we have revised our estimates on sabic. we sabic n ... · ethoxylates, detergent alcohols 2018...
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Saudi Basic Industries Corp Petrochemicals – Industrial SABIC AB: Saudi Arabia
15 June 2016
Rating NEUTRAL
Target price SAR78.0 (-4.4% upside)
Current price SAR81.60
Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
Key themes & implications
We have revised our estimates on SABIC. We believe petrochemical prices are likely to remain subdued going forward as significant new capacity additions boosts supply. Recovery in metal segment will be protracted. The fertilizer segment’s bottom line will remain under pressure on lower product prices and hike in feedstock costs. We arrive at a target price of SAR78 on the company and rate the stock Neutral.
Share information
Market cap (SAR/US$) 244.8bn / 65.28bn
52-week range 60.88 - 103.9
Daily avg volume (US$) 168mn
Shares outstanding 3,000mn
Free float (est) 21%
Performance 1M 3M 12M
Absolute -3.1% 6.2% -20.9%
Relative to index -1.2% 3% 10.1%
Major Shareholder:
Public Investments Funds (PIF) 70.0%
GOSI 5.7%
Valuation
12/14A 12/15A 12/16E 12/17E
P/E (x) 10.5 12.5 15.6 14.1
P/B (x) 1.5 1.5 1.5 1.5
EV/EBITDA (x) 5.8 6.6 7.9 7.3
Dividend Yield 6.7% 6.7% 6.7% 6.7% Source: Company data, Al Rajhi Capital
SABIC N: Revising estimates We have revised our estimates on SABIC to take into account the latest
developments in the sector. Significant new petrochemical production capacity
expected to become operational globally over the next few years along with
slow global manufacturing activity is expected to ease the current tight supply-
demand situation. Thus, even if crude oil prices rally from the current levels,
we do not expect a similar rise in petrochemical product prices, but will likely
result in lower spreads on naphtha and pressure on margins. With no
significant new capacity additions in the near future, SABIC’s revenue and
profit growth will primarily be driven by product prices and change in
spreads. Based on revised estimates, our target price is SAR78 per share and
we rate the stock Neutral.
Growth to be restricted by subdued pricing environment: Ethylene prices
hit an 8-month high recently on the back of a tight demand-supply scenario.
However, we expect the situation to change as significant new capacity is likely
to become operational over the next few years. IHS Chemical estimates 24mn
tons of new PE capacity to become operational between 2015-2020 (~17% of
2015 global consumption), led by US and China. The new capacities will compete
with Middle Eastern exports and keep product prices in check. In addition, there
is limited capacity expansion in the foreseeable future, which will limit volume
driven growth. As a result, we expect SABIC’s revenue to be mostly flat,
CAGR:+1.6% during 2015-18.
Relative advantage to improve on oil recovery: SABIC has a diversified
feedstock base compared to Saudi-based peers and has Ethane (fixed priced) as
a major part of its feedstock. With the sharp fall in naphtha prices, the
company’s competitive advantage has reduced compared to its global peers. As
crude oil prices recover, consequently pushing naphtha prices higher, SABIC will
see slight increase in costs but will improve its relative advantage over global
majors which could give it a higher valuation multiple relative to peers.
Valuation: SABIC is currently trading at a 12-month forward PE of ~15.7x
according to Bloomberg consensus estimates, higher than its historical average.
The current valuation is at a similar level seen in 2009, when the global
economy was recovering from the financial crisis. We believe there is limited
upside in the stock from the current levels. Based on our revised estimates, we
arrive at a target price of SAR78 on SABIC. As the stock is already trading at
SAR81, we rate the stock Neutral. Nevertheless, the stock will continue to trade
range bound with volatile oil prices in the short-term offering investment
opportunities as investors use the stock as a proxy to position portfolios based
on oil price movements.
