Yanbu National Petrochemical Co (Yansab)
Yanbu National Petrochemical Co (Yansab) Update Report
Hold
12-Month Target Price SAR 41.00
Valuations Peaked; Rally Overdone
May 16, 2016 Expected Total Return Price as on May-15, 2016
SAR 39.76
Upside to Target Price
3.1%
Expected Dividend Yield
3.8%
Expected Total Return
6.9%
Market Data 52 Week H/L
SAR 54.93/23.77
Market Capitalization
SAR 22,365 mln
Enterprise Value
SAR 22,175 mln
Shares Outstanding
562.5 mln
Free Float
35.8%
12-Month ADTV (000’s)
543.8
TASI Weight
1.2%
Reuters Code
2290.SE
Bloomberg Symbol
YANSAB AB
We update our models and revise our outlook on Yanbu National Petrochemical Co (Yansab) for 2016-19, transferring coverage with this update report. Yansab recently reported excellent 1Q2016 results beating RC and street estimates on stellar margin growth. A record margin expansion after a gap of nearly 8-9 quarters is noteworthy. We revise estimates slightly as product prices continue to be depressed since 2015, while Aramco’s decision to raise feedstock costs from 2H2016 could affect margins. Yansab could lose the advantage of higher subsidies (28% discount versus 20% currently) like peers, but a scenario of higher spreads in bottomed feedstock prices is a positive. Yansab’s stock price has rallied by +26% on a YTD basis versus sectors +6% and TASI’s -3%. However, this surge in stock prices has overshot valuations, in our view. A combination of these factors has led a target price revision from SAR 44.00 to SAR 41.00. We revise to Hold from Buy, due to minimal upside. Earnings growth of +11% CAGR due to base effect
We revise revenue growth expectations to +10% CAGR from earlier +11% and expect growth to follow from 2017 once product prices and macro situation in oil market improves. With rise in feedstock costs in 2016, margin could dip initially and improve from 2018, hence adjust EBITDA margins to 36% for 2016-19. Earnings growth of +11% CAGR is expected through 2019, touching SAR 2.0 billion. Earnings tumbled by -50% in 2015 to SAR 1.2 billion, hence a higher growth rate on lower base is a sector-wide trend. SABIC to add further synergies
1-Year Price Performance
Globally, prices of Yansab’s key products, PE, PP and MEG have witnessed large volatility but still lower than correction witnessed in crude oil prices. The outlook on supply is steady as global utilization rates of 87% are healthy while Yansab maintains 85%. Demand across products is expected to grow at +5% for 2016-20 for all products despite slight weakening in China. SABIC’s strong network in global petchem space should further help Yansab in adding synergies and position well in its export markets, mainly Asia.
110 100 90 80 70
60
Valuations expensive, revise to Hold
50 40 M J
J
A S O N D
Yansab
J
TASI
F M A TPCHEM
Source: Bloomberg Yansab May-15, 2016
39.76
TASI
TPCHEM
6,693
Stock has rallied by +55% since our last note in January and has outperformed TASI by a large margin. This had led to a valuation premium over sector; with Yansab’s 2016E P/E of 15.0x expensive to sector’s 13.2x and TASI’s 13.8x. Additionally, 2016-19 earnings growth of +11% is higher to sector’s +9% (consensus earnings), hence a premium versus sector is unwarranted. We believe rally is overdone, with limited upside and thin yield of 3.8%, suggesting that Yansab is no longer attractive. Revise to Hold on valuation concerns.
4,519
Key Financials
Total Change 6-months 1-Year 2-Year
(7.6%)
(5.5%)
(6.5%)
(23.1%)
(30.8%)
(33.7%)
FY December 31 (SAR mln) Revenue
(37.3%)
(31.8%)
(42.3%)
EBITDA Net Profit EPS (SAR)
Shareholding Structure SABIC GOSI Foreign Ownership (Inc. QFI) Public Float
Santhosh Balakrishnan
2015A
2016E
2017E
2018E
6,911 2,660
6,332
6,775
7,693
2,372
2,365
2,721
1,207
1,489
1,453
1,744
2.15
2.65
2.58
3.10
51.0%
DPS (SAR)
2.00
1.50
1.75
2.00
11.9%
BVPS (SAR)
27.29
28.94
29.77
30.87
ROAA
5.8%
7.2%
6.9%
8.2%
ROAE
7.9%
9.1%
8.7%
10.0%
P/E
18.5x
15.0x
15.4x
12.8x
2.9% 33.8%
[email protected] +966-11-203-6809
P/B
1.5x
1.4x
1.3x
1.3x
P/S
3.2x
3.5x
3.3x
2.9x
EV/ EBITDA
8.3x
9.3x
9.4x
8.2x
EV/ Sales
3.2x
3.5x
3.3x
2.9x
Yasser Bin Ahmed
[email protected] +966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37)
Yanbu National Petrochemical Co (Yansab) Update Report
Sector Outlook Global petrochemical product prices witnessed large volatility over the last few quarters, particularly since the start of 2016. In addition to the volatile prices, the short-term shift in China’s consumption further escalated worries when its PMI hit below 48.0 during 1Q2016. With Yansab’s largest market being Asia, we believe Asia’s supply-demand dynamics is likely to influence its growth outlook. Yansab exports 43% to Asian markets predominantly to China, while product portfolio mainly comprises of PP, PE and MEG and accounts for 90% of revenue. Globally most product prices touched its 5-7 year lows unlike oil’s 15-year lows. MEG touched a low of US$ 585/ton, PP at US$ 1,060/ton and PE at US$ 1,065/ton nearing its 7-year lows. We analyze and examine the persistence of demand-supply on these markets. Global Mono Ethylene Glycol (MEG), Yansab’s key product, accounts for 43% of revenue as of 2015. Yansab with a MEG capacity of 0.8 million MT has a 3% share globally, though MEG’s share in exports is relatively unknown. MEG market is 26 million MT as of 2015 and key consumer being China with its 51% share due to its MEG’s usage and significance in the PET bottle industry. According to TM research, the MEG market is expected to grow at 6.1% CAGR during 2015-23. KSA producers are increasingly focusing on Chinese markets as China’s MEG demand of 12 million MT is met through imports of 8 million MT. It has local supply of 4 million MT, however capacities are getting build up by 2018. Exhibit 1: Global MEG Demand & Supply from 2014-20 (Mln Tons) Supply
30
Exhibit 2: Global MEG Demand Proportion 2016
Demand Americas 13%
29
Europe MEA 7% 3%
28 27 Asia ExChina 26%
26
China 51%
25 24 2014
2015
2016
2017
2018
2019
2020
Source: Nexant, Bloomberg
Source: Nexant, Bloomberg
Global polypropylene (PP) demand is at par with supply and according to Nexant research, demand is expected to grow at +5% CAGR and reach 74 million MT by 2020. Yansab has a market share of 0.5% in a largely Asia dominated market. PP’s long-term demand is driven by end user industries in Auto and electronics, which are on a gradual rise, mainly in Asia. Exhibit 3: Global PP Demand & Supply from 2014-20 (Mln Tons) Supply
80
Exhibit 4: Global Polypropylene Demand Proportion 2016
Demand
United States 11%
75
China 20%
70
North America 12% South America 6%
65 60
Europe 11%
55
Asia Pacific 32%
50 2014
2015
Source: Nexant, Bloomberg
May 16, 2016
2016
2017
2018
2019
2020
MEA 8%
Source: Nexant, Bloomberg
|2
Yanbu National Petrochemical Co (Yansab) Update Report China alone has a 20% share of the PP market, as products for use in injection moulding, carries lot of significance in China’s plastics industry. We believe capacities are expected to increase in this market at a steady pace in US, China and Korea from 2017. Global PE products (LDPE, HDPE and LLDPE) are expected to grow at a CAGR of +6% through 2020 to 109 million MT. With consumption remaining robust, demand is equating supply. We believe the PE industry has shown a narrowing supply-demand gap, however concerns of over capacity are less likely. Additionally global operating rates have not significantly expanded, barely affecting price-demand equation. We do not expect an immediate ramp-up in capacity and expected to show some level of increased supply from 2018 as China and US are in the process of expanding its capacity across products. Exhibit 5: Global PE Demand & Supply from 2014-20 (Mln Tons) Supply
Exhibit 6: Global Polyethylene Demand Proportion 2016
Demand
110 China 18%
United States 11% North America 14%
100
South America 5%
90
Europe 13%
80 Asia Pacific 31% 70 2014
2015
Source: Nexant, Bloomberg
May 16, 2016
2016
2017
2018
2019
MEA 8%
2020
Source: Nexant, Bloomberg
|3
Yanbu National Petrochemical Co (Yansab) Update Report
Financial Analysis Revisions driven by margins and changes in product price outlook for 2016-19 We adjust our forecasts and publish our revised outlook for 2016-19E. The key factors driving our revisions are the volatility in product prices. As a result, revise revenue by -2% for 2016-19 from earlier estimates. Consensus revenue had a huge deviation of +10% for 2017 versus RC, as analysts expect product prices to spike up significantly. We believe utilization rates are likely to stay firm at 85% on a gross level. The effect of subsidy cuts from 2H2016 leads to a dip in margins initially and improve from 2018. We followed suit to adjust earnings though our expectations are more positive from 2017. Table 1: Changes in Estimates (SAR Mln)-RC versus Consensus RC Estim ates (Old)
Revenue Y/Y Gross Profit Y/Y EBITDA Y/Y Net Income Y/Y EPS
RC Estim ates (new )
Consensus (New )
2016E 2017E 2018E 2016E 2017E 2018E
2016E 2017E 2018E
6,436 -7% 1,373 -22% 2,142 -19% 958 -21% 1.70
6,796 -2% 1,665 -5% 2,578 -3% 1,348 12% 2.40
6,911 7% 1,566 14% 2,328 9% 1,158 21% 2.06
7,523 9% 1957 25% 2709 16% 1531 32% 2.72
6,332 -8% 1,916 9% 2,372 -11% 1,489 23% 2.65
