average sales prices for most products. iii) a decline in operating expenses by SAR 10mn. However, we
Source: Company reports, Aljazira Capital
Key Ratios FY15
FY16
FY17
Gross Margin
25.4%
46.3%
39.7%
after plants maintenance in 2Q2017. Furthermore, the deviation in 4Q2017
Net Margin
17.5%
37.6%
32.9%
earnings from our estimates is attributed mainly to the higher than expected
P/E
15.10x
13.05x
15.2x
P/B
1.19x
1.88x
1.84x
EV/EBITDA (x)
7.26x
7.92x
8.32x
Dividend Yield
6.2%
5.3%
5.4%
believe that the QoQ strong performance is mainly attributed to an increase in
SARmn (unless specified)
operating rate and lower production cost due to improved production efficiency
volumetric sales by 9.7%. • The company reported a 31.7%YoY increase in revenue for 4Q2017 to SAR 2.17bn, which is higher than our estimate of 1.98bn due to increase in operating rate after plant shutdown. In 2Q2017, Yansab had a 21-day shutdown of its ethylene glycol
Source: Company reports, Aljazira Capital
plant for scheduled maintenance, and also halted production for 10 days at its Key Market Data olefins plant. Market Cap (bn)
36.00
• Based on our estimates, Yansab witnessed high operating rate of 106.3%, higher YTD %
8.8%
than AJC expectation of 97.3% and 97.0% actual utilization in 3Q2017. We expect 52 Week (High ) the company’s operating rate in 2018 and onward to continue improving due 52 Week (Low) to the positive impact after the plants maintenance in 2Q2017. However, gross margin is expected to be slightly squeezed in FY2018 due to feedstock price hikes
65.30 52.00
Shares Outstanding (mn)
562.50 Source: Company reports, Aljazira Capital
by Aramco. During the quarter, average prices of Yansab key products such as, MEG-Asia increased by 3.2%QoQ from USD 877 to USD 906 per MT. Polypropylene Price Performance
increased by only 6.7%QoQ. Consequently, higher increase in propane price than
56 54 50
Jan-18
Dec-17
Nov-17
YANSAB
Oct-17
Sep-17
TASI
Jul-17
52 Aug-17
by 39.8%YoY to an average price of USD 580 per MT, while polypropylene prices
58
Jun-17
margins on Propane-based products. Saudi propane prices in 4Q2017 increased
60
Apr-17
which we believe was due to improved production efficiency, despite lower
62
May-17
14.8%QoQ. Gross margin improved in 4Q2017 to 41.37% vs. 40.36% in 3Q2017,
64
Feb-17
• Gross profit stood at SAR 896.5mn depicting an increase of 22.3%YoY and
66
Mar-17
compared to 3Q2017 prices.
7600 7500 7400 7300 7200 7100 7000 6900 6800 6700 6600
Jan-17
and PE derivatives products inched by 6.7% and 6.8% in 4Q-2017 respectively, as
Source: Bloomberg, Aljazira Capital
PP prices led to margin contraction on PP-Propane spreads in 4Q2017. PP-Propane spread declined 14.2%QoQ to USD 561/ton from 654/ton in 3Q2017. OPEX stood at
1
SAR 116.9mn; lower than SAR 126.7mn in 3Q2017 and our estimates of SAR 113mn. © All rights reserved
Analyst
Jassim Al-Jubran +966 11 2256248 [email protected]
Yanbu National Petrochemical Co. (YANSAB) Result Flash Note 4Q-2017
January 2018
Please read Disclaimer on the back
AJC view: We believe that the improvement on the company’s sales and margins was mainly attributed to plants shutdown in 2Q2017 and higher product prices, thus; the company is expected to continue to benefit from production efficiency and higher capacity in FY2018 and forward. YANSAB Co. is expected to post SAR 3,009mn in net income (5.35 EPS) for FY2018, recording an increase of 26.6%YoY for the year due to the positive impact of plants shutdown during 2Q2017; despite the lower expected margin. The company is trading at a forward PE and P/B of 12.0x and 1.84x respectively based on our FY2018 earnings forecast. We expect the company to increase dividend payment to SAR 4.0/share (6.3% D/Y). We upgraded our recommendation to “Overweight” on YANSAB with higher PT of SAR 72.0/share indicating a potential upside of 12.5% over current market price of SAR 64.0/ share.
Results Summary SARmn (unless specified)
4Q-2016
Q3-2017
Q4-2017
Change YoY
Change QoQ
Deviation from AJC Estimates
1,645.1
1933.4
2,166.8
31.7%
12.07%
9.7%
732.6
780.3
896.5
22.3%
14.8%
20.4%
44.53%
40.36%
41.37%
-
-
-
587.7
653.6
779.6
32.65
19.3%
23.3%
Net Profit
607
644.6
777.9
28.15
20.7%
25.0%
EPS
1.08
1.15
1.38
-
-
-
Revenue Gross Profit Gross Margin EBIT
Source: Company reports, Aljazira Capital
2
© All rights reserved
RESEARCH DIVISION
Head of Research
RESEARCH DIVISION
BROKERAGE AND INVESTMENT CENTERS DIVISION
Talha Nazar
Sultan Al Kadi, CAIA
Analyst
Jassim Al-Jubran
+966 11 2256250 [email protected]
+966 11 2256374 [email protected]
Analyst
Analyst
Waleed Al-jubayr
Muhanad Al-Odan
+966 11 2256146 [email protected]
+966 11 2256115 [email protected]
General Manager – Brokerage Services &
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment
sales
brokerage
Centers
Alaa Al-Yousef
Luay Jawad Al-Motawa
Mansour Hamad Al-shuaibi
+966 11 2256060 [email protected]
+966 11 2256277 [email protected]
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
+966 11 2256248 [email protected]
+966 12 6618443 [email protected]
Central Region
Sultan Ibrahim AL-Mutawa
Abdullah Al-Rahit
+966 11 2256364 [email protected]
+966 16 3617547 [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