Period End (SAR) 12/13A 12/14A 12/15A 12/16E 12/17E
Revenue (mn) 188,986 188,989 148,086 136,023 148,271
Revenue Growth 0.0% 0.0% -21.6% -8.1% 9.0%
Gross profit margin 29.3% 27.2% 29.1% 26.9% 27.6%
EBITDA margin 30.1% 27.8% 30.4% 28.3% 28.4%
Net profit margin 13.4% 12.4% 13.2% 11.5% 11.7%
EPS 8.43 7.78 6.52 5.24 5.81
EPS Growth 2.0% -7.6% -16.3% -19.7% 10.9%
ROE 16.8% 14.7% 12.1% 9.7% 10.8%
ROCE 15.0% 13.3% 10.7% 8.3% 9.7%
Capex/Sales 6.1% 8.0% 12.3% 12.0% 11.0% Source: Company data, Al Rajhi Capital
Research Department Pritish Devassy, CFA
Tel +966 11 2119370, [email protected]
Key highlights
1) Petrochemical spreads to reduce on expected
increase in supply, mainly from US and China
2) However SABIC will see comparative advantage due
to majority of its feedstock being fixed priced ethane
feedstock.
3) European business providing cushion due to high
ethylene-naphtha spreads, despite domestic plants
facing margin pressure.
4) Top-line growth will be restricted with limited volume
growth, as well as subdued product prices.
5) Steel segment will continue to put pressure on the
bottom line.
Risks
1) Oversupplied market leading to sharper than
expected fall in margins.
2) Continued losses in the steel business impacting the
bottom line.
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 2
Increasing profitability of European businesses With the sharp fall in crude prices resulting in similar decline in naphtha prices, we estimate
the profitability of the company’s European business (one fourth of total sales) would have
increased, offsetting the lower profitability of the Saudi manufacturing facilities (on the back
of mostly fixed feedstock costs). The lower naphtha prices, in addition to falling energy and
other commodity prices has boosted the profitability of the European manufacturing
facilities, which generally lie near the last quartile of the cost curve. The average naphtha-
ethylene spread in Europe increased from ~US$375 per ton in 2014 to ~US$560 per ton in
2015. This increase in spread would have directly benefitted the bottom line. We believe this
is the prime reason that SABIC’s petrochemical segment’s net profit margin was stable in
2015 (at 12.2%), even while its subsidiaries Saudi Kayan and Yansab posted sharply lower
margins. Going forward however, this trend is likely to reverse as crude oil prices recover,
pushing naphtha prices higher. In a situation of rising crude prices, the company’s Saudi
plants, with mostly fixed feedstock prices, will see an increase in their competitive advantage,
and balance the fall in margins of the European business.
Figure 1 European ethylene-naphtha spread remains elevated
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Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16
Ethytlene Naphtha Europe avg. spread 2014 avg. spread 2015 YTD 2016 Source: Bloomberg, Al Rajhi Capital
Petrochemical prices to be subdued
Petrochemical product prices did not drop as sharply as the fall in feedstock prices (following
the fall in crude oil prices), as the petrochemical market was more balanced in terms of
demand and supply, taking outages into account. Ethylene prices cooled down recently after
hitting an eight-month high in March 2016 on tight supply scenario. As a result, the
correlation between oil and petrochemicals has dropped since the fall in oil prices (mid
2014).
Figure 2 Correlation between ethylene and brent crude Figure 3 Ethylene prices have been trending higher
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0.72
0.74
0.76
0.78
0.8
0.82
0.84
0.86
Since 2008 Since 2012 Since 2014
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200
400
600
800
1,000
1,200
1,400
1,600
Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16
US$/ton
Ethylene fob Japan spot price
Ethylene spot North West Europe delivered (CIF)
Source: Bloomberg, Al Rajhi Capital Source: Bloomberg, Al Rajhi Capital
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 3
However, we believe this is about to change with significant new capacity expected to become
operational in US and China between 2016-2018. Further, we have no reason to think that
there will be any dramatic change in supply outages seen in the past couple of years. If at all,
they will only improve, further easing the situation. Any supply readjustment in the market
will take longer than before as the erstwhile high cost producers in Asia and Europe still are
enjoying higher margins as indicated by their ethylene – naphtha spreads (see figure 4). As a
result, we don’t expect petrochemical product prices to recover sharply even if crude oil
prices rally from here. Any rally in oil and consequently naphtha prices will lead to lower
spreads, putting pressure on margins.