6,775 7% 1,868 -3% 2,365 0% 1,453 -2% 2.58
7,693 14% 2,162 16% 2,721 15% 1,744 20% 3.10
7,329 8% 1,847 11% 2,746 7% 1,533 14% 2.73
7,458 2% 2058 11% 2737 0% 1669 9% 2.97
Source: Bloomberg Estimates and Riyad Capital
Revenue growth expected from 2017 EIA expects oil prices to stabilize in a range of US$60/bbl for 2017 and expected to reach US$ 80/bbl by 2019 barring any unforeseen geo-political risks. We incorporate such assumptions and estimate similar growth in Yansab’s product prices. Oil prices touched a low of US$ 27/bbl in January and recovered to US$ 47/bbl, recovering by +78% in less than 3 months denoting its volatility. However, product prices did not touch as low as oil neither recovered sharply. Based on our revised projections, we expect Yansab to report a revenue growth of +10% CAGR for 2016-19 to SAR 8.4 billion by 2019. The same is driven by expectations of an improvement in prices of MEG, PP and PE growing at an average of 6% CAGR through 2019. Exhibit 7: Revenue (SAR Mln) and Growth Forecasts
Exhibit 8: Polypropylene vs Ethylene Prices (rebased)
YoY 15%
180%
10%
160%
5%
140%
Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
2019E
2018E
2017E
2016E
2015
2014
May 16, 2016
Poly Propylene
Jan-13
40%
Jul-12
60%
-25%
Jan-12
-20%
-30%
Source: Company reports and Riyad Capital
80%
Jul-11
-15%
100%
Jan-11
-10%
120%
Jul-10
8,382
7,693
6,775
6,332
-5% 6,911
9,511
0%
Jan-10
Revenue
Ethylene
Source: Bloomberg
|4
Yanbu National Petrochemical Co (Yansab) Update Report
Product prices have high correlation in an upcycle Yansab’s sales of SAR 1.5 billion in 1Q2016 were similar to 1Q2015, in a period where oil markets witnessed its worst downside. A historical correlation of quarterly sales versus product prices suggests correlations are decreasing in a down cycle; while in an upcycle, it does move in tandem. This signifies the fundamental dynamics of demand and supply, which means product prices movements are indicative of supply-demand factors and not short-term market factors. Exhibit 9: Yansab Quarter Sales (SAR Bln) versus Growth in Global Product Prices (Avg) Trends MEG
PP
2.5 2.3
2.4
2.3 2.1
2.2
1.8
1.8 1.6
5%
1.6
1.5
2.2
2.5
15%
1.6
1.6
2.0
25%
1.7
1.9
2.2
2.0
2.1
2.4
2.3
2.4
35%
2.4
2.6
2.5
2.7
2.8
1.8
PE
2.9
Revenue 3.0
-5%
1.4
-15%
1.2 1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
-25% 2Q10
1.0
Source: Company Reports, Bloomberg
New margin trends to start, initially dip in 2016-17 and improve from 2018 Opex on an average for 2016-19 stood at 71% considering an increase in overall cost from 2016. Yansab is shock proof until 2Q2016 when the new pricing structure becomes applicable. Aramco had given a grace period for subsidized feedstock, following Yansab’s inception in 2009 and the same expires in 2016. For 1Q2016, COGS declined sharply due to a sharp drop in Propane (Asia) prices, where Yansab gets a 28% discount until 2Q2016. We expect the propane spreads will be reduced to 20% discount to global benchmark. Similarly, ethane will be priced at US$ 1.75/mmbtu from 4Q2016. The Q/Q trends suggest that COGS to sales versus international feedstock price trends are moving in inverse directions. Exhibit 10: Yansab CoGS (% of Sales) versus Global Feedstock Price (Avg) Movements COGS
80%
Ethane QoQ
Propane QoQ
40% 30%
75%
20% 70%
10%
65%
0% -10%
60%
-20%
55%
-30% 1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
-40% 2Q10
50%
Source: Company Reports, Bloomberg
We expect Yansab to have an improved margin scenario from 2017 as feedstock spreads are expanding globally amid KSA producer’s advantage of lower feedstock costs. In this scenario, a growth of +9% CAGR in gross profit (refer to exhibit 11) is expected through 2019 reaching SAR 2.5 billion.
May 16, 2016
|5
Yanbu National Petrochemical Co (Yansab) Update Report
EBITDA margins to improve from 2018 We expect EBITDA margins of 36% on an average for 2016-19 and expect a CAGR of +8% through 2019 to reach SAR 3.0 billion. Yansab would be able to improve margins as operating rates of 85% are stable denoting decent operating leverage helping to cover fixed costs while scope for improvement is seen, unless unplanned shutdown occurs. Exhibit 11: Gross Profit (SAR Mln) and Margin Forecasts
Gross Profit
Gross Margins
Exhibit 12: EBITDA (SAR Mln) and Margin Forecasts EBITDA
32%
EBITDA Margins
44% 42%
30%
38%
3,016
2,721
2,365
26%
2,372
2,660
2,466
2,162
1,868
1,916
1,758
3,087
4,132
40% 28%
36%
Source: Company reports and Riyad Capital
2019E
2018E
2017E
2015
2016E
34%
2014
2019E
2018E
2017E
2016E
2015
2014
24%
Source: Company reports and Riyad Capital
Earnings growth of +11% CAGR expected through 2019 We expect earnings of SAR 2.0 billion by 2019, a CAGR of +11% through 2019. With such a growth, net margins are expected to average 23% through 2019 after a decline in 2017 and improving to 24% by 2019. We forecast EPS of SAR 2.65 for 2016 and expected to grow to SAR 3.63 by 2019. DPS of SAR 1.50 for 2016E is expected and likely to reach SAR 2.50 delivering a payout ratio of 65%. It has paid an average of 75% for 2013-15, we expect this to be lower for 2016-19. Exhibit 13: Net Profit (SAR Mln) and Margin Forecasts Net profit
Exhibit 14: EPS and DPS Forecasts (SAR)
YoY
EPS
Dividends
32%
Source: Company reports and Riyad Capital
3.63
2.50
2019E
3.10
2.00
2018E
1.75
2017E
2.58
1.50
2.15
2.00
2.65
2016E
2019E
2018E
2017E
2016E
2015
2014
22%
2014
24%
2015
26%
3.00
2,043
1,744
1,453
1,489
1,207
2,478
28%
4.40
30%
Source: Company reports and Riyad Capital
Relatively debt free balance sheet; ROE’s are lower versus sector Yansab has nearly SAR 4.1 billion of debt as of 1Q2016 with the majority of repayment planned over the next 3-4 years. D/E ratios of 16% are relatively lower to sector leaving high interest coverage ratios despite depressed profitability scenario from 2015. It continues its maintenance capex at a run rate of 2-3% over the last 3-4 years except in case of shutdown in some quarters, which is a one-off. Its steady stream of cash flows leaves enough room for a decent dividend payout, leaving any unplanned shutdowns. ROE of 11% is low in the sector, we believe lower leverage (debt) and limited expansion are the reasons.
May 16, 2016
|6
Yanbu National Petrochemical Co (Yansab) Update Report
1Q2016 review A comeback quarter in terms of margins Revenue of SAR 1.5 billion in 1Q2016 missed our estimate of SAR 1.7 billion, declined by -18% Q/Q and -13% Y/Y mainly on lower product prices. However, product prices decline remained in mid-single digits. Gross profit of SAR 521 million during 1Q2016 declined by -3% Q/Q and improved by +26 Q/Q beating our expectations of SAR 463 million. Gross margins improved to 35% from 24% in 1Q2015 and improved from 29% in 4Q2015 as feedstock prices declined significantly. Table 2: Quarterly Income Statement Summary (SAR Mln)
Revenue Q/Q Gross Profit Q/Q EBITDA Q/Q Net Income Q/Q EPS (SAR) Gross Margins EBITDA Margins Net Margins
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2,169 0% 800 NM 1015 NM 667 NM 1.48
2,213 2% 807 1% 1027 1% 671 1% 1.49
2,889 31% 1028 NM 1226 19% 865 NM 1.92
2,084 -28% 590 NM 805 -34% 442 -49% 0.98
2,318 11% 708 20% 969 20% 556 26% 1.23
2,409 4% 761 7% 1020 5% 613 10% 1.36
2,494 4% 845 11% 1107 8% 691 13% 1.54
2,290 -8% 773 -8% 1036 -6% 618 -11% 1.37
1,717 -25% 413 -47% 664 -36% 285 -54% 0.63
1,563 -9% 373 -10% 593 -11% 227 -20% 0.51
1,800 15% 435 17% 614 4% 302 33% 0.67
1,831 2% 537 24% 790 29% 393 30% 0.87
1,496 -18% 521 -3% 777 -2% 402 2% 0.89
36.9% 46.8% 30.8%
36.5% 46.4% 30.3%
35.6% 42.4% 29.9%
28.3% 38.6% 21.2%
30.6% 41.8% 24.0%
31.6% 42.4% 25.4%
33.9% 44.4% 27.7%
33.8% 45.2% 27.0%
24.0% 38.7% 16.6%
23.9% 37.9% 14.5%
24.1% 34.1% 16.8%
29.3% 43.1% 21.5%
34.8% 51.9% 26.9%
Source: Company Reports and Riyad Capital
Gross margins are the highest after a span of nine quarters, suggesting the feedstock spread advantage, despite Aramco hiking its fuel prices, which was not applicable for Yansab. Net income of SAR 402 million beat our estimates of SAR 281 million for 1Q2016, an increase of +41% Y/Y and +2% Q/Q. Net margins stood at its best after a gap of 4 quarters with 27% net margins versus 17% in 1Q2015 and 22% in 4Q2015.
Consensus consistently see surprises Yansab earnings have mostly been a mixed bag since 2015 with consensus rarely meeting expectations. We noted that most analyst expectations were on the bearish side as oil prices started collapsing as evident from 3Q2014 with mostly positive surprises except in case of 1Q and 3Q of 2015.
May 16, 2016
|7
Yanbu National Petrochemical Co (Yansab) Update Report
Valuation We roll forward and update our models to value Yansab using both absolute and relative valuations. With current operating rates and limited capex, we believe DCF method would be apt in valuing Yansab. Margins are likely to improve following the pickup in product prices and drive sustainable free cash flows, as operations continue to be intact. Alternatively, we value Yansab using a target P/E multiple method which derived SAR 37.05 fair value using 14.0x P/E. Amongst the valuation approaches we prefer DCF valuation and revise our 12-month target price to SAR 41.00 from our SAR 44.00 earlier. Revise to Hold.
