Saudi Basic Industries Corp. - SABIC 27 October 2014

Saudi Basic Industries Corp. - SABIC
27 October 2014
Recommendation
Fair Value (SR)
Overweight
134.00
Price as of 26 October 2014 (SR)
Expected return
114.69
16.8%
Company data
Tadawul symbol
52- week high (SR)
52-week low(SR)
YTD change
Average trading volume (thousand shares)
Market Cap (million SR)
Market Cap (million USD)
Number of shares issued (million)
Free float
2010.SE
136.50
98.50
1.0%
4,111
344,070
91,752
3,000
21.2%
Financial indicators
2011
2012
3102
LTM*
Revenues (million SR)
Net Income (million SR)
EPS (SAR)
PE ratio (x)
P/BV (x)
Dividend yield
Net Income growth
*Ending Q3 2014
189,898
29,242
9.75
11.82
1.83
4.3%
%1..3
189,026
24,780
8.26
13.95
1.77
4.3%
%3..1-
189,032
25,278
8.43
13.68
1.67
4.3%
%0.2
194,589
25,288
8.43
13.61
1.65
4.8%
%3.1
185
SABIC
Tadawul Petrochemicals Index
Tadawul Index
165
145
125
105
85
Sources: Albilad Capital estimates, Tadawul
For more information you may contact:
Turki Fadaak
Research & Advisory Manager
[email protected]
Or Albilad Capital Head Office:
Tel :
+966 11 203 9892
Fax :
+966 1479 8453
P.O. Box 141
Riyadh 11411
Interim Financial Results for the Third Quarter 2014
th
On the 26 of October 2014, Saudi Basic Industries Corporation (Sabic)
disclosed preliminary Q3 2014 financial results displaying net income of SAR
6.18 billion, down 4.48% YoY and 4.33% QoQ. The decrease in net income in
Q3 2014 versus Q3 2013 is attributable to lower quantities sold and drop in
other income in spite of lower financial charges. Overall, Q3 2014 bottom line
performance fell short of our estimate of SAR 6.594 billion by 6.28% and also
came short of Bloomberg’s consensus estimate of SAR6.618 billion by 6.62%.
For 9M 2014, Sabic announced net profit of SAR 19.08 billion increasing 0.05%
from SAR 19.07 billion. The annual increase in bottom line is attributable to
higher income from affiliates and lower financial charges, despite escalating
SG&A expenses.
Gross profit (GP) in Q3 2014 slipped 4.78% YoY to reach SAR 13.74 billion,
whereas operating profit (OP) dwindled 7.63% YoY standing at SAR 10.41
billion from SAR 11.27 billion. Meanwhile, GP and OP increased 2.46% and
3.38% QoQ. On a 9M basis, GP descended 0.51% reaching SAR 41.28 billion and
OP also slumped 2.91% to SAR 31.35 billion.
Profit margins followed a downward trend in 2014 with GP, OP and net profit
margins slipping to 28.21%, 21.37% and 12.69%, respectively, compared to
29.57%, 23.09% and 13.26% in Q3 2013. In 9M 2014, GP and OP margins shed
128 bps and 153 bps culminating at 28.25% and 21.46%, respectively. Net
profit margin also plunged by 51 bps hitting 13.06%.
Latest Developments
Recently, SABIC and Royal Dutch Shell have shelved plans to expand an existing
petrochemical joint venture in Saudi Arabia as the results of feasibility study
had not been encouraging. The two partners in the joint project, known as
SADAF in Jubail, on the Gulf coast of Saudi Arabia, first announced plans to
explore an expansion of their petrochemical plant in 2012.
In July, the company paid its shareholders a cash dividend of SAR 2.5 per share
for the first half of 2014.
Our Comment
Sabic’s financial results for the third quarter show declines in net profit
motivated by lower selling volumes, compared to Q3 2013 and Q2 2014. We
expect the recent decline in oil prices will pressure margins for petrochemical
producers at different levels based on many factors; most importantly
feedstock prices.
We reviewed the previous fair value estimate given the recent developments in
the market regarding foreign ownership as Sabic is believed to be a key target
for foreign institutions. The new fair value stands at SAR 134 per share.
Our website:
www.albilad-capital.com/en/research
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Saudi Basic Industries Corp. - SABIC
27 October 2014
Balance Sheet (million)
Current Assets
Investments
Fixed Assets
Other Long Term Assets
Total Assets
Current Liabilities
Long Term Debt
Other Long Term Liabilities
Shareholders' Equity
Total Liabilities and Shareholders' Equity
2010
117,099
8,904
164,889
25,352
316,245
44,305
93,848
11,946
166,147
316,245
2011
132,401
9,701
165,805
24,877
332,784
43,070
87,907
12,601
189,206
332,784
2102
136,295
10,382
165,440
25,320
337,438
48,343
79,532
13,712
195,851
337,438
2102
134,852
13,491
165,435
25,292
339,071
44,466
73,947
14,001
206,656
339,071
Change
-1.1%
30.0%
0.0%
-0.1%
0.5%
-8.0%
-7.0%
2.1%
5.5%
0.5%
Balance Sheet (million)
Current Assets
Investments
Fixed Assets
Other Long Term Assets
Total Assets
Current Liabilities
Long Term Debt
Other Long Term Liabilities
Shareholders' Equity
Total Liabilities and Shareholders' Equity
Income Statement (million)
Revenues
Cost of Revenues
Gross Profit
Selling, General, and Admin. Expenses
Net Interest Expense
Other Expenses/(Income)
Total Other Expenses/(Income)
Net Income Before Zakat
Zakat
Minority Interest
Net Income
2010
151,970
103,423
48,547
10,654
3,394
(1,256)
12,792
35,754
2,500
11,726
21,529
2011
189,898
127,768
62,130
13,292
2,993
(2,039)
14,245
47,885
2,600
16,043
29,242
2102
189,026
135,632
53,393
12,368
2,493
(2,312)
12,549
40,844
2,500
13,564
24,780
2102
189,032
133,687
55,344
12,760
1,756
(1,638)
12,878
42,466
2,300
14,888
25,278
Change
0.0%
-1.4%
3.7%
3.2%
-29.5%
-29.1%
2.6%
4.0%
-8.0%
9.8%
2.0%
Income Statement (million)
Revenues
Cost of Revenues
Gross Profit
Selling, General, and Admin. Expenses
Net Interest Expense
Other Expenses/(Income)
Total Other Expenses/(Income)
Net Income Before Zakat
Zakat
Minority Interest
Net Income
2010
35,754
10,610
(2,352)
(8,356)
5,181
2011
47,885
11,815
(5,342)
(2,537)
(499)
2102
40,844
13,730
(3,035)
(116)
3,216
2102
42,466
14,283
2,057
1,426
(101)
Change
4.0%
4.0%
-
(11,572)
(16,100)
(9,178)
(10,642)
(4,647)
(10,987)
550
(11,903)
8.3%
(3,602)
3,587
(8,962)
(10,737)
57,197
50,648
(1,608)
(8,097)
(11,831)
(10,225)
50,648
50,389
(4,207)
(6,922)
(14,914)
(14,311)
38,185
36,836
(6,824)
(13,571)
(12,734)
(14,940)
36,836
37,547
62.2%
96.0%
-14.6%
4.4%
-3.5%
1.9%
Cash Flow Statement (million)
Net Income Before Zakat
Depreciation and Amortization
Inventory
Accounts Receivable
Accounts Payable
Other Changes in Cash Flow From
Operations
Change in Fixed Assets
Other Changes in Cash Flow From
Investing Activities
Change in Debt
Dividends Paid
Minority Interest
Beginning Cash Balance
Ending Cash Balance
Cash Flow Statement (million)
Net Income Before Zakat
Depreciation and Amortization
Inventory
Accounts Receivable
Accounts Payable
Other Changes in Cash Flow From
Operations
Change in Fixed Assets
Other Changes in Cash Flow From
Investing Activities
Change in Debt
Dividends Paid
Minority Interest
Beginning Cash Balance
Ending Cash Balance
9M
2013
9M
2014
Change
-
-
-
9M
2013
140,552
99,058
41,494
19,071
9M
2014
146,110
104,830
41,280
19,080
Change
4.0%
5.8%
-0.5%
0.0%
9M
2013
9M
2014
Change
-
-
-
-
-
-
-
-
-
Source: SABIC Filings
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Saudi Basic Industries Corp. - SABIC
27 October 2014
Definitions