Figure 4 Ethylene-Naphtha spread
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900
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Source: Bloomberg, Al Rajhi Capital
New capacity to become operational in US In the US, a wave of new capacity announced on the back of the shale gas boom, is likely to
become operational in 2017-2018. Most of these announcements were made between 2011-
2013, when a boom in natural gas production from shale lowered ethane prices in the region,
providing increased cracking spreads and boosting investment in the industry.
Figure 5 US new petrochemical capacity
Company Location
C2 capacity
('000 tons/year) C2 downstream ('000 tons/year)
Start- up
schedule
Chevron Phillips Chemical
Cedar Bayou,
Texas 1500
500 Bimodal HDPE, 500 mLLDPE
at Sweeny Mid-2017
Dow Chemical Freeport, Texas 1500
400 ELITE PE, 350 LDPE, 320
elastomers, 200 EPDM H1 2017
ExxonMobil Chemical Baytown, Texas 1500
650x2 mLLDPE plus LLDPE at
Mont Belvieu H2 2017
Formosa Plastics
Point Comfort,
Texas 1590
525 PE unspec, 625.5 LDPE, 1,000
MEG 2017/2018
Occidental
Chemical/Mexichem Ingleside, Texas 544 Feed into existing 1,050 VCM Q1 2017
Sasol
Lake Charles,
Louisiana 1500
450 LDPE, 450 LLDPE, 300
EO/EG, 300
ethoxylates, detergent alcohols 2018 Source: ICIS, Al Rajhi Capital
China: From consumer to competitor Significant capacity is also expected to become operational in China in 2016-2017, as the
country targets to achieve self sufficiency in the petrochemical industry. However, with crude
prices trading below the US$50 per barrel, the economics of the CTO and MTO
manufacturing units is not compelling. As a result, there is a possibility of some delay in new
capacities. Nevertheless, with contracting manufacturing activity (as indicated by PMI data)
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 4
and growing petrochemicals production, import demand will remain subdued. Import of
major products like polypropylene and polyethylene has been steadily falling, on the back of
rising domestic production. Polyethylene imports have declined 3% y-o-y in Q1 2016 to
2.4mn tons, while polypropylene imports fell by a sharp 23% to 1mn tons.
Figure 6 China polypropylene plant starts, 2016
Plant Name Type Capacity (mt/year)
H1 2016
Fujian Meide Petrochemical PDH 300,000
China Coal Mengda New Energy PP, Ordos CTO 300,000
Shenhua Xinjiang Coal Liquefaction CTO 300,000
Total 900,000
H2 2016
Ningbo Fortune PP, Ningbo PDH 400,000
Fund Energy PP, Changzhou MTO 300,000
Qinghai Damei Coal PP, Xining City CTO 400,000
Huating Meiyue MTO 200,000
Jiutai Energy PP, Ordos MTO 350,000
SINOPEC Zhong Tian He Chuang Energy PP 1, Ordos CTO 350,000
SINOPEC Zhong Tian He Chuang Energy PP 2, Ordos CTO 350,000
Total 2,350,000 Source: Platts, Al Rajhi Capital
Given the capacity likely to build up, the direction of prices is likely to depend on the
robustness of demand in our view, and how country transforms to a consumption led
economy. Overall China continues to be a key market for the region. Declining PMI and
competition from Iran are likely to be an important factor in 2016. Already in 1Q16 china
there was a shift in import patterns from Saudi to Iran and Oman in Methanol (y-o-y). The
other regions in the US, Europe still continue to be seeing stable demand.
