Docstoc

GCC EQUITY REPORT (PDF)

Document Sample
GCC EQUITY REPORT (PDF) Powered By Docstoc
					                       RESEARCH                                                                                     GCC
                                                                                                               EQUITY REPORT 

Sahara Petrochemicals Co. (2260.SE)                                                                         OVERWEIGHT
                                                        Quarterly Result Update
 CMP                          SAR 20.10                  •      Sahara Petrochemicals (Sahara) did not report any operating revenues for
 Target                       SAR 24.00                         2010.
 Upside                           19.4%                  •      Net profit was SAR 329.2 million during 2010, led by income from associated
                                                                companies, as compared to net profit of SAR 76.5 million in 2009.
                                                         •      Based on the expected start-up of the Al Waha plant during 1Q11, we expect
MSCI GCC Index                          425.24                  the company to report revenues of SAR 1,725.3 million in 2011E. Our net
Tadawul All Share Index               6,343.79                  profit estimate for 2011E stands at SAR 557.2 million.
                                                         •      Sahara’s stock price has declined 11% since our last update. Accordingly,
                                                                we have revised our earlier NEUTRAL recommendation to OVERWEIGHT on
Key Stock Data
                                                                Sahara with a revised DCF target price of SAR 24.00, implying 19.4% upside.
Sector                        Petrochemicals
Reuters Code                        2260.SE             Overview
Bloomberg Code                SPC AB Equity
Net Out. Shares (bn)                  0.293
Market Cap (SAR bn)                   5.880                  SAR Million             2009A       2010A         2011E       2012E        2013E
Market Cap (USD bn)                   1.568
                                                             Revenues                     0           0        1,725        2,318        3,333
Avg. 12m Vol. (mn)                    1.783
Volatility (30 day)                  69.197                  EBITDA                     -36          -5          508         589          863
Volatility (180 day)                 38.531                  Margin                     NA          NA         29.5%       25.4%        25.9%
                                                             Net Profit                  76         329          557         639          790
                                                             Margin                     NA          NA         32.3%       27.6%        23.7%
Stock Performance (%)                                        Adjusted EPS (SAR)        0.26        1.13         1.90         2.18         2.70
                                                             Total Assets             5,956       6,584        7,278        8,150        9,321
52 week high / low (SAR)            27.50 / 15.15
                                                             RoAE                     3.2%       10.5%         15.5%       15.3%        16.1%
                       1M      3M         12M
 Absolute (%)          -1.5   -14.6       -9.0
                                                        Financial Performance
 Relative (%)          -2.2   -11.1       -3.6
                                                        Sahara reported 72.2% decline in selling, general and administrative expenses to SAR
Shareholding Pattern                      (%)
                                                        11.0 million from SAR 39.4 million in 2009. Murabaha income stood at SAR 1.8 million.
                                                        Income from associated companies was SAR 339.5 million as opposed to an income of
Corporate                                   9.07        153.7 million in 2009. Consequently, net profit reported was SAR 329.2 million
Public                                    90.93         compared to SAR 76.5 million in the earlier year, attributable to higher revenues from
                                                        Saudi Ethylene and Polyethylene Co., in which Sahara Petrochemical Co. holds a 75%
                                                        stake. Adjusted annualised EPS stood at SAR 1.13 from SAR 0.26 during 2009.


Sahara and TASI




                                                   Call us on +973 17549499 or email us at research@taib.com
                                                                                                                        TAIB RESEARCH



New Projects and Updates

During January 2011, Saudi Acrylic Acid Co.—JV between Sahara Petrochemical Co. and National Industrialization Co. (Tasnee)—
signed an agreement with Saudi Kayan Petrochemical Co. and the proposed venture between Saudi Aramco and Dow Chemical Co.
to set up a butanol plant at an estimated SAR 1.8 billion and annual production capacity of 330,000 metric tons. The proposed plant
is expected to start operations in the second half of 2014

Risks and Concerns to Valuation:

           Any deviation in price realisation assumed for various petrochemical products could alter our forecast.
           We expect Sahara’s operating costs to decline gradually over the forecast period, but a faster-than-anticipated drop could
           impact our estimates and ratings.
           Any further delay in the restart of commercial operations at Al Waha plant may call for a revision of our estimates.

Valuation Methodology:

We have used the DCF valuation method to arrive at the fair value of Sahara, as explained below:

   Assumptions:

           (i) Risk free Rate (Rf) of 3.17%, equivalent to 12-months average yield on a 10-year US T-bill;
           (ii) Levered Beta of 1.45;
           (iii) Terminal growth rate of 2.0%

Based on the above and using the Capital Asset Pricing Model (CAPM), we have arrived at a Cost of Equity of 11.94% and a WACC
of 9.64%.