#1: DCF suggests fair value of SAR 40.67 Our DCF valuation with forecast assumed for 2017-19E used a long-term terminal growth rate of 0.5% and risk-free rate assumption of 3.8%, which includes a premium of 1.5% for country risk over benchmark 10-year T-bill yields of 2.3% (being the average of the last 6 months). This results in cost of equity of 11.7%, while we assume after tax cost of debt at 5.1%, deriving a WACC of 10.4% assuming a capital structure (Equity/Debt) of 20%. Table 3: Discounted Cashflow Valuation NOPLAT Add: Depreciation &Amortization Change in w orking capital Less: Capex Net Adjustm ents in WC, CAPEX and D&A Free Cash Flow to Firm (FCFF) PV of Terminal Value DCF Valuation Terminal Value PV of Terminal Value Value of the firm Add (Less): Net Debt Value of equity Value Per Share (SAR)
2017E 1,588 740 (126) (292) 322 1,910 1,730
2018E 1,859 794 (128) (439) 227 2,086 1,712
2019E 2,135 799 (131) (353) 315 2,451 1,822 25,018 18,596 23,859 (984) 22,876 40.67
Assum ptions Cost of equity After tax cost of debt WACC Zakat (tax) rate Terminal Grow th rate Risk free rate Market Return Market Risk Premium LT Debt/Equity LT Equity Capital/Debt Potential Upside 3 Yr Weekly Adj.Beta Shares O/S (Mln) Stock price (SAR)
11.7% 5.1% 10.4% 2.5% 0.5% 3.9% 10.2% 6.25% 20.0% 80.0% 3.1% 1.3 563 39.76
Source: Riyad Capital
WACC
Table 4: Sensitivity Analysis of WACC and Terminal Growth Rate 40.668 9.6% 9.8% 10.0% 10.2% 10.4% 10.6% 10.8% 11.0%
0.1% 41.90 41.19 40.52 39.86 39.26 38.64 38.06 37.50
0.2% 42.30 41.58 40.88 40.22 39.60 38.96 38.37 37.80
0.3% 42.71 41.97 41.26 40.58 39.95 39.30 38.70 38.12
0.4% 43.13 42.37 41.65 40.95 40.30 39.64 39.03 38.43
0.5% 43.55 42.78 42.04 41.33 40.67 39.99 39.36 38.76
0.6% 43.99 43.20 42.44 41.71 41.04 40.35 39.71 39.09
0.7% 44.43 43.62 42.85 42.11 41.42 40.71 40.06 39.43
Term inal Grow th Rate 0.8% 0.9% 1.0% 1.1% 44.89 45.35 45.83 46.32 44.06 44.51 44.96 45.43 43.27 43.69 44.13 44.58 42.51 42.92 43.34 43.77 41.80 42.20 42.60 43.01 41.08 41.46 41.85 42.24 40.41 40.78 41.15 41.53 39.77 40.12 40.48 40.84
1.2% 46.82 45.91 45.04 44.20 43.43 42.65 41.92 41.22
1.3% 47.33 46.40 45.50 44.65 43.86 43.06 42.31 41.60
1.4% 47.85 46.90 45.98 45.11 44.30 43.48 42.72 41.98
1.5% 48.39 47.41 46.47 45.58 44.75 43.91 43.13 42.38
1.6% 48.94 47.93 46.97 46.06 45.21 44.35 43.55 42.79
Source: Riyad Capital
Risks to valuation The continued volatility in oil prices poses a challenge to sustainable product prices as product prices have hit multi-year lows. Additionally, the feedstock spread advantage could become limited versus international peers if Aramco continues to increase the price of feedstock. Yansab exports mostly to Asian countries (nearly 43% of revenue coming from Asia) and any slowdown in Asia affects Yansab.
May 16, 2016
|8
Yanbu National Petrochemical Co (Yansab) Update Report
#2: Target P/E valuation at SAR 37.05 As sanity check on valuation approaches, we valued Yansab using target P/E based method and derived a fair value of SAR 37.05. We derived a target in the P/E range of 14.0x considering average range of the P/E multiples between 3 to 5 years. Additionally, our view augments that valuation ranges are closer currently; its large cap peers are at a P/E median of 15.2x, while overall sector valuations are at 13.2x due to outliers. Table 5: Price Sensitivity and Target P/E Valuation using Bear-Base-Bull Case EPS Estimates
P/E Range(x)
2015A
EPS (SAR)
2.15
12.0x 13.0x 14.0x 15.0x 16.0x 17.0x 18.0x 19.0x 20.0x
25.76 27.90 30.05 32.20 34.34 36.49 38.63 40.78 42.93
2016E
# # # # # # # # #
2017E
2018E
2019E
Bear
Base
Bull
Bear
Base
Bull
Bear
Base
Bull
Bear
Base
Bull
2.36
2.65
2.78
2.47
2.58
3.25
2.60
3.10
3.84
2.73
3.63
4.49
28.26 30.62 32.97 35.33 37.68 40.04 42.39 44.75 47.10
31.76 34.40 37.05 39.69 42.34 44.99 47.63 50.28 52.93
33.34 36.12 38.90 41.68 44.46 47.24 50.01 52.79 55.57
29.68 32.15 34.62 37.09 39.57 42.04 44.51 46.99 49.46
31.00 33.59 36.17 38.75 41.34 43.92 46.50 49.09 51.67
39.01 42.26 45.51 48.76 52.02 55.27 58.52 61.77 65.02
31.16 33.76 36.35 38.95 41.55 44.14 46.74 49.34 51.93
37.20 40.30 43.40 46.50 49.60 52.70 55.80 58.90 62.00
46.03 49.87 53.71 57.54 61.38 65.21 69.05 72.89 76.72
32.72 35.44 38.17 40.90 43.62 46.35 49.08 51.80 54.53
43.58 47.21 50.84 54.47 58.10 61.73 65.37 69.00 72.63
53.86 58.35 62.84 67.32 71.81 76.30 80.79 85.28 89.77
2016E 1489 2.65
2017E 2018E 2018E 1453 1744 2043 2.58 3.10 3.63
41.55 35.46 37.05
40.56 34.62 36.17
Valuation based on P/E Net profit estimates (SAR Mln) EPS (SAR) P/E based valuation (SAR) Valuation at 2 year historical average of 15.7x Based on a sector average 2016E consensus P/E of 13.4x Estim ated valuation at PER of 14.0x Source: Riyad Capital
48.67 41.54 43.40
57.01 48.66 50.84
Valuations expensive, thin yields Yansab trades above par and remains expensive to sector P/E amid lower yield. It trades at P/E of 17.0x, the highest among large caps in the sector and a thin TTM yield of 5.0%. Currently, the stock offers 24% premium to sector on a TTM basis. We believe with multi-product exposure and valuation range, Yansab offers lower risk reward among peers, while priced attractively are peers such as SAFCO and SABIC, which trades at 14.5x and 13.8x respectively. Table 6: KSA Petrochemicals Sector Valuation (TTM basis)
Com pany Nam e
Price Mcap (SAR) SAR Mln
P/E
EV/ EV/ Div. Sales EBITDA Yld
52 52 WkWk-Hi Lo YTD (SAR) (SAR)
P/B
P/S
252,000 298,270 13.8x 1.5x 26,562 24,481 14.5x 4.0x 8,228 36,150 NA 1.0x 8,328 19,348 9.0x 1.4x 6,210 21,072 9.1x 0.9x 5,068 5,816 33.6x 0.9x 22,500 22,310 17.0x 1.5x 5,335 13,493 20.5x 0.9x 8,069 8,350 10.5x 3.4x 10,275 35,388 NA 0.8x 11,038 48,083 NA 1.3x 1,000 2,576 7.9x 1.0x 880 1,640 NA 0.8x 880 1,736 NA 0.6x
1.8x 8.1x 0.6x 1.2x 0.9x 3.2x 3.4x 1.5x 3.4x 1.3x 0.5x 0.7x 2.0x 1.2x
1.9x 7.8x 2.3x 2.6x 2.8x 2.8x 3.2x 3.6x 2.9x 4.1x 2.0x 1.8x 3.4x 2.4x
6.2x 12.2x 15.7x 7.2x 7.7x 10.4x 7.8x 9.9x 7.0x 14.6x 37.8x 5.5x 165.3x 17.2x
7.1% 10% 109.75 9.4% (22%) 127.50 NA 16% 25.30 NA 4% 28.20 NA (0%) 29.10 4.3% 13% 16.35 5.0% 23% 57.50 8.2% 4% 33.50 6.1% 30% 61.00 NA 1% 12.35 4.0% 3% 24.90 NA 0% 24.35 NA (4%) 12.55 NA 2% 14.60 -
Sector Median* 366,373 538,714 13.8x 1.0x Source: Bloomberg, Market Cap and EV are total
1.4x
2.8x
10.1x
6.1%
Saudi Basic Industries Corp 84.00 Saudi Arabian Fertilizer Co 63.75 National Industrialization Co 12.30 National Petrochemical Co 17.35 Saudi Industrial Investment Group13.80 Sahara Petrochemical Co 11.55 Yanbu National Petrochemical Co 39.76 Saudi International Petrochemical 14.55 Co Advanced Petrochemical Co 49.20 Saudi Kayan Petrochemical Co 6.85 Rabigh Refining & Petrochemical Co 12.60 Alujain Corp 14.45 Nama Chemicals Co 6.85 Methanol Chemicals Co 7.30
May 16, 2016
EV SAR Mln
59.50 61.00 7.50 10.60 9.80 7.40 23.80 9.75 31.90 4.40 7.00 9.50 4.95 4.95
|9
0
May 16, 2016
Volume (Mln Shares)
5
4
3
2
1
0
Jan-16
350 3 Yr Avg
Sep-15
6 Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
3 Yr Avg
May-15
Volum e Traded ( Mln Shares)
Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
3 Yr Avg
Jan-15
EV/Sales
Sep-14
1.5
May-14
3.0
Jan-14
4.0
Jan-14
5.0
Sep-13
EV/EBITDA
Sep-13
6.0
May-13
6.0 Jan-12
16.0
Jan-13
7.0 May-12
P/S
May-13
8.0 Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-16
Sep-15
P/B Ratio
Jan-13
9.0
Sep-12
10.0
Sep-12
Dividend Yield
May-12
12M Avg
Jan-12
4.0
May-12
9.0
Jan-12
14.0
Sep-11
19.0
Sep-11
P/E Ratio
Sep-11
Jan-15
May-15
1.8
May-11
Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
2.9
May-11
Mar-16
Jan-16
Nov-15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
3.4
May-11
Jan-16
Sep-15
May-15
Jan-15
3 Yr Avg
Sep-15
Jul-15
Jan-14
Sep-13
May-13
3 Yr Avg
Sep-14
Dvd Yld
May-14
May-15
P/E
Jan-14
Mar-15
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
P/B
Sep-13
Jan-15
Nov-14
Sep-14
Jul-14
11.0
May-13
7
Jan-13
Sep-12
May-12
Jan-12
2.0 May-14
4.0
Sep-11
0.4
May-11
Yanbu National Petrochemical Co (Yansab) Update Report
Appendix
Exhibit 15: 5 Year Price Multiples Trading History 4.3 P/S Ratio
2.4 3.8
1.9 3.3
1.4
2.8
0.9 2.3
12M Avg
12M Avg
24.0 EV/EBITDA Ratio
14.0
12.0
10.0 8.0
6.0
12-M Avg
5.5 EV/Sales Ratio
5.0
4.5
4.0
3.5
3.0
2.5
2.0
12M Avg 12M Avg
Value Traded (SAR Mln)
300
250
200
150
100
50
Turnover (SAR Mln)
Source: Bloomberg
| 10
Yanbu National Petrochemical Co (Yansab) Update Report Exhibit 16: KSA Petrochemicals Sector Valuation-Consensus EPS growth 2016-18E Vs 2017E P/E 30.0% Sahara