Earnings Per Share
It is an indicator of the company's profit in Saudi Riyals per each outstanding share. It is calculated by dividing the company’s net income of by the
number of outstanding shares.

Revenue
Is the amount of income that is brought into a company by its business activities.

Gross profit
A company’s profit after deducting the cost associated directly with its sales or production. Does not include indirect cost like depreciation, interest, tax
and non-operating expense.

Price-to-earnings (P/E) Ratio
It is the price paid by the company’ shareholders for the earnings of one of its shares. It is used to compare the prices of the company’s shares with that
of another company within the same sector. If the P/E is higher than the sector’s average, it indicates either the share is overpriced or that there is a
greater expectation for the company to generate more profits in the future, and vice versa. It is calculated by dividing the price of a share by the share’s
earnings in Saudi Riyals

Book value per share
The company's book value represents the value of the company in the event of liquidation or exit. Dividing the shareholders’ equity by the company’s
outstanding shares represents the book value per share.

Price-to-book (P/B) ratio
It represents the market price per share vis-à-vis its book value. It is used to compare between companies within the same sector and comparing them
to the sector’s average. If the number is higher than the average, it means that the company’s price is traded higher than its book value. This means
that either the share is overpriced or that the company is in a growth state; and vice versa. The number is calculated by dividing the share’s market
price by its book value.
Return on equity

It is a percentage representing the extent of the company's efficiency in achieving earnings from the shareholders’ investment. It is calculated by
dividing the company’s net income by Shareholders' equity. The higher the percentage, the higher the efficiency, and vice versa.

Net Debt
Total long-term debt after deducting cash on hand and in banks.

Enterprise Value
It is the market capitalization plus net debt.

Time horizon
We recommend using a Time horizon of 9 to 12 months, during which the current price might reach the Target price
Albilad Capital Rating Methodology
Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the
evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the
possibility of ascent/descent.
Overweight:
The Target share price exceeds the current share price by ≥ 11%. We expect the share price to reach the Target price over the next 9-12 months
Neutral:
The Target share price is either more or less than the current share price by < 10% We expect the share price to reach the Target price over the
next 9-12 months
Underweight:
The Target share price is less than the current share price by ≥ 11%. We expect the share price to reach the Target price over the next 9-12
months
To be Revised
No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for
more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital
Research.
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Saudi Basic Industries Corp. - SABIC
27 October 2014
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