DCF Calculation

                                                    DCF Valuation (FCFF Model)
   (in SAR Million)                                      2011E            2012E            2013E             2014E           2015E
   Operating Profit (EBIT)                                  327              410              602              634              633
   Zakat on EBIT                                              8               10               15               16               16
   Effective Tax Rate                                     2.5%              2.5%             2.5%             2.5%             2.5%
   NOPAT                                                    319              399              587              618              617
   Add: Depreciation and Amortisation                       181              179              261              268              272
   Less: Capex                                              447              445              510              397              361
   Less: Change in Net Working Capital                      -47               -6              149              222              245
   Operating Free Cash Flows to Firm (OFCFF)                101              139              189              267              284
   Non-Operating Income                                     492              524              540              554              559
   Tax on Non-Operating Income                               12               13               14               14               14
   Add: Non-Operating Cash Flows (After Tax
   Non-Operating Income)                                    480              511              527              540              545
   Free Cash Flow to Firm (FCFF)                            581              650              715              807              829
   WACC (Ko)                                             9.64%            9.64%            9.64%             9.64%            9.64%
   Present Value / Discount Factor                       0.9121           0.8319           0.7588            0.6921          0.6312
   Long-Term Growth Rate (g)                                                                                                  2.00%
   Terminal Multiple                                                                                                          13.35
   Nominal Terminal Value                                                                                                    11,066
   Present Value of Free Cash Flows                         530              541              543              559              523
                                                                                                               TAIB RESEARCH



                                       Calculation of Equity Value and Fair Value Per Share

           NPV of Free Cash Flows (during Explicit Forecast Period)                                          2,695
           Terminal Value:
           Residual Cash Flow (FCFF of 2015E)                                                                  829
                    WACC                                                                          9.64%
                    Long-Term/Terminal Growth Rate (g)                                            2.00%
           Divided by Capitalization Rate (WACC - g)                                                        7.64%
           Equals Nominal Terminal Value                                                                    11,066
                    Implied Multiple of 2015E EBITDA                                                         12.22


           Times PV/ Discount Factor                                                                          0.63
           Present Value of Terminal/Residual Value                                                          6,985


           Enterprise Value                                                                                  9,680
                    Implied Multiple of 2015E EBITDA                                                         10.69


           Less: Market Value of Long-term Debts                                                             2,360
           Less: Market Value of Preferred Shares                                                                   0
           Less: Minority Interest                                                                             462
           Add: Surplus Cash and Investments                                                                   164
           Equity Value                                                                                      7,022
           Net shares outstanding (Million)                                                                    293
           Fair Value Per Share (SAR)                                                                        24.00
           Figures in SAR Million unless specified



Sensitivity Analysis

The following tables present a sensitivity analysis and indicate the probable nominal terminal value, discounted terminal value
and enterprise value, given different growth rate and WACC assumptions. The shaded areas represent the most probable
outcomes.

                                       Sensitivity Analysis of Nominal Terminal Value (SAR Million)
                                                                      Long-Term Growth Rate
                    Discount Factor           1.00%        1.50%             2.00%            2.50%         3.00%
                          7.64%               12,608       13,703            14,991           16,530        18,401
                          8.64%               10,958       11,783            12,733           13,838        15,138
                          9.64%               9,689        10,335            11,066           11,899        12,858
                        10.64%                8,684        9,204              9,785           10,437        11,175
                        11.64%                7,868        8,297              8,770           9,295         9,881



                                      Sensitivity Analysis of Discounted Terminal Value (SAR Million)
                                                                      Long-Term Growth Rate
                    Discount Factor           1.00%        1.50%             2.00%            2.50%         3.00%
                          7.64%               8,726        9,483             10,375           11,440       12,735
                          8.64%               7,241        7,786              8,414           9,144        10,003
                          9.64%               6,116        6,524              6,985           7,511         8,116
                        10.64%                5,238        5,552              5,902           6,296         6,740
                        11.64%                4,537        4,784              5,057           5,360         5,698
                                                                                                                  TAIB RESEARCH


                                         Sensitivity Analysis of Enterprise Value (SAR Million)
                                                                    Long-Term Growth Rate
                   Discount Factor        1.00%           1.50%             2.00%              2.50%            3.00%
                        7.64%             11,575          12,332            13,224             14,289          15,584
                        8.64%             10,011          10,557            11,184             11,914          12,774
                        9.64%             8,811            9,219             9,680             10,206          10,811
                       10.64%             7,861            8,175             8,525             8,918            9,363
                       11.64%             7,090            7,338             7,611             7,914            8,251