2016-18 E EPS grow th
25.0% 20.0%
SABIC
15.0%
Saudi Kay an
Petrochem SAFCO
10.0%
Y ANSAB
5.0% Sipchem
SIIG
0.0% 5.0
7.0
9.0
11.0 Adv anced 13.0
15.0
17.0
19.0
21.0
23.0
25.0
2017E P/E Source: Bloomberg
May 16, 2016
| 11
Yanbu National Petrochemical Co (Yansab) Update Report Table 7: Summary Financials FY ended Dec 31
2011
2012
2013
2014
2015
2016 E
2017 E
2018 E
2019 E
Total Sales Cost of Sales
9,659 (5,866)
9,299 (6,190)
9,354 (6,129)
9,511 (6,424)
6,911 (5,154)
6,332 (4,416)
6,775 (4,907)
7,693 (5,532)
8,382 (5,916)
Gross Profit
3,793
3,109
3,225
3,087
1,758
1,916
1,868
2,162
2,466
Income Statement (SAR mln)
S,G&A Expenses Operating Income Other Income /expenses Financial Charges Pre-Zakat Income Zakat
(175) 3,618
(234) 2,875
(232) 2,993
(244) 2,843
(218) 1,540
(230) 1,686
(243) 1,625
(235) 1,926
(250) 2,216
62
31
29
11
26
28
31
34
38
(413)
(361)
(260)
(224)
(182)
(164)
(134)
(116)
(93)
3,267 (92)
2,546 (100)
2,762 (118)
2,630 (152)
1,384 (176)
1,551 (62)
1,522 (68)
1,845 (101)
2,162 (119)
Net Income
3,174
2,446
2,645
2,478
1,207
1,489
1,453
1,744
2,043
EBITDA
3,016
4,635
3,894
4,073
4,132
2,660
2,372
2,365
2,721
Shares Outstanding
563
563
563
563
563
563
563
563
563
EPS DPS
5.64 -
4.35 -
4.70 3.00
4.40 3.00
2.15 2.00
2.65 1.50
2.58 1.75
3.10 2.00
3.63 2.50
Cash & equivalents Accounts Receivable
599 2,459
530 2,562
2,106 2,380
2,691 2,298
679 1,844
1,171 1,690
1,677 1,808
2,276 2,053
2,873 2,236
Inventories
1,170
1,112
1,119
1,316
826
707
786
886
948
769 123
891 259
915 262
964 228
2,734 245
2,843 257
2,957 270
3,075 284
3,198 298
5,121 17,588
5,353 16,498
6,782 15,623
7,496 14,638
6,328 14,357
6,668 13,742
7,498 13,126
8,573 12,454
9,553 11,637
intangable assets Other Non Current Assets
234 32
330 208
305 191
144 189
80 203
85 213
89 224
93 235
98 247
Total non-Current Assets Total Assets
17,855 22,975
17,036 22,388
16,119 22,901
14,971 22,467
14,641 20,968
14,040 20,708
13,439 20,937
12,783 21,356
11,982 21,535
1,181
1,279
1,298
1,462
1,464
1,133
1,133
916
700
423 737
361 831
252 623
463 729
201 1,107
172 1,085
192 1,063
216 1,042
231 1,021
Others Total Current Liabilities
1,213 3,555
2,471
2,174
2,655
2,772
2,390
2,387
2,174
1,952
Long Term Debt Other Non Current Liab.
8,778 127
6,821 135
5,523 161
4,060 200
2,596 248
1,778 260
1,528 273
1,528 287
1,278 301
Total non-Current Liab Total Liabilities
8,905 12,460
6,956 9,427
5,683 7,857
4,260 6,915
2,844 5,616
2,038 4,428
1,801 4,189
1,815 3,989
1,579 3,531
Share Capital Reserves Retained Earnings Total Equity
5,625 499 4,391 10,515
5,625 743 6,593 12,961
5,625 1,008 8,410 15,043
5,625 1,256 8,672 15,552
5,625 1,376 8,351 15,352
5,625 1,525 9,129 16,279
5,625 1,671 9,453 16,748
5,625 1,845 9,897 17,367
5,625 2,049 10,329 18,003
Total Liab & Equity
22,975
22,388
22,901
22,467
20,968
20,708
20,937
21,356
21,535
3,300
3,345
3,621
4,058
3,417
2,401
1,995
1,986
2,242
(253) (3,238)
(342) (3,073)
(205) (1,840)
(207) (3,260)
(247) (1,662)
(255) (1,234)
(262) (1,125)
(270) (1,375)
Balance Sheet (SAR mln) Assets
Investments Others Total Current Assets Property Plant & Equipment
Liabilities & Equity Short Term Debt Accounts Payable Accrual and provisions
Cash Flows (SAR mln) CFO CFI CFF
989 (59)
Source: Company reports, Riyad Capital
May 16, 2016
| 12
Yanbu National Petrochemical Co (Yansab) Update Report Table 8: Ratios 2011
2012
2013
2014
2015
2016 E
2017 E
2018 E
2019 E
P/E
7.1x
9.2x
8.5x
9.1x
18.6x
15.0x
15.4x
12.8x
11.0x
P/B
2.1x
1.7x
1.5x
1.4x
1.5x
1.4x
1.3x
1.3x
1.2x
P/S
2.3x
2.4x
2.4x
2.4x
3.2x
3.5x
3.3x
2.9x
2.7x
37.6x
42.5x
10.7x
8.4x
33.1x
19.2x
13.4x
9.9x
7.8x
2.4x 4.9x
2.5x 5.9x
2.4x 5.6x
2.4x 5.5x
3.3x 8.6x
3.6x 9.6x
3.4x 9.7x
3.0x 8.4x
2.7x 7.6x
Valuations
P/CF EV/Sales EV/EBITDA EV/EBIT
6.3x
8.0x
7.6x
8.0x
14.8x
13.6x
14.1x
11.9x
10.3x
0.0% 14.1%
0.0% 10.9%
7.5% 11.8%
7.5% 11.0%
5.0% 5.4%
3.8% 6.6%
4.4% 6.5%
5.0% 7.8%
6.3% 9.1%
Total Sales Gross Profit
66% 75%
-4% -18%
1% 4%
2% -4%
-27% -43%
-8% 9%
7% -3%
14% 16%
9% 14%
EBITDA
61%
-16%
5%
1%
-36%
-11%
0%
15%
11%
Net Income
90%
-23%
8%
-6%
-51%
23%
-2%
20%
17%
Gross Margins
39%
33%
34%
32%
25%
35%
32%
32%
33%
EBIT Margins
37%
31%
32%
30%
22%
27%
24%
25%
26%
EBITDA Margins
48%
42%
44%
43%
38%
37%
35%
35%
36%
Net Margins
33%
26%
28%
26%
17%
24%
21%
23%
24%
0.2 1.4
0.2 2.2
1.0 3.1
1.0 2.8
0.2 2.3
0.5 2.8
0.7 3.1
1.0 3.9
1.5 4.9
Dividend Yield Earnings Yield Growth (YoY)
Margins
Key Ratio's Cash Ratio Current Ratio Inventory Turnover
5.0
5.6
5.5
4.9
6.2
6.2
6.2
6.2
6.2
Payables Turnover
13.9
17.1
24.3
13.9
25.6
25.6
25.6
25.6
25.6
Receivables Turnover
3.9
3.6
3.9
4.1
3.7
3.7
3.7
3.7
3.7
Interest Cover Debt to EBITDA
8.9 2.4
8.1 2.1
11.6 1.7
12.8 1.3
8.6 1.5
10.4 1.2
12.3 1.1
16.9 0.9
24.3 0.7
Debt to Assets
49%
36%
30%
25%
19%
14%
13%
11%
ROA
14%
11%
12%
11%
6%
7%
7%
8%
9%
ROE
30%
19%
18%
16%
8%
9%
9%
10%
11%
ROIC
17%
14%
14%
13%
8%
9%
8%
10%
11%
Cashflow/EBITDA Capex/Sales
71% 1%
86% 1%
89% 1%
98% 2%
128% 11%
101% 2%
84% 2%
73% 2%
74% 2%
Capex/Depreciation Dividend Payout
14% 0%
13% 0%
11% 64%
13% 68%
77% 93%
18% 57%
17% 68%
16% 65%
16% 69%
106%
62%
45%
36%
26%
18%
16%
14%
11%
Debt to Equity Per Share Ratio's EPS
9%
5.64
4.35
4.70
4.40
2.15
2.65
2.58
3.10
3.63
DPS BVPS
18.69
23.04
3.00 26.74
3.00 27.65
2.00 27.29
1.50 28.94
1.75 29.77
2.00 30.87
2.50 32.01
Sales/Share
17.17
16.53
16.63
16.91
12.29
11.26
12.04
13.68
14.90
FCF I/Share FCF II/Share
5.87 (0.25)
5.95 (0.22)
6.44 (0.19)
7.21 (0.28)
6.07 (1.41)
4.27 (0.22)
3.55 (0.22)
3.53 (0.23)
3.99 (0.23)
FCF III/Share
(0.20)
(0.39)
(0.18)
(0.09)
3.17
(0.22)
(0.23)
(0.24)
(0.25)
Source: Company reports, Riyad Capital
May 16, 2016
| 13
Yanbu National Petrochemical Co (Yansab) Update Report
Page Intentionally Left Blank
May 16, 2016
| 14
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia (“KSA”). Website: www.riyadcapital.com
Hold
12-Month Target Price SAR 41.00
Valuations Peaked; Rally Overdone
May 16, 2016 Expected Total Return Price as on May-15, 2016
SAR 39.76
Upside to Target Price
3.1%
Expected Dividend Yield
3.8%
Expected Total Return
6.9%
Market Data 52 Week H/L
SAR 54.93/23.77
Market Capitalization
SAR 22,365 mln
Enterprise Value
SAR 22,175 mln
Shares Outstanding
562.5 mln
Free Float
35.8%
12-Month ADTV (000’s)
543.8
TASI Weight
1.2%
Reuters Code
2290.SE
Bloomberg Symbol
YANSAB AB
We update our models and revise our outlook on Yanbu National Petrochemical Co (Yansab) for 2016-19, transferring coverage with this update report. Yansab recently reported excellent 1Q2016 results beating RC and street estimates on stellar margin growth. A record margin expansion after a gap of nearly 8-9 quarters is noteworthy. We revise estimates slightly as product prices continue to be depressed since 2015, while Aramco’s decision to raise feedstock costs from 2H2016 could affect margins. Yansab could lose the advantage of higher subsidies (28% discount versus 20% currently) like peers, but a scenario of higher spreads in bottomed feedstock prices is a positive. Yansab’s stock price has rallied by +26% on a YTD basis versus sectors +6% and TASI’s -3%. However, this surge in stock prices has overshot valuations, in our view. A combination of these factors has led a target price revision from SAR 44.00 to SAR 41.00. We revise to Hold from Buy, due to minimal upside. Earnings growth of +11% CAGR due to base effect
We revise revenue growth expectations to +10% CAGR from earlier +11% and expect growth to follow from 2017 once product prices and macro situation in oil market improves. With rise in feedstock costs in 2016, margin could dip initially and improve from 2018, hence adjust EBITDA margins to 36% for 2016-19. Earnings growth of +11% CAGR is expected through 2019, touching SAR 2.0 billion. Earnings tumbled by -50% in 2015 to SAR 1.2 billion, hence a higher growth rate on lower base is a sector-wide trend. SABIC to add further synergies
1-Year Price Performance
Globally, prices of Yansab’s key products, PE, PP and MEG have witnessed large volatility but still lower than correction witnessed in crude oil prices. The outlook on supply is steady as global utilization rates of 87% are healthy while Yansab maintains 85%. Demand across products is expected to grow at +5% for 2016-20 for all products despite slight weakening in China. SABIC’s strong network in global petchem space should further help Yansab in adding synergies and position well in its export markets, mainly Asia.