Figure 7 China PMI remains in contraction mode Figure 8 China increases methanol imports from Iran
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45
46
47
48
49
50
51
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-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Q1 2015 Q1 2016
Source: Bloomberg Source: Platts, Al Rajhi Capital
Cost curve shifts down Despite many producers in the US and EU switching to ethane/ LPG, ethylene costs will
continue to be predominantly set by naphtha, which makes up two thirds of feedstock
globally. But, naphtha cost curve has declined dramatically along with the fall in oil prices,
which means lesser upward pressure on prices.
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 5
Figure 9 Ethylene cost curve
Source: Lyondellbasell and Bloomberg
While the above was primarily with regard to ethylene, this phenomenon will be more
pronounced in the case of propylene and its related products. As capacities are gradually
being built, propylene prices have seen lower increase in prices as compared to ethylene
because of the increase in PDH capacities. The phenomenon seen with ethylene from 2010-
2014 will repeat in 2016-20 for polypropylene [see chart below]. Increasing exports of
propane from US, will put downward pressure on costs, which is expected to lead to
weakness in prices of propylene. Already we see that the propane exports from US to China
have increased significantly.
Figure 10 Ethylene and Polypropylene prices in Asia
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0
500
1,000
1,500
2,000
2,500
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
US$/ton
Polypropylene (US$/MT) Ethytlene (US$/MT)
Source: Company data, Al Rajhi Capital
Cost advantage on fixed feedstock While newer capacity being built in Saudi is likely to be naphtha based, ethane will continue
to be by far the dominant feedstock in Saudi and for SABIC (see figure 11). Globally,
increasing naphtha prices (linked to oil) will reduce spreads but relative cost advantage is
likely to be maintained for SABIC (with fixed low ethane/methane feedstock prices). Broadly,
while global petrochemical firms are likely to see downward pressure on spreads, SABIC’s
petrochemical segment will relatively do better taking only spreads into consideration.
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 6
....but equally important factors other than just spreads Generally ethylene-naphtha and ethylene-ethane spreads are tracked closely because the
profits of the companies follow this trend. However it is important to see that “Other COGS”
are an important element, constituting a higher percentage of costs (75% of total COGS).
Recovery in steel segment The steel segment posted a loss of ~SAR1.5bn in 2015, compared to a profit of ~SAR1.4bn in
2014. This is primarily due to the sharp ~20% y-o-y fall in average realization price for the
company in 2015. As production costs are mostly fixed, the fall in product prices directly
flows down to the bottom line. Further, sales volumes were also lower in 2015.
Figure 11 Steel sales volume and average realization Figure 12 Steel segment revenues and margins
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5.4
5.7 5.7
5.6
-
500
1,000
1,500
2,000
2,500
3,000
5.3
5.3
5.4
5.4
5.5
5.5
5.6
5.6
5.7
5.7
5.8
2012 2013 2014 2015
SAR/tonmn tons
Sales volumes Realization (RHS)
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14.3%12.4%
10.0%
-13.7%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
-
200
400
600
800
1,000
1,200
1,400
1,600
2012 2013 2014 2015
Revenues Net prof it margin (RHS)
Source: Company data, Al Rajhi Capital Source: Company data, Al Rajhi Capital
Steel prices have been under pressure over the past few year on the back of the sluggish
demand and consequently increased exports from China, which alone accounts for ~50% of
the global production. China recently pledged to reduce its steel capacity by 100-150mn tons
(~10% of its capacity) over a period of 5 years, but that is unlikely to materially change the
demand-supply mismatch. Nevertheless, Chinese steel prices recovered sharply in Q1 2016
on the back of falling production as well as record low inventory levels, which created a tight
supply situation, allowing global steel prices to recover as well. In addition, demand is also
now expected to be stronger than earlier on the back of strong credit growth in China, strong
economic growth in US and India. Though steel prices have again cooled down, they are not
expected to go back to their 2015-end lows. We are of the view that 2016 steel prices are likely
to average higher than Q4 2015 and move higher in 2017 as the global economy recovers and
high cost producers shut shop.