Investment Opinion

The Middle East region has continued to build on its strength as a major petrochemicals hub, while China, the second-largest
economy in the world, remains a key end-user market for these products. Petrochemicals prices have been rising during the few
past years. The monthly average price of petrochemicals in November 2010, as measured by Platts Global Petrochemical Index
(PGPI)—a basket of seven widely-used petrochemicals expressed in dollars per metric tonne(USD/mt)—was USD 1,194/mt, up 3%,
from the preceding month. On YoY basis, PGPI price jumped 18.9% during November 2010, compared with the monthly average
price of around USD 1,000/mt during the same period in 2009. We believe that Asian countries, particularly China and India, will
remain major end-user markets for petrochemicals, considering their robust economic growth, huge government spending
programmes and growth in key end-use sectors such as automobiles, personal/lifestyle products, and retail (packaging), among
others. The feedstock rich Saudi petrochemicals sector will likely benefit from its proximity to these growth markets in Asia. The
Saudi petrochemical sector represents 29.8% of the Tadawul All Share Index (TASI). The Saudi Petrochemical Index advanced
20.8% in 2010, as compared to the 8.2% gain registered on the Tadawul All Share Index and the 19.1% rise in the S&P Chemical
Index. The combination of lowest feedstock costs, favourable government policies, growing demand from Asian countries and large-
scale capacity additions is transforming the Saudi petrochemical sector into a formidable force. Given these factors, we believe that
the sector continues to offer attractive investment opportunities.

Sahara Petrochemical reported weaker-than-expected bottom-line of SAR 329.2 million for 2010, lower than our estimated SAR
368.9 million. This was mainly due to a drop in income from associated companies which came in at SAR 339.5 million against
our expectation of SAR 377.80 million for 2010. Notably, Saudi Ethylene and Polyethylene Co. (SEPC), an affiliate of Sahara
Petrochemical, commenced commercial production on June 1, 2009. We believe the company’s associates will perform strongly
going ahead, buoyed by rising petrochemical prices and robust demand outlook. With the company’s Al Waha plant scheduled to
recommence production during 1Q11, we expect total revenues of SAR 1,725.3 million and net profit of SAR 557.2 million for
2011E. The company is likely to benefit from the gradual uptick in revenues from its petrochemical complexes, eventually
reaching optimum utilisation. Global demand for Sahara’s products will also improve profitability in the future. We expect top-line
and bottom-line to register CAGRs of 23.1% and 10.5% over 2011E to 2015E, respectively. The stock has lost 11% since our last
update, altering our earlier NEUTRAL recommendation to OVERWEIGHT on it. Further delays in the Al Waha plant may call for a
revision of our forecast and rating.

We had updated Sahara on January 18, 2011 with a NEUTRAL recommendation (target price of SAR 24.50 and an upside of 8.4%.
The stock is trading at a P/E multiple of 10.55x and 9.21x, on 2011E and 2012E earnings and at a P/BV multiple of 1.52x and 1.31x
on 2011E and 2012E BVPS, respectively. The stock has declined 15.2% since the beginning of 2011, compared to a 4.2% drop
registered by the Tadawul All Share Index. We now ascribe a price target of SAR 24.00 and an upside of 19.4% from the closing
price of SAR 20.10 (as of March 20, 2011). Accordingly, we are revising our NEUTRAL rating to OVERWEIGHT on Sahara.
                                                                                                          TAIB RESEARCH


Financial Statements

                                                  Consolidated Income Statement
(SAR Million)                                         2009A           2010A         2011E       2012E            2013E
Revenues                                               0.00            0.00       1,725.25    2,318.03         3,333.13
Cost of sales       ]                                  0.00            0.00       -1,312.73   -1,786.96        -2,539.50
Gross profit                                           0.00            0.00         412.51      531.07           793.63
Selling, general & administrative expenses            -39.43          -10.97        -85.25     -121.50          -191.37
Operating profit (loss)                               -39.43          -10.97        327.26      409.57           602.26


EBITDA                                                -35.60           -5.17        508.39      588.52           863.22


Income from Murabaha & other income                    1.79            1.80           0.00        0.00             0.00
Income from related companies                        153.67          339.53         492.31      524.31           540.04
Cost of right shares issuance                         -38.33           0.00           0.00        0.00             0.00
Finance costs                                          0.00            0.00         -57.64      -60.41           -62.64
Profit/ (loss) before minority interest & zakat       77.70          330.36         761.93      873.47         1,079.67
Minority interest                                      -0.04           0.00        -190.48     -218.37          -269.92
Loss before zakat                                     77.66          330.36         571.45      655.11           809.75
Zakat                                                  -1.20           -1.20        -14.29      -16.38           -20.24
Net loss/ profit                                      76.46          329.16         557.16      638.73           789.51
                                                                                                TAIB RESEARCH