110 100 90 80 70
60
Valuations expensive, revise to Hold
50 40 M J
J
A S O N D
Yansab
J
TASI
F M A TPCHEM
Source: Bloomberg Yansab May-15, 2016
39.76
TASI
TPCHEM
6,693
Stock has rallied by +55% since our last note in January and has outperformed TASI by a large margin. This had led to a valuation premium over sector; with Yansab’s 2016E P/E of 15.0x expensive to sector’s 13.2x and TASI’s 13.8x. Additionally, 2016-19 earnings growth of +11% is higher to sector’s +9% (consensus earnings), hence a premium versus sector is unwarranted. We believe rally is overdone, with limited upside and thin yield of 3.8%, suggesting that Yansab is no longer attractive. Revise to Hold on valuation concerns.
4,519
Key Financials
Total Change 6-months 1-Year 2-Year
(7.6%)
(5.5%)
(6.5%)
(23.1%)
(30.8%)
(33.7%)
FY December 31 (SAR mln) Revenue
(37.3%)
(31.8%)
(42.3%)
EBITDA Net Profit EPS (SAR)
Shareholding Structure SABIC GOSI Foreign Ownership (Inc. QFI) Public Float
Santhosh Balakrishnan
2015A
2016E
2017E
2018E
6,911 2,660
6,332
6,775
7,693
2,372
2,365
2,721
1,207
1,489
1,453
1,744
2.15
2.65
2.58
3.10
51.0%
DPS (SAR)
2.00
1.50
1.75
2.00
11.9%
BVPS (SAR)
27.29
28.94
29.77
30.87
ROAA
5.8%
7.2%
6.9%
8.2%
ROAE
7.9%
9.1%
8.7%
10.0%
P/E
18.5x
15.0x
15.4x
12.8x
2.9% 33.8%
[email protected] +966-11-203-6809
P/B
1.5x
1.4x
1.3x
1.3x
P/S
3.2x
3.5x
3.3x
2.9x
EV/ EBITDA
8.3x
9.3x
9.4x
8.2x
EV/ Sales
3.2x
3.5x
3.3x
2.9x
Yasser Bin Ahmed
[email protected] +966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37)
Yanbu National Petrochemical Co (Yansab) Update Report
Sector Outlook Global petrochemical product prices witnessed large volatility over the last few quarters, particularly since the start of 2016. In addition to the volatile prices, the short-term shift in China’s consumption further escalated worries when its PMI hit below 48.0 during 1Q2016. With Yansab’s largest market being Asia, we believe Asia’s supply-demand dynamics is likely to influence its growth outlook. Yansab exports 43% to Asian markets predominantly to China, while product portfolio mainly comprises of PP, PE and MEG and accounts for 90% of revenue. Globally most product prices touched its 5-7 year lows unlike oil’s 15-year lows. MEG touched a low of US$ 585/ton, PP at US$ 1,060/ton and PE at US$ 1,065/ton nearing its 7-year lows. We analyze and examine the persistence of demand-supply on these markets. Global Mono Ethylene Glycol (MEG), Yansab’s key product, accounts for 43% of revenue as of 2015. Yansab with a MEG capacity of 0.8 million MT has a 3% share globally, though MEG’s share in exports is relatively unknown. MEG market is 26 million MT as of 2015 and key consumer being China with its 51% share due to its MEG’s usage and significance in the PET bottle industry. According to TM research, the MEG market is expected to grow at 6.1% CAGR during 2015-23. KSA producers are increasingly focusing on Chinese markets as China’s MEG demand of 12 million MT is met through imports of 8 million MT. It has local supply of 4 million MT, however capacities are getting build up by 2018. Exhibit 1: Global MEG Demand & Supply from 2014-20 (Mln Tons) Supply
30
Exhibit 2: Global MEG Demand Proportion 2016
Demand Americas 13%
29
Europe MEA 7% 3%
28 27 Asia ExChina 26%
26
China 51%
25 24 2014
2015
2016
2017
2018
2019
2020
Source: Nexant, Bloomberg
Source: Nexant, Bloomberg
Global polypropylene (PP) demand is at par with supply and according to Nexant research, demand is expected to grow at +5% CAGR and reach 74 million MT by 2020. Yansab has a market share of 0.5% in a largely Asia dominated market. PP’s long-term demand is driven by end user industries in Auto and electronics, which are on a gradual rise, mainly in Asia. Exhibit 3: Global PP Demand & Supply from 2014-20 (Mln Tons) Supply
80
Exhibit 4: Global Polypropylene Demand Proportion 2016
Demand
United States 11%
75
China 20%
70
North America 12% South America 6%
65 60
Europe 11%
55
Asia Pacific 32%
50 2014
2015
Source: Nexant, Bloomberg
May 16, 2016
2016
2017
2018
2019
2020
MEA 8%
Source: Nexant, Bloomberg
|2
Yanbu National Petrochemical Co (Yansab) Update Report China alone has a 20% share of the PP market, as products for use in injection moulding, carries lot of significance in China’s plastics industry. We believe capacities are expected to increase in this market at a steady pace in US, China and Korea from 2017. Global PE products (LDPE, HDPE and LLDPE) are expected to grow at a CAGR of +6% through 2020 to 109 million MT. With consumption remaining robust, demand is equating supply. We believe the PE industry has shown a narrowing supply-demand gap, however concerns of over capacity are less likely. Additionally global operating rates have not significantly expanded, barely affecting price-demand equation. We do not expect an immediate ramp-up in capacity and expected to show some level of increased supply from 2018 as China and US are in the process of expanding its capacity across products. Exhibit 5: Global PE Demand & Supply from 2014-20 (Mln Tons) Supply
Exhibit 6: Global Polyethylene Demand Proportion 2016
Demand
110 China 18%
United States 11% North America 14%
100
South America 5%
90
Europe 13%
80 Asia Pacific 31% 70 2014
2015
Source: Nexant, Bloomberg
May 16, 2016
2016
2017
2018
2019
MEA 8%
2020
Source: Nexant, Bloomberg
|3
Yanbu National Petrochemical Co (Yansab) Update Report
Financial Analysis Revisions driven by margins and changes in product price outlook for 2016-19 We adjust our forecasts and publish our revised outlook for 2016-19E. The key factors driving our revisions are the volatility in product prices. As a result, revise revenue by -2% for 2016-19 from earlier estimates. Consensus revenue had a huge deviation of +10% for 2017 versus RC, as analysts expect product prices to spike up significantly. We believe utilization rates are likely to stay firm at 85% on a gross level. The effect of subsidy cuts from 2H2016 leads to a dip in margins initially and improve from 2018. We followed suit to adjust earnings though our expectations are more positive from 2017. Table 1: Changes in Estimates (SAR Mln)-RC versus Consensus RC Estim ates (Old)
Revenue Y/Y Gross Profit Y/Y EBITDA Y/Y Net Income Y/Y EPS
RC Estim ates (new )
Consensus (New )
2016E 2017E 2018E 2016E 2017E 2018E
2016E 2017E 2018E
6,436 -7% 1,373 -22% 2,142 -19% 958 -21% 1.70
6,796 -2% 1,665 -5% 2,578 -3% 1,348 12% 2.40
6,911 7% 1,566 14% 2,328 9% 1,158 21% 2.06
7,523 9% 1957 25% 2709 16% 1531 32% 2.72
6,332 -8% 1,916 9% 2,372 -11% 1,489 23% 2.65
6,775 7% 1,868 -3% 2,365 0% 1,453 -2% 2.58
7,693 14% 2,162 16% 2,721 15% 1,744 20% 3.10
7,329 8% 1,847 11% 2,746 7% 1,533 14% 2.73
7,458 2% 2058 11% 2737 0% 1669 9% 2.97
Source: Bloomberg Estimates and Riyad Capital
Revenue growth expected from 2017 EIA expects oil prices to stabilize in a range of US$60/bbl for 2017 and expected to reach US$ 80/bbl by 2019 barring any unforeseen geo-political risks. We incorporate such assumptions and estimate similar growth in Yansab’s product prices. Oil prices touched a low of US$ 27/bbl in January and recovered to US$ 47/bbl, recovering by +78% in less than 3 months denoting its volatility. However, product prices did not touch as low as oil neither recovered sharply. Based on our revised projections, we expect Yansab to report a revenue growth of +10% CAGR for 2016-19 to SAR 8.4 billion by 2019. The same is driven by expectations of an improvement in prices of MEG, PP and PE growing at an average of 6% CAGR through 2019. Exhibit 7: Revenue (SAR Mln) and Growth Forecasts
Exhibit 8: Polypropylene vs Ethylene Prices (rebased)
YoY 15%
180%
10%
160%
5%
140%
Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
2019E
2018E
2017E
2016E
2015
2014
May 16, 2016
Poly Propylene
Jan-13
40%
Jul-12
60%
-25%
Jan-12
-20%
-30%
Source: Company reports and Riyad Capital
80%
Jul-11
-15%
100%
Jan-11
-10%
120%