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 7
Figure 13 China monthly steel exports Figure 14 Mainland China HRC steel prices and inventories
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0
2,000
4,000
6,000
8,000
10,000
12,000
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16
'000 tons
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0
100
200
300
400
500
600
700
-
1,000
2,000
3,000
4,000
5,000
6,000
Ma
y-11
Aug
-11
Nov-1
1
Fe
b-1
2
Ma
y-12
Aug
-12
Nov-1
2
Fe
b-1
3
Ma
y-13
Aug
-13
Nov-1
3
Fe
b-1
4
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y-14
Aug
-14
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4
Fe
b-1
5
Ma
y-15
Aug
-15
Nov-1
5
Fe
b-1
6
Ma
y-16
000'tonsUSD/tonne
Inventories (RHS) Price
Source: Bloomberg, Al Rajhi Capital Source: Bloomberg, Al Rajhi Capital
Financials
Revenue to slip further in 2016 and recover from 2017 SABIC’s revenue growth has been mostly flat between 2012-2014 (see chart below), before
falling 21% y-o-y to SAR149bn in 2015 on the back of a sharp decline in product prices.
Petrochemical segment sales, which account for more than 85% of the company’s total
revenues, were flat during the 2012-2014 period. In 2015, petrochemical segment revenues
fell 21% y-o-y on the back of the sharp fall in product prices. Fertilizer and Metal segment
revenues also fell sharply in 2015, due to the sell-off in commodity prices. Nevertheless, the
fall in revenues has been restricted partly due to higher sales volumes in the Petrochemical
and Fertilizer segments. We expect revenues to fall ~8% y-o-y in 2016 on the back of
continued weakness in product prices across all product segments. However, we expect the
company’s topline to improve from 2017 onwards, supported by recovery in crude and
product prices as well as higher utilization. Nevertheless, as product prices are not expected
to recover sharply, even if crude oil price surge, SABIC’s revenue growth will be mostly flat in
the mid to low single digits in the foreseeable future.
Figure 15 Revenue and growth data Figure 16 Segmental sales volumes
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-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2011 2012 2013 2014 2015 2016E 2017E
SARmn
Revenue y-o-y growth (RHS)
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0
5
10
15
20
25
30
35
Chemicals Polymers Innovative plastics
fertilizers metals
2012 2013 2014 2015
Source: Company data, Al Rajhi Capital Source: Argaam, Company data, Al Rajhi Capital
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 8
Margins expected to be slightly down in 2016 SABIC’s gross profit margins have been mostly flat over the last four years, as the sharp fall in
product prices have been offset by lower feedstock prices. The falling price of naphtha
benefited the company’s European operations, which offset the impact of contracting
margins in the domestic petrochemicals business as well as metals and fertilizer segments. As
a result, the petrochemical segment’s gross profit margin has improved from 18.5% in 2012 to
19.5% in 2015. We believe the segment’s gross margin is likely to remain lower over the next
few years. A recovery in crude prices is likely to lower petrochemical product spreads, but this
will partly be offset by improved margins from the domestic fixed feedstock pricing
(ethane/methane) production facility.
The fertilizer segment’s gross profit margin has slipped from 62.8% in 2012 to 45.5% in 2015,
on the back of the sharp drop in product prices. The segment’s margins will come under
further pressure in 2016 due to the upward revision in feedstock prices (primarily methane)
along with continued weakness in product prices, due to oversupply. Nevertheless, post 2016,
the segment’s margin is expected to remain stable. The metals business division has moved
into the red as gross margin fell from 20.2% in 2012 to -7.2% in 2015 on the back of the sharp
fall in steel prices, due to continued oversupply from China. The segment’s profitability is
expected to improve in 2016 with steel prices recovering from their lows. However, the
segment is unlikely to contribute much to SABIC’s bottom line due to continued oversupply
situation.