                                                 Consolidated Balance Sheet
(SAR Million)                                      2009A           2010A        2011E      2012E        2013E
ASSETS
Non-current assets
Project under development                           35.34          135.48         0.00       0.00         0.00
Investment in related companies                  1,006.75         1,538.32    2,030.63   2,554.94     3,094.98
Capital work in progress                         4,106.03         4,156.79      1,002      1,309          0.00
Property, Plant and Equipment                       15.56           20.44     3,441.36   3,400.06     4,958.20
Total non-current assets                         5,163.68         5,851.02    6,473.58   7,264.09     8,053.19


Current assets
Cash & Cash Equivalents                            555.87          164.06      243.82     225.26       268.15
Account Receivables and Prepaid Amounts            154.43          454.65      431.31     509.97       699.96
Inventory                                           81.61          114.57      129.39     150.67       299.98
Total current assets                               791.91          733.28      804.53     885.90      1,268.09
Total Assets                                     5,955.59         6,584.30    7,278.11   8,150.00     9,321.28


LIABILITIES AND EQUITY
Liabilities
Non-current liabilities
Long-Term Debt                                   1,337.99         1,229.14    1,120.29   1,011.44      902.59
Islamic loans                                      922.39          990.91      990.91     990.91       990.91
Interest Rate Swap                                  85.72           90.01       90.01      90.01        90.01
End of service benefits                             13.50           19.88       26.58      33.62        41.01
Total non-current liabilities                    2,359.60         2,329.94    2,227.79   2,125.98     2,024.51


Current liabilities
Account Payable and other liabilities              183.87          288.86      327.80     433.47       623.30
Other Payables                                      64.10           56.19       65.56      76.50        99.99
Short term and long term loan installments          15.57           31.15       31.15      31.15        31.15
Current portion of Long-Term & Short Term loan       0.00          108.85      108.85     108.85       108.85
Provision for Zakat & Tax                            1.20             2.40        2.40       2.40         2.40
Total current liabilities                          264.74          487.45      535.75     652.36       865.68
Total liabilities                                2,624.35         2,817.39    2,763.54   2,778.34     2,890.20


Equity
Paid-Up Capital                                  2,925.30         2,925.30    2,925.30   2,925.30     2,925.30
Legal Reserve                                        7.71           40.63       96.35     160.22       239.17
Retained Earnings                                  130.92          427.16      928.61    1,503.46     2,214.02
Change in Fair Value Interest rate derivatives    -125.55           -88.27      -88.27     -88.27       -88.27
Equity attributable to equity holders of the
Company                                          2,938.39         3,304.82    3,861.98   4,500.71     5,290.22
Minority Interest                                  392.85          462.10      652.58     870.95      1,140.87
Total liabilities & equity                       5,955.59         6,584.30    7,278.11   8,150.00     9,321.28
                                                                                                       TAIB RESEARCH

                                                Consolidated Cash Flow Statement
(SAR Million)                                        2009A           2010A          2011E     2012E           2013E
Cash Flow From Pre-Operating Activities
Profit / (Loss) before Zakat                          77.70          330.36        571.45    655.11           809.75


Adjustments in:
Depreciation and Amortization                          3.83            5.80        181.12    178.95           260.96
Proceed from sale of property & equipment              0.00            0.57           0.00      0.00            0.00
End of service benefits                                5.90            6.38           6.70      7.04            7.39
Share of income from related companies              -153.67         -339.53        -492.31   -524.31         -540.04
Minority Interest                                      0.00            0.00        190.48    218.37           269.92
Finance costs                                          0.00            0.00         57.64     60.41            62.64
Rights share issuance expenses                        38.33            0.00           0.00      0.00            0.00
Murabaha income                                       -1.27           -2.31           0.00      0.00            0.00


Change in assets & liabilities:
Account payables                                      23.41           97.08         38.93    105.68           189.82
Other Liabilities                                      0.00            0.00           9.37    10.94            23.50
Accounts receivables                                -151.10         -300.23         23.34     -78.66         -189.99
Inventory                                           -104.43          -32.96         -14.83    -21.28         -149.31
Cash from Operating Activities                      -260.89         -234.83        571.90    612.23           744.63
Zakat                                                  0.00            0.00         -14.29    -16.38          -20.24
Rights share issuance expenses                       -38.33            0.00           0.00      0.00            0.00
Net Cash from Operating Activities                  -299.22         -234.83        557.62    595.86           724.39