Jul-10
8,382
7,693
6,775
6,332
-5% 6,911
9,511
0%
Jan-10
Revenue
Ethylene
Source: Bloomberg
|4
Yanbu National Petrochemical Co (Yansab) Update Report
Product prices have high correlation in an upcycle Yansab’s sales of SAR 1.5 billion in 1Q2016 were similar to 1Q2015, in a period where oil markets witnessed its worst downside. A historical correlation of quarterly sales versus product prices suggests correlations are decreasing in a down cycle; while in an upcycle, it does move in tandem. This signifies the fundamental dynamics of demand and supply, which means product prices movements are indicative of supply-demand factors and not short-term market factors. Exhibit 9: Yansab Quarter Sales (SAR Bln) versus Growth in Global Product Prices (Avg) Trends MEG
PP
2.5 2.3
2.4
2.3 2.1
2.2
1.8
1.8 1.6
5%
1.6
1.5
2.2
2.5
15%
1.6
1.6
2.0
25%
1.7
1.9
2.2
2.0
2.1
2.4
2.3
2.4
35%
2.4
2.6
2.5
2.7
2.8
1.8
PE
2.9
Revenue 3.0
-5%
1.4
-15%
1.2 1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
-25% 2Q10
1.0
Source: Company Reports, Bloomberg
New margin trends to start, initially dip in 2016-17 and improve from 2018 Opex on an average for 2016-19 stood at 71% considering an increase in overall cost from 2016. Yansab is shock proof until 2Q2016 when the new pricing structure becomes applicable. Aramco had given a grace period for subsidized feedstock, following Yansab’s inception in 2009 and the same expires in 2016. For 1Q2016, COGS declined sharply due to a sharp drop in Propane (Asia) prices, where Yansab gets a 28% discount until 2Q2016. We expect the propane spreads will be reduced to 20% discount to global benchmark. Similarly, ethane will be priced at US$ 1.75/mmbtu from 4Q2016. The Q/Q trends suggest that COGS to sales versus international feedstock price trends are moving in inverse directions. Exhibit 10: Yansab CoGS (% of Sales) versus Global Feedstock Price (Avg) Movements COGS
80%
Ethane QoQ
Propane QoQ
40% 30%
75%
20% 70%
10%
65%
0% -10%
60%
-20%
55%
-30% 1Q16
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
4Q10
3Q10
-40% 2Q10
50%
Source: Company Reports, Bloomberg
We expect Yansab to have an improved margin scenario from 2017 as feedstock spreads are expanding globally amid KSA producer’s advantage of lower feedstock costs. In this scenario, a growth of +9% CAGR in gross profit (refer to exhibit 11) is expected through 2019 reaching SAR 2.5 billion.
May 16, 2016
|5
Yanbu National Petrochemical Co (Yansab) Update Report
EBITDA margins to improve from 2018 We expect EBITDA margins of 36% on an average for 2016-19 and expect a CAGR of +8% through 2019 to reach SAR 3.0 billion. Yansab would be able to improve margins as operating rates of 85% are stable denoting decent operating leverage helping to cover fixed costs while scope for improvement is seen, unless unplanned shutdown occurs. Exhibit 11: Gross Profit (SAR Mln) and Margin Forecasts
Gross Profit
Gross Margins
Exhibit 12: EBITDA (SAR Mln) and Margin Forecasts EBITDA
32%
EBITDA Margins
44% 42%
30%
38%
3,016
2,721
2,365
26%
2,372
2,660
2,466
2,162
1,868
1,916
1,758
3,087
4,132
40% 28%
36%
Source: Company reports and Riyad Capital
2019E
2018E
2017E
2015
2016E
34%
2014
2019E
2018E
2017E
2016E
2015
2014
24%
Source: Company reports and Riyad Capital
Earnings growth of +11% CAGR expected through 2019 We expect earnings of SAR 2.0 billion by 2019, a CAGR of +11% through 2019. With such a growth, net margins are expected to average 23% through 2019 after a decline in 2017 and improving to 24% by 2019. We forecast EPS of SAR 2.65 for 2016 and expected to grow to SAR 3.63 by 2019. DPS of SAR 1.50 for 2016E is expected and likely to reach SAR 2.50 delivering a payout ratio of 65%. It has paid an average of 75% for 2013-15, we expect this to be lower for 2016-19. Exhibit 13: Net Profit (SAR Mln) and Margin Forecasts Net profit
Exhibit 14: EPS and DPS Forecasts (SAR)
YoY
EPS
Dividends
32%
Source: Company reports and Riyad Capital
3.63
2.50
2019E
3.10
2.00
2018E
1.75
2017E
2.58
1.50
2.15
2.00
2.65
2016E
2019E
2018E
2017E
2016E
2015
2014
22%
2014
24%
2015
26%
3.00
2,043
1,744
1,453
1,489
1,207
2,478
28%
4.40
30%
Source: Company reports and Riyad Capital
Relatively debt free balance sheet; ROE’s are lower versus sector Yansab has nearly SAR 4.1 billion of debt as of 1Q2016 with the majority of repayment planned over the next 3-4 years. D/E ratios of 16% are relatively lower to sector leaving high interest coverage ratios despite depressed profitability scenario from 2015. It continues its maintenance capex at a run rate of 2-3% over the last 3-4 years except in case of shutdown in some quarters, which is a one-off. Its steady stream of cash flows leaves enough room for a decent dividend payout, leaving any unplanned shutdowns. ROE of 11% is low in the sector, we believe lower leverage (debt) and limited expansion are the reasons.
May 16, 2016
|6
Yanbu National Petrochemical Co (Yansab) Update Report
1Q2016 review A comeback quarter in terms of margins Revenue of SAR 1.5 billion in 1Q2016 missed our estimate of SAR 1.7 billion, declined by -18% Q/Q and -13% Y/Y mainly on lower product prices. However, product prices decline remained in mid-single digits. Gross profit of SAR 521 million during 1Q2016 declined by -3% Q/Q and improved by +26 Q/Q beating our expectations of SAR 463 million. Gross margins improved to 35% from 24% in 1Q2015 and improved from 29% in 4Q2015 as feedstock prices declined significantly. Table 2: Quarterly Income Statement Summary (SAR Mln)
Revenue Q/Q Gross Profit Q/Q EBITDA Q/Q Net Income Q/Q EPS (SAR) Gross Margins EBITDA Margins Net Margins
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2,169 0% 800 NM 1015 NM 667 NM 1.48
2,213 2% 807 1% 1027 1% 671 1% 1.49
2,889 31% 1028 NM 1226 19% 865 NM 1.92
2,084 -28% 590 NM 805 -34% 442 -49% 0.98
2,318 11% 708 20% 969 20% 556 26% 1.23
2,409 4% 761 7% 1020 5% 613 10% 1.36
2,494 4% 845 11% 1107 8% 691 13% 1.54
2,290 -8% 773 -8% 1036 -6% 618 -11% 1.37
1,717 -25% 413 -47% 664 -36% 285 -54% 0.63
1,563 -9% 373 -10% 593 -11% 227 -20% 0.51
1,800 15% 435 17% 614 4% 302 33% 0.67
1,831 2% 537 24% 790 29% 393 30% 0.87
1,496 -18% 521 -3% 777 -2% 402 2% 0.89
36.9% 46.8% 30.8%
36.5% 46.4% 30.3%
35.6% 42.4% 29.9%
28.3% 38.6% 21.2%
30.6% 41.8% 24.0%
31.6% 42.4% 25.4%
33.9% 44.4% 27.7%
33.8% 45.2% 27.0%
24.0% 38.7% 16.6%
23.9% 37.9% 14.5%
24.1% 34.1% 16.8%
29.3% 43.1% 21.5%
34.8% 51.9% 26.9%
Source: Company Reports and Riyad Capital
Gross margins are the highest after a span of nine quarters, suggesting the feedstock spread advantage, despite Aramco hiking its fuel prices, which was not applicable for Yansab. Net income of SAR 402 million beat our estimates of SAR 281 million for 1Q2016, an increase of +41% Y/Y and +2% Q/Q. Net margins stood at its best after a gap of 4 quarters with 27% net margins versus 17% in 1Q2015 and 22% in 4Q2015.
Consensus consistently see surprises Yansab earnings have mostly been a mixed bag since 2015 with consensus rarely meeting expectations. We noted that most analyst expectations were on the bearish side as oil prices started collapsing as evident from 3Q2014 with mostly positive surprises except in case of 1Q and 3Q of 2015.
May 16, 2016
|7
Yanbu National Petrochemical Co (Yansab) Update Report
Valuation We roll forward and update our models to value Yansab using both absolute and relative valuations. With current operating rates and limited capex, we believe DCF method would be apt in valuing Yansab. Margins are likely to improve following the pickup in product prices and drive sustainable free cash flows, as operations continue to be intact. Alternatively, we value Yansab using a target P/E multiple method which derived SAR 37.05 fair value using 14.0x P/E. Amongst the valuation approaches we prefer DCF valuation and revise our 12-month target price to SAR 41.00 from our SAR 44.00 earlier. Revise to Hold.