Dominated by the petrochemical segment, SABIC’s net profit margin has also been
comparatively flat, moving from 13.1% in 2012 to 12.6% in 2015. Adjusted for a one-off
charge impairment charge, the net profit margin stood at 12.8%.
Figure 17 Segment gross profit margin Figure 18 SABIC net profit and net profit margin
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-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2012 2013 2014 2015
Petrochemicals Fertilizer Metals SABIC
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0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2011 2012 2013 2014 2015 2016E 2017E
Net prof it NPM (RHS)
Source: Company data, Al Rajhi Capital Source: Company data, Al Rajhi Capital
ROE vs COE SABIC’s return on equity has slipped from 17.5% in 2012 to 12.1% in 2015 (adjusted for one-
off impairment). We expect the company’s ROE to slip further in 2016 to less than our
estimated cost of equity for the company of 11.3%. The company’s ROE is expected to recover
slightly in 2017 on the back of measures taken to improve efficiency and recovery in
commodity prices. Nevertheless, we believe the difference between its ROE and COE will
remain low in the foreseeable future. DuPont analysis indicates that lower leverage has been
consistently contributing to the fall in ROE. Return on capital employed has followed a
similar trend at 10.5% in 2015, compared to 14.4% in 2012. The ROCE is expected to fall
further in 2016E and recover from 2017.
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 9
Figure 19 Du Pont analysis of ROE
Particulars 2011 2012 2013 2014 2015
NPM 15.4% 13.1% 13.4% 12.4% 12.7%
Asset turnover 0.57 0.56 0.56 0.56 0.45
Eq. multiplier/leverage 2.41 2.32 2.16 2.11 2.02 Source: Company data, Al Rajhi Capital
Figure 20 ROE vs COE Figure 21 ROCE vs WACC
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0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2012 2013 2014 2015 2016E 2017E
ROE COE
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0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
2012 2013 2014 2015 2016E 2017E
ROCE WACC
Source: Company data, Al Rajhi Capital Source: Company data, Al Rajhi Capital
Valuation
SABIC is currently trading at a 12-m forward PE of ~15.7x (Bloomberg consensus), which is
around the same level witnessed in 2009, when the global economy was beginning to recover
from the financial crisis. Based on our estimates, the stock trades at 17x its 2016 earnings and
13.8x its 2017 earnings. SABIC is trading at a premium to its regional and international peers,
which trade at an average PE of ~15x 2016 earnings, as well as a premium to its historical
average. We have used a weighted average of DCF (80% weight) and PE (20% weight) to
arrive at a target price of SAR78 on SABIC. As our target price provides a negligible potential
upside from current levels, we lower our rating on the company to Neutral.