Cash Flow From Investing Activities
Purchase of Property and equipments                   -9.53          -10.38          -2.04   -137.65         -510.01
CWIP and Projects under development                 -597.28         -151.95        -309.33     -307             0.00
Murabaha income                                        1.27            2.31           0.00      0.00            0.00
Investments in related companies                    -124.82         -151.55           0.00      0.00            0.00
Net Cash flows from (used in) Investing
Activities                                          -730.36         -311.38        -311.37   -445.15         -510.01



Cash Flow From Financing Activities
Net loans                                             54.07           84.10        -108.85   -108.85         -108.85
Minority Interest                                     28.04           70.31           0.00      0.00            0.00
Capital increase                                   1,050.30            0.00           0.00      0.00            0.00
Finance costs paid                                     0.00            0.00         -57.64    -60.41          -62.64
Net Cash flows from Financing Activities           1,132.41          154.41        -166.49   -169.26         -171.49


Net change in cash & cash equivalents                102.83         -391.81         79.76     -18.56           42.89
Cash & cash equivalents balance, Beginning of
period                                               453.04          555.87        164.06    243.82           225.26
Cash & cash equivalents balance, End of
period                                               555.87          164.06        243.82    225.26           268.15
                                                                             TAIB RESEARCH

Financial Ratios

                                                  2009A   2010A   2011E   2012E      2013E
 Liquidity Ratios:
 Current Ratio (x)                                 2.99    1.50    1.50    1.36       1.46
 Quick Ratio (x)                                   2.68    1.27    1.26    1.13       1.12


 Profitability Ratios:
 Return on Average Equity (RoAE)                   3.2%   10.5%   15.5%   15.3%      16.1%
 Return on Average Assets (RoAA)                   1.4%    5.2%    8.0%    8.3%       9.0%


 Leverage Ratios:
 Debt to Equity (D/E) Ratio (x)                    0.77    0.71    0.58    0.48       0.38
 Shareholders' Equity to Total Assets Ratio (x)    0.49    0.50    0.53    0.55       0.57
 Total Liabilities to Total Assets Ratio (x)       0.44    0.43    0.38    0.34       0.31
 Current Liabilities to Equity Ratio (x)           0.09    0.15    0.14    0.14       0.16


 Growth Rates:
 YoY Growth in Revenues                             NA      NA      NA    34.4%      43.8%
 YoY Growth in Operating Profit                     NA      NA      NA    25.2%      47.0%
 YoY Growth in EBITDA                               NA      NA      NA    15.8%      46.7%
 YoY Growth in Net Profit                           NA      NA    69.3%   14.6%      23.6%
 YoY Growth in Total Assets                       26.2%   10.6%   10.5%   12.0%      14.4%
 YoY Growth in Shareholders' Equity               66.1%   12.5%   16.9%   16.5%      17.5%


 Ratios used for Valuation:
 Adj. EPS (SAR)                                    0.26    1.13    1.90    2.18       2.70
 Adj. BVPS (SAR)                                  10.04   11.30   13.20   15.39      18.08
 P/E Ratio (x)                                    76.90   17.86   10.55    9.21       7.45
 P/BV Ratio (x)                                    2.00    1.78    1.52    1.31       1.11
  Current Market Price (SAR)*                     20.10   20.10   20.10   20.10      20.10
NA: Not Applicable
* CMP as on March 20, 2011
                                                                                                                             TAIB RESEARCH




TAIB Securities WLL                                                                                                   Tel: +973 17549499
TAIB Tower, Diplomatic Area                                                                                            Fax: +973 17916035
Post Box 20485, Manama, Kingdom of Bahrain                                                            research@taib.com; www.taibdirect.com


DISCLAIMER:
All reasonable care has been taken to ensure that the information contained herein is not misleading or untrue at the time of publication,
but we make no representation as to its accuracy or completeness. All information is for the private use of the person to whom it is provided
without any liability whatsoever on the part of TAIB Securities WLL, any associated company or the employees thereof. Nothing contained
herein should be construed as an offer to buy or sell or a solicitation of an offer to buy or sell. The value of any investment may fall as well
as rise. Past performance is no guide to the future. The rate of exchange between currencies may cause the value of the investment to
increase or diminish. Consequently, investors may not get back the full value of their original investment

				
DOCUMENT INFO
Shared By:
Tags: loans
Stats:
views:17
posted:4/6/2011
language:English
pages:9