#1: DCF suggests fair value of SAR 40.67 Our DCF valuation with forecast assumed for 2017-19E used a long-term terminal growth rate of 0.5% and risk-free rate assumption of 3.8%, which includes a premium of 1.5% for country risk over benchmark 10-year T-bill yields of 2.3% (being the average of the last 6 months). This results in cost of equity of 11.7%, while we assume after tax cost of debt at 5.1%, deriving a WACC of 10.4% assuming a capital structure (Equity/Debt) of 20%. Table 3: Discounted Cashflow Valuation NOPLAT Add: Depreciation &Amortization Change in w orking capital Less: Capex Net Adjustm ents in WC, CAPEX and D&A Free Cash Flow to Firm (FCFF) PV of Terminal Value DCF Valuation Terminal Value PV of Terminal Value Value of the firm Add (Less): Net Debt Value of equity Value Per Share (SAR)
2017E 1,588 740 (126) (292) 322 1,910 1,730
2018E 1,859 794 (128) (439) 227 2,086 1,712
2019E 2,135 799 (131) (353) 315 2,451 1,822 25,018 18,596 23,859 (984) 22,876 40.67
Assum ptions Cost of equity After tax cost of debt WACC Zakat (tax) rate Terminal Grow th rate Risk free rate Market Return Market Risk Premium LT Debt/Equity LT Equity Capital/Debt Potential Upside 3 Yr Weekly Adj.Beta Shares O/S (Mln) Stock price (SAR)
11.7% 5.1% 10.4% 2.5% 0.5% 3.9% 10.2% 6.25% 20.0% 80.0% 3.1% 1.3 563 39.76
Source: Riyad Capital
WACC
Table 4: Sensitivity Analysis of WACC and Terminal Growth Rate 40.668 9.6% 9.8% 10.0% 10.2% 10.4% 10.6% 10.8% 11.0%
0.1% 41.90 41.19 40.52 39.86 39.26 38.64 38.06 37.50
0.2% 42.30 41.58 40.88 40.22 39.60 38.96 38.37 37.80
0.3% 42.71 41.97 41.26 40.58 39.95 39.30 38.70 38.12
0.4% 43.13 42.37 41.65 40.95 40.30 39.64 39.03 38.43
0.5% 43.55 42.78 42.04 41.33 40.67 39.99 39.36 38.76
0.6% 43.99 43.20 42.44 41.71 41.04 40.35 39.71 39.09
0.7% 44.43 43.62 42.85 42.11 41.42 40.71 40.06 39.43
Term inal Grow th Rate 0.8% 0.9% 1.0% 1.1% 44.89 45.35 45.83 46.32 44.06 44.51 44.96 45.43 43.27 43.69 44.13 44.58 42.51 42.92 43.34 43.77 41.80 42.20 42.60 43.01 41.08 41.46 41.85 42.24 40.41 40.78 41.15 41.53 39.77 40.12 40.48 40.84
1.2% 46.82 45.91 45.04 44.20 43.43 42.65 41.92 41.22
1.3% 47.33 46.40 45.50 44.65 43.86 43.06 42.31 41.60
1.4% 47.85 46.90 45.98 45.11 44.30 43.48 42.72 41.98
1.5% 48.39 47.41 46.47 45.58 44.75 43.91 43.13 42.38
1.6% 48.94 47.93 46.97 46.06 45.21 44.35 43.55 42.79
Source: Riyad Capital
Risks to valuation The continued volatility in oil prices poses a challenge to sustainable product prices as product prices have hit multi-year lows. Additionally, the feedstock spread advantage could become limited versus international peers if Aramco continues to increase the price of feedstock. Yansab exports mostly to Asian countries (nearly 43% of revenue coming from Asia) and any slowdown in Asia affects Yansab.
May 16, 2016
|8
Yanbu National Petrochemical Co (Yansab) Update Report
#2: Target P/E valuation at SAR 37.05 As sanity check on valuation approaches, we valued Yansab using target P/E based method and derived a fair value of SAR 37.05. We derived a target in the P/E range of 14.0x considering average range of the P/E multiples between 3 to 5 years. Additionally, our view augments that valuation ranges are closer currently; its large cap peers are at a P/E median of 15.2x, while overall sector valuations are at 13.2x due to outliers. Table 5: Price Sensitivity and Target P/E Valuation using Bear-Base-Bull Case EPS Estimates
P/E Range(x)
2015A
EPS (SAR)
2.15
12.0x 13.0x 14.0x 15.0x 16.0x 17.0x 18.0x 19.0x 20.0x
25.76 27.90 30.05 32.20 34.34 36.49 38.63 40.78 42.93
2016E
# # # # # # # # #
2017E
2018E
2019E
Bear
Base
Bull
Bear
Base
Bull
Bear
Base
Bull
Bear
Base
Bull
2.36
2.65
2.78
2.47
2.58
3.25
2.60
3.10
3.84
2.73
3.63
4.49
28.26 30.62 32.97 35.33 37.68 40.04 42.39 44.75 47.10
31.76 34.40 37.05 39.69 42.34 44.99 47.63 50.28 52.93
33.34 36.12 38.90 41.68 44.46 47.24 50.01 52.79 55.57
29.68 32.15 34.62 37.09 39.57 42.04 44.51 46.99 49.46
31.00 33.59 36.17 38.75 41.34 43.92 46.50 49.09 51.67
39.01 42.26 45.51 48.76 52.02 55.27 58.52 61.77 65.02
31.16 33.76 36.35 38.95 41.55 44.14 46.74 49.34 51.93
37.20 40.30 43.40 46.50 49.60 52.70 55.80 58.90 62.00
46.03 49.87 53.71 57.54 61.38 65.21 69.05 72.89 76.72
32.72 35.44 38.17 40.90 43.62 46.35 49.08 51.80 54.53
43.58 47.21 50.84 54.47 58.10 61.73 65.37 69.00 72.63
53.86 58.35 62.84 67.32 71.81 76.30 80.79 85.28 89.77
2016E 1489 2.65
2017E 2018E 2018E 1453 1744 2043 2.58 3.10 3.63
41.55 35.46 37.05
40.56 34.62 36.17
Valuation based on P/E Net profit estimates (SAR Mln) EPS (SAR) P/E based valuation (SAR) Valuation at 2 year historical average of 15.7x Based on a sector average 2016E consensus P/E of 13.4x Estim ated valuation at PER of 14.0x Source: Riyad Capital
48.67 41.54 43.40
57.01 48.66 50.84
Valuations expensive, thin yields Yansab trades above par and remains expensive to sector P/E amid lower yield. It trades at P/E of 17.0x, the highest among large caps in the sector and a thin TTM yield of 5.0%. Currently, the stock offers 24% premium to sector on a TTM basis. We believe with multi-product exposure and valuation range, Yansab offers lower risk reward among peers, while priced attractively are peers such as SAFCO and SABIC, which trades at 14.5x and 13.8x respectively. Table 6: KSA Petrochemicals Sector Valuation (TTM basis)
Com pany Nam e
Price Mcap (SAR) SAR Mln
P/E
EV/ EV/ Div. Sales EBITDA Yld
52 52 WkWk-Hi Lo YTD (SAR) (SAR)
P/B
P/S
252,000 298,270 13.8x 1.5x 26,562 24,481 14.5x 4.0x 8,228 36,150 NA 1.0x 8,328 19,348 9.0x 1.4x 6,210 21,072 9.1x 0.9x 5,068 5,816 33.6x 0.9x 22,500 22,310 17.0x 1.5x 5,335 13,493 20.5x 0.9x 8,069 8,350 10.5x 3.4x 10,275 35,388 NA 0.8x 11,038 48,083 NA 1.3x 1,000 2,576 7.9x 1.0x 880 1,640 NA 0.8x 880 1,736 NA 0.6x
1.8x 8.1x 0.6x 1.2x 0.9x 3.2x 3.4x 1.5x 3.4x 1.3x 0.5x 0.7x 2.0x 1.2x
1.9x 7.8x 2.3x 2.6x 2.8x 2.8x 3.2x 3.6x 2.9x 4.1x 2.0x 1.8x 3.4x 2.4x
6.2x 12.2x 15.7x 7.2x 7.7x 10.4x 7.8x 9.9x 7.0x 14.6x 37.8x 5.5x 165.3x 17.2x
7.1% 10% 109.75 9.4% (22%) 127.50 NA 16% 25.30 NA 4% 28.20 NA (0%) 29.10 4.3% 13% 16.35 5.0% 23% 57.50 8.2% 4% 33.50 6.1% 30% 61.00 NA 1% 12.35 4.0% 3% 24.90 NA 0% 24.35 NA (4%) 12.55 NA 2% 14.60 -
Sector Median* 366,373 538,714 13.8x 1.0x Source: Bloomberg, Market Cap and EV are total
1.4x
2.8x
10.1x
6.1%
Saudi Basic Industries Corp 84.00 Saudi Arabian Fertilizer Co 63.75 National Industrialization Co 12.30 National Petrochemical Co 17.35 Saudi Industrial Investment Group13.80 Sahara Petrochemical Co 11.55 Yanbu National Petrochemical Co 39.76 Saudi International Petrochemical 14.55 Co Advanced Petrochemical Co 49.20 Saudi Kayan Petrochemical Co 6.85 Rabigh Refining & Petrochemical Co 12.60 Alujain Corp 14.45 Nama Chemicals Co 6.85 Methanol Chemicals Co 7.30
May 16, 2016
EV SAR Mln
59.50 61.00 7.50 10.60 9.80 7.40 23.80 9.75 31.90 4.40 7.00 9.50 4.95 4.95
|9
0
May 16, 2016
Volume (Mln Shares)
5
4
3
2
1
0
Jan-16
350 3 Yr Avg
Sep-15
6 Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
3 Yr Avg
May-15
Volum e Traded ( Mln Shares)
Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
3 Yr Avg
Jan-15
EV/Sales
Sep-14
1.5
May-14
3.0
Jan-14