Figure 22 SABIC 12-month forward PE chart
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0
2
4
6
8
10
12
14
16
18
0
20
40
60
80
100
120
140
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Price 12m forward PE (RHS)
Source: Bloomberg, Al Rajhi Capital
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 10
Income Statement (SARmn) 12/13A 12/14A 12/15A 12/16E 12/17E
Revenue 188,986 188,989 148,086 136,023 148,271
Cost of Goods Sold (133,687) (137,511) (105,058) (99,474) (107,348)
Gross Profit 55,299 51,477 43,028 36,550 40,923
Government Charges
S.G. & A. Costs (12,760) (13,746) (13,728) (14,051) (14,456)
Operating EBIT 42,539 37,731 29,300 22,498 26,466
Cash Operating Costs (132,156) (136,496) (103,073) (97,589) (106,180)
EBITDA 56,830 52,493 45,013 38,434 42,091
Depreciation and Amortisation (14,291) (14,762) (15,713) (15,936) (15,624)
Operating Profit 42,539 37,731 29,300 22,498 26,466
Net financing income/(costs) (73) 915 994 1,418 1,525
Forex and Related Gains
Provisions - - - - -
Other Income
Other Expenses - - - - -
Net Profit Before Taxes 42,466 38,646 30,294 23,917 27,991
Taxes (2,300) (2,100) (2,100) (2,100) (2,100)
Minority Interests (14,888) (13,199) (8,645) (6,110) (8,469)
Net profit available to shareholders 25,278 23,347 19,549 15,707 17,422
Dividends (15,000) (16,500) (16,500) (16,500) (16,500)
Transfer to Capital Reserve
12/13A 12/14A 12/15A 12/16E 12/17E
Adjusted Shares Out (mn) 3,000 3,000 3,000 3,000 3,000
CFPS (SAR) 18.15 17.10 14.64 12.58 13.84
EPS (SAR) 8.43 7.78 6.52 5.24 5.81
DPS (SAR) 5.00 5.50 5.50 5.50 5.50
Growth 12/13A 12/14A 12/15A 12/16E 12/17E
Revenue Growth 0.0% 0.0% -21.6% -8.1% 9.0%
Gross Profit Growth 3.6% -6.9% -16.4% -15.1% 12.0%
EBITDA Growth 4.4% -7.6% -14.2% -14.6% 9.5%
Operating Profit Growth 3.7% -11.3% -22.3% -23.2% 17.6%
Net Profit Growth 2.0% -7.6% -16.3% -19.7% 10.9%
EPS Growth 2.0% -7.6% -16.3% -19.7% 10.9%
Margins 12/13A 12/14A 12/15A 12/16E 12/17E
Gross profit margin 29.3% 27.2% 29.1% 26.9% 27.6%
EBITDA margin 30.1% 27.8% 30.4% 28.3% 28.4%
Operating Margin 22.5% 20.0% 19.8% 16.5% 17.9%
Pretax profit margin 22.5% 20.4% 20.5% 17.6% 18.9%
Net profit margin 13.4% 12.4% 13.2% 11.5% 11.7%
Other Ratios 12/13A 12/14A 12/15A 12/16E 12/17E
ROCE 15.0% 13.3% 10.7% 8.3% 9.7%
ROIC 18.7% 17.3% 13.3% 10.4% 12.1%
ROE 16.8% 14.7% 12.1% 9.7% 10.8%
Effective Tax Rate 5.4% 5.4% 6.9% 8.8% 7.5%
Capex/Sales 6.1% 8.0% 12.3% 12.0% 11.0%
Dividend Payout Ratio 59.3% 70.7% 84.4% 105.0% 94.7%
Valuation Measures 12/13A 12/14A 12/15A 12/16E 12/17E
P/E (x) 9.7 10.5 12.5 15.6 14.1
P/CF (x) 4.5 4.8 5.6 6.5 5.9
P/B (x) 1.6 1.5 1.5 1.5 1.5
EV/Sales (x) 1.7 1.6 2.0 2.2 2.1
EV/EBITDA (x) 5.6 5.8 6.6 7.9 7.3
EV/EBIT (x) 7.4 8.1 10.1 13.4 11.5
EV/IC (x) 1.5 1.5 1.5 1.5 1.5
Dividend Yield 6.1% 6.7% 6.7% 6.7% 6.7% Source: Company data, Al Rajhi Capital
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 11
Balance Sheet (SARmn) 12/13A 12/14A 12/15A 12/16E 12/17E
Cash and Cash Equivalents 35,719 33,626 38,484 32,058 28,015
Current Receivables 60,798 64,987 49,288 51,674 54,745
Inventories 32,442 31,675 24,635 23,124 24,465
Other current assets 34,747 43,116 34,389 34,389 34,389
