SAFCO
1Q2015 – First Look
Hold
Safco V Delay Hampers 1Q
April 15, 2015
Expected Total Return
Price as of April-14, 2014
SAR 116.03
Upside to Target Price
7.7%
Expected Dividend Yield
6.4%
Expected Total Return
14.1%
Market Data
SAR 100.75/135.50
52 Week H/L
Market Capitalization
SAR 38,677 mln
Enterprise Value
SAR 35,736 mln
Shares Outstanding
333 mln
Free Float
40%
12-Month ADTV (mln)
0.219
TASI Weight
2.6%
Reuters Code
2020.SE
Bloomberg Symbol
SAFCO AB
1-Year Price Performance
120
80
60
J
J
A
S O
SAFCO
N D
J
TASI
F M
TPCHEM
Source: Bloomberg
SAFCO
April-14, 2015 116.03
Safco reported another set of disappointing financials after market close yesterday as
bottomline widely missed for the second consecutive quarter. As against Bloomberg
consensus of SAR 720 million and our forecast of SAR 711 million, net income came in at just
SAR 590 million, -30% Y/Y and -24% Q/Q. Safco has blamed lower sales both in terms of
volume and price coupled with a decline in income from Ibn Al-Baytar. We believe a delay in
commercial operations at Safco V to 2Q has also contributed as ammonia is being diverted
there. Our target price has been revised to account for the 25% bonus issue. Maintain Hold
stance with a SAR 125 target price.
Revenues expected below SAR 1 billion
Revenues will likely be reported with full financials but we now expect them to come below
the SAR 1.0 billion mark, the lowest for 6 quarters. We were anticipating a decline in gross
profit to SAR 696 million as urea prices declined -14% Y/Y in the quarter. However, gross
profit has come in lower at SAR 603 million (-26% Y/Y and -19% Q/Q) as ammonia is being
diverted to Safco V for urea production. As commercial operations have yet to commence,
there is no revenue or profit impact on financials. We believe gross margins have taken a
beating both Y/Y and Q/Q and have come in below 65%.
Opex declines temporary
We are happy to note a decline in operating expenses to SAR 20 million versus SAR 23 million
last year and SAR 25 million in the preceding quarter. However, we expect this to be
temporary as Safco V costs are likely suppressed until commercial operations begin. The
Company has also reported lower share of income from Safco’s subsidiary, Ibn Al Baytar, as
well as a decline in other income. 4Q other income was inflated to SAR 58 million due to an
insurance claim.
Safco V delayed to 2Q
Safco has announced a 3 month delay in commercial operations of Safco V to mid of May
without any incremental costs. We expect 2Q results to portray a significant improvement if
commercial operations begin, as pending urea sales from the 1.1 million ton Safco V project
will be realized.
100
A M
12-Month Target Price SAR 125
TASI
TPCHEM
8,966
5,855
Weak EPS for the quarter
Net income has disappointed at SAR 590 million versus both our and market expectations
exceeding SAR 700 million. Given lower urea prices, we have the stock on Hold right now. Our
target price is now SAR 125, adjusting for the 25% bonus.
Key Financials
Total Change
6-months
)4.7(%
)5.9(%
)57.9(%
FY December 31 (SAR mln)
2014A
2015E
2016E
2017E
1-Year
)3.3(%
)9.4(%
)53.9(%
Revenue
4,456
4,508
4,922
5,322
2-Year
4.7%
59.9%
)2.5(%
Gross Profit
3,054
2,998
3,274
3,619
Net Profit
3,174
3,191
3,484
3,854
EPS (SAR)
7.62
7.66
8.36
9.25
Net Margin
71%
71%
71%
72%
DPS (SAR)
6.20
7.00
8.00
9.00
1Q2015
SAR (mln)
Actual
RC
Forecast
Gross Profit
603
696
Net Profit
590
711
EPS (SAR)
1.42
1.71
Payout Ratio
81%
91%
96%
97%
ROAE
40%
35%
36%
38%
ROAA
36%
31%
32%
34%
EV / EBITDA
11.1x
10.7x
9.8x
8.8x
P/E
15.2x
15.1x
13.9x
12.5x
P / CFPS
23.6x
13.2x
10.9x
9.5x
4.9x
4.2x
4.0x
3.8x
P/B
Muhammad Faisal Potrik
muhammed.faisal@riyadcapital.com
+966-1-203-6807
Yasser bin Ahmed
yasser.bin.ahmed@riyadcapital.com
+966-11-203-6805
Riyad Capital is licensed by the Saudi Arabia
Capital Markets Authority (No. 07070-37)
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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Website
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Email
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