4.0
Jan-14
5.0
Sep-13
EV/EBITDA
Sep-13
6.0
May-13
6.0 Jan-12
16.0
Jan-13
7.0 May-12
P/S
May-13
8.0 Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-16
Sep-15
P/B Ratio
Jan-13
9.0
Sep-12
10.0
Sep-12
Dividend Yield
May-12
12M Avg
Jan-12
4.0
May-12
9.0
Jan-12
14.0
Sep-11
19.0
Sep-11
P/E Ratio
Sep-11
Jan-15
May-15
1.8
May-11
Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
2.9
May-11
Mar-16
Jan-16
Nov-15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
3.4
May-11
Jan-16
Sep-15
May-15
Jan-15
3 Yr Avg
Sep-15
Jul-15
Jan-14
Sep-13
May-13
3 Yr Avg
Sep-14
Dvd Yld
May-14
May-15
P/E
Jan-14
Mar-15
Jan-13
Sep-12
May-12
Jan-12
Sep-11
May-11
P/B
Sep-13
Jan-15
Nov-14
Sep-14
Jul-14
11.0
May-13
7
Jan-13
Sep-12
May-12
Jan-12
2.0 May-14
4.0
Sep-11
0.4
May-11
Yanbu National Petrochemical Co (Yansab) Update Report
Appendix
Exhibit 15: 5 Year Price Multiples Trading History 4.3 P/S Ratio
2.4 3.8
1.9 3.3
1.4
2.8
0.9 2.3
12M Avg
12M Avg
24.0 EV/EBITDA Ratio
14.0
12.0
10.0 8.0
6.0
12-M Avg
5.5 EV/Sales Ratio
5.0
4.5
4.0
3.5
3.0
2.5
2.0
12M Avg 12M Avg
Value Traded (SAR Mln)
300
250
200
150
100
50
Turnover (SAR Mln)
Source: Bloomberg
| 10
Yanbu National Petrochemical Co (Yansab) Update Report Exhibit 16: KSA Petrochemicals Sector Valuation-Consensus EPS growth 2016-18E Vs 2017E P/E 30.0% Sahara
2016-18 E EPS grow th
25.0% 20.0%
SABIC
15.0%
Saudi Kay an
Petrochem SAFCO
10.0%
Y ANSAB
5.0% Sipchem
SIIG
0.0% 5.0
7.0
9.0
11.0 Adv anced 13.0
15.0
17.0
19.0
21.0
23.0
25.0
2017E P/E Source: Bloomberg
May 16, 2016
| 11
Yanbu National Petrochemical Co (Yansab) Update Report Table 7: Summary Financials FY ended Dec 31
2011
2012
2013
2014
2015
2016 E
2017 E
2018 E
2019 E
Total Sales Cost of Sales
9,659 (5,866)
9,299 (6,190)
9,354 (6,129)
9,511 (6,424)
6,911 (5,154)
6,332 (4,416)
6,775 (4,907)
7,693 (5,532)
8,382 (5,916)
Gross Profit
3,793
3,109
3,225
3,087
1,758
1,916
1,868
2,162
2,466
Income Statement (SAR mln)
S,G&A Expenses Operating Income Other Income /expenses Financial Charges Pre-Zakat Income Zakat
(175) 3,618
(234) 2,875
(232) 2,993
(244) 2,843
(218) 1,540
(230) 1,686
(243) 1,625
(235) 1,926
(250) 2,216
62
31
29
11
26
28
31
34
38
(413)
(361)
(260)
(224)
(182)
(164)
(134)
(116)
(93)
3,267 (92)
2,546 (100)
2,762 (118)
2,630 (152)
1,384 (176)
1,551 (62)
1,522 (68)
1,845 (101)
2,162 (119)
Net Income
3,174
2,446
2,645
2,478
1,207
1,489
1,453
1,744
2,043
EBITDA
3,016
4,635
3,894
4,073
4,132
2,660
2,372
2,365
2,721
Shares Outstanding
563
563
563
563
563
563
563
563
563
EPS DPS
5.64 -
4.35 -
4.70 3.00
4.40 3.00
2.15 2.00
2.65 1.50
2.58 1.75
3.10 2.00
3.63 2.50
Cash & equivalents Accounts Receivable
599 2,459
530 2,562
2,106 2,380
2,691 2,298
679 1,844
1,171 1,690
1,677 1,808
2,276 2,053
2,873 2,236
Inventories
1,170
1,112
1,119
1,316
826
707
786
886
948
769 123
891 259
915 262
964 228
2,734 245
2,843 257
2,957 270
3,075 284
3,198 298
5,121 17,588
5,353 16,498
6,782 15,623
7,496 14,638
6,328 14,357
6,668 13,742
7,498 13,126
8,573 12,454
9,553 11,637
intangable assets Other Non Current Assets
234 32
330 208
305 191
144 189
80 203
85 213
89 224
93 235
98 247
Total non-Current Assets Total Assets
17,855 22,975
17,036 22,388
16,119 22,901
14,971 22,467
14,641 20,968
14,040 20,708
13,439 20,937
12,783 21,356
11,982 21,535
1,181
1,279
1,298
1,462
1,464
1,133
1,133
916
700
423 737
361 831
252 623
463 729
201 1,107
172 1,085
192 1,063
216 1,042
231 1,021
Others Total Current Liabilities
1,213 3,555
2,471
2,174
2,655
2,772
2,390
2,387
2,174
1,952
Long Term Debt Other Non Current Liab.
8,778 127
6,821 135
5,523 161
4,060 200
2,596 248
1,778 260
1,528 273
1,528 287
1,278 301
Total non-Current Liab Total Liabilities
8,905 12,460
6,956 9,427
5,683 7,857
4,260 6,915
2,844 5,616
2,038 4,428
1,801 4,189
1,815 3,989
1,579 3,531
Share Capital Reserves Retained Earnings Total Equity
5,625 499 4,391 10,515
5,625 743 6,593 12,961
5,625 1,008 8,410 15,043
5,625 1,256 8,672 15,552
5,625 1,376 8,351 15,352
5,625 1,525 9,129 16,279
5,625 1,671 9,453 16,748
5,625 1,845 9,897 17,367
5,625 2,049 10,329 18,003
Total Liab & Equity
22,975
22,388
22,901
22,467
20,968
20,708
20,937
21,356
21,535
3,300
3,345
3,621
4,058
3,417
2,401
1,995
1,986
2,242
(253) (3,238)
(342) (3,073)
(205) (1,840)
(207) (3,260)
(247) (1,662)
(255) (1,234)
(262) (1,125)
(270) (1,375)
Balance Sheet (SAR mln) Assets
Investments Others Total Current Assets Property Plant & Equipment
Liabilities & Equity Short Term Debt Accounts Payable Accrual and provisions
Cash Flows (SAR mln) CFO CFI CFF
989 (59)
Source: Company reports, Riyad Capital
May 16, 2016
| 12
Yanbu National Petrochemical Co (Yansab) Update Report Table 8: Ratios 2011
2012
2013
2014
2015
2016 E
2017 E
2018 E
2019 E
P/E
7.1x
9.2x
8.5x
9.1x
18.6x
15.0x
15.4x
12.8x
11.0x
P/B
2.1x
1.7x
1.5x
1.4x
1.5x
1.4x
1.3x
1.3x
1.2x
P/S
2.3x
2.4x
2.4x
2.4x
3.2x
3.5x
3.3x
2.9x
2.7x
37.6x
42.5x
10.7x
8.4x
33.1x
19.2x
13.4x
9.9x
7.8x
2.4x 4.9x
2.5x 5.9x
2.4x 5.6x
2.4x 5.5x
3.3x 8.6x
3.6x 9.6x
3.4x 9.7x
3.0x 8.4x
2.7x 7.6x
Valuations
P/CF EV/Sales EV/EBITDA EV/EBIT
6.3x
8.0x
7.6x
8.0x
14.8x
13.6x
14.1x
11.9x
10.3x
0.0% 14.1%
0.0% 10.9%
7.5% 11.8%
7.5% 11.0%
5.0% 5.4%
3.8% 6.6%
4.4% 6.5%
5.0% 7.8%
6.3% 9.1%
Total Sales Gross Profit
66% 75%
-4% -18%
1% 4%
2% -4%
-27% -43%
-8% 9%
7% -3%
14% 16%
9% 14%
EBITDA
61%
-16%
5%
1%
-36%
-11%
0%
15%
11%
Net Income
90%
-23%
8%
-6%
-51%
23%
-2%
20%
17%
Gross Margins
39%
33%
34%
32%
25%
35%
32%
32%
33%
EBIT Margins
37%
31%
32%
30%
22%
27%
24%
25%
26%
EBITDA Margins
48%
42%
44%
43%
38%
37%
35%
35%
36%
Net Margins
33%
26%
28%
26%
17%
24%
21%
23%
24%
0.2 1.4
0.2 2.2
1.0 3.1
1.0 2.8
0.2 2.3
0.5 2.8
0.7 3.1
1.0 3.9
1.5 4.9
Dividend Yield Earnings Yield Growth (YoY)
Margins
Key Ratio's Cash Ratio Current Ratio Inventory Turnover
5.0
5.6
5.5
4.9
6.2
6.2
6.2
6.2
6.2
Payables Turnover
13.9
17.1
24.3
13.9
25.6
25.6
25.6
25.6
25.6
Receivables Turnover
3.9
3.6
3.9
4.1
3.7
3.7
3.7
3.7
3.7
Interest Cover Debt to EBITDA
8.9 2.4
8.1 2.1
11.6 1.7
12.8 1.3
8.6 1.5
10.4 1.2
12.3 1.1
16.9 0.9
24.3 0.7
Debt to Assets
49%
36%
30%
25%
19%
14%
13%
11%
ROA
14%
11%
12%
11%
6%
7%
7%
8%
9%
ROE
30%
19%
18%
16%
8%
9%
9%
10%
11%
ROIC
17%
14%
14%
13%
8%
9%
8%
10%
11%
Cashflow/EBITDA Capex/Sales
71% 1%
86% 1%
89% 1%
98% 2%
128% 11%
101% 2%
84% 2%
73% 2%
74% 2%
Capex/Depreciation Dividend Payout
14% 0%
13% 0%
11% 64%
13% 68%
77% 93%
18% 57%
17% 68%
16% 65%
16% 69%
106%
62%
45%
36%
26%
18%
16%
14%
11%
Debt to Equity Per Share Ratio's EPS
9%
5.64
4.35
4.70
4.40
2.15
2.65
2.58
3.10
3.63
DPS BVPS
18.69
23.04
3.00 26.74
3.00 27.65
2.00 27.29
1.50 28.94
1.75 29.77
2.00 30.87
2.50 32.01
Sales/Share
17.17
16.53
16.63
16.91
12.29
11.26
12.04
13.68
14.90
FCF I/Share FCF II/Share
5.87 (0.25)
5.95 (0.22)
6.44 (0.19)
7.21 (0.28)
6.07 (1.41)
4.27 (0.22)
3.55 (0.22)
3.53 (0.23)
3.99 (0.23)
FCF III/Share
(0.20)
(0.39)
(0.18)
(0.09)
3.17
(0.22)
(0.23)
(0.24)
(0.25)
Source: Company reports, Riyad Capital
May 16, 2016
| 13
Yanbu National Petrochemical Co (Yansab) Update Report
Page Intentionally Left Blank
May 16, 2016
| 14
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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