Total Current Assets 133,025 134,417 116,886 111,335 111,704
Fixed Assets 165,435 168,871 173,215 173,602 174,288
Investments 13,491 15,478 16,726 16,726 16,726
Goodwill 22,197 17,757 16,325 16,325 16,325
Other Intangible Assets - - - - -
Total Other Assets 3,095 3,518 4,775 4,775 4,775
Total Non-current Assets 204,218 205,624 211,041 211,428 212,114
Total Assets 337,243 340,041 327,928 322,763 323,818
Short Term Debt 6,089 13,907 13,349 13,349 13,349
Trade Payables
Dividends Payable - - - - -
Other Current Liabilities
Total Current Liabilities 42,638 44,655 42,259 38,223 38,823
Long-Term Debt 73,947 69,176 59,293 59,293 59,293
Other LT Payables 3,507 4,119 3,754 3,754 3,754
Provisions 10,495 11,865 12,742 12,742 12,742
Total Non-current Liabilities 87,948 85,160 75,789 75,789 75,789
Minority interests 50,385 48,886 47,856 47,520 47,054
Paid-up share capital 30,000 30,000 30,000 30,000 30,000
Total Reserves 126,271 131,340 132,023 131,230 132,152
Total Shareholders' Equity 156,271 161,340 162,023 161,230 162,152
Total Equity 206,656 210,226 209,880 208,750 209,205
Total Liabilities & Shareholders' Equity 337,243 340,041 327,928 322,763 323,818
Ratios 12/13A 12/14A 12/15A 12/16E 12/17E
Net Debt (SARmn) 13,636 10,469 4,248 10,674 14,717
Net Debt/EBITDA (x) 0.24 0.20 0.09 0.28 0.35
Net Debt to Equity 6.6% 5.0% 2.0% 5.1% 7.0%
EBITDA Interest Cover (x) 780.8 (57.4) (45.3) (27.1) (27.6)
BVPS (SAR) 52.09 53.78 54.01 53.74 54.05
Cashflow Statement (SARmn) 12/13A 12/14A 12/15A 12/16E 12/17E
Net Income before Tax & Minority Interest 42,466 38,646 30,294 23,917 27,991
Depreciation & Amortisation 14,291 14,762 15,713 15,936 15,624
Decrease in Working Capital 6,197 4,355 11,611 (4,910) (3,813)
Other Operating Cashflow (2,762) (5,570) (9,316) (2,100) (2,100)
Cashflow from Operations 60,192 52,193 48,302 32,843 37,702
Capital Expenditure (11,468) (15,161) (18,278) (16,323) (16,310)
New Investments (4,477) (9,019) 9,069 - -
Others (2,268) (1,370) (3,649) - -
Cashflow from investing activities (18,213) (25,551) (12,859) (16,323) (16,310)
Net Operating Cashflow 41,980 26,642 35,444 16,520 21,392
Dividends paid to ordinary shareholders (12,734) (18,502) (16,504) (16,500) (16,500)
Proceeds from issue of shares - - - - -
Increase in Loans (14,888) 3,410 (9,794) - -
Effects of Exchange Rates on Cash
Other Financing Cashflow (15,450) (14,991) (9,598) (6,446) (8,936)
Cashflow from financing activities (43,072) (30,084) (35,896) (22,946) (25,436)
Total cash generated (1,092) (3,442) (452) (6,426) (4,043)
Cash at beginning of period 36,836 35,719 33,626 38,484 32,058
Implied cash at end of year 35,744 32,278 33,174 32,058 28,015
Ratios 12/13A 12/14A 12/15A 12/16E 12/17E
Capex/Sales 6.1% 8.0% 12.3% 12.0% 11.0% Source: Company data, Al Rajhi Capital
Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 12
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Saudi Basic Industries Corp Petrochemicals – Industrial 15 June 2016
Disclosures Please refer to the important disclosures at the back of this report. 13
Disclaimer and additional disclosures for Equity Research
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