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Yanbu Cement Q1: Misses estimates on lower prices

IM Insights
By IM Insights
6 years ago
Yanbu Cement Q1: Misses estimates on lower prices

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  1. Yanbu Cement Cement – Industrial YNCCO AB: Saudi Arabia 10 May 2018 Target price Current price 29.00 27.26 6 % Over current as at 9/5/2018 Research Department Yazeed Alsaqaaby Tel +966 11 211 9398, Alsaqaaby@alrajhi-capital.com Existing rating Underweight Neutral Overweight Overweight Q1: Misses estimates on lower prices Performance Price Close MAV10 MAV50 Relative to TADAWUL FF (RHS) 93.1 28.0 79.1 23.0 65.0 RSI10 107.2 33.0 Vol mn 38.0 70 30 -10 6 4 2 03/17 06/17 09/17 12/17 Source: Bloomberg Earnings 2017 2018 2019 Revenue (mn) 917 900 966 Revenue Growth EBITDA (mn) -29% 542 -2% 510 7% 545 EBITDA Growth EPS -32% 2.0 -6% 1.8 7% 2.1 EPS Growth PE DPS -40% 17 2 -9% 13 1.9 14% 14 2.2 Period End (SAR) Yanbu Cement Yanbu cement’s Q4 net profit came at SAR39.6mn (-68% y-o-y and -59% q-oq), missing our (SAR96mn) as well as consensus estimates (SAR90mn) by a wide margin. The company’s top-line of SAR216mn ( -30% y-o-y, -3% q-o-q) was driven by lower than expected sales price of SAR 145/ton (down 25% y-oy, -18% q-o-q) while the volume stood at 1.49 mn tons (-6.5% y-o-y, 18% q-o-q). The cost per ton jumped to SAR117 ( 7%y-o-y, 38% q-o-q) which is due to the reversal of economies of scale as the volume dropped as said by management. Going forward, we expect the selling price to remain at current levels in Q2 and volume to drop due to the seasonality effect. The company started exporting in April as part of its one year agreement to export 1mn ton of clinker and 500 thousand ton of cement, the agreement is expected to increase revenue by SAR100 mn in 2018. We believe the PIF’s initiatives in the region (NEOM, Red sea, Jeddah downtown, Rou’a Al Haram and Rou’a Al Madinah) will remain the upside driver for the region in medium to long term. Downside risks are related to increase in price war which will lead to lower than expected sales volume and selling prices. Post estimates revision, we revise our TP to SAR29/share and maintain our Neutral rating. Inventory: The company holds 3.9mn tons of inventories, representing 76% of last 12-month sales volume. We believe the level of inventory will decrease going forward as the company decreased its production to 1.1 mn ton (-78% y-o-y) and because of the export agreement which will reduce clinker by 1mn ton as well as the company strategy to lower prices to increase volume to keep market share. Source: Company data, Al Rajhi Capital Profit margins: The company’s gross and operating margins dropped to 19% and 14% respectively, from 52% and 45% in the previous quarter due to 38% increase in cost per ton as the company saw lower economies of scale. Conclusion and Valuation: The western region has the highest number of producers/ production capacities, which should sustain the challenging conditions and the volatility in prices. We value the company based on an equal weighted average of DCF (10.3% WACC) and relative valuation (P/E of 13x). We keep our neutral rating on the stock with a change to the target price to SAR29 per share which is 6% above current. Figure 1 Yanbu Cement: Summary of Q1 2018 results (SARmn) Q1 2017 Q4 2017 Q1 2018 % chg y-o-y % chg q-oq ARC Estimate Revenue 307 222 216 -30% -3% Gross Profit 132 115 41 -69% -64% 252 106 Gross Margin 43% 52% 19% NA NA 42% Operating Profit 123 100 30 -75% -70% 97 Net Profit 125 97 40 -68% -59% 96 Source: Company data, Al Rajhi Capital 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.
  2. Yanbu Cement Cement –Industrial 10 May 2018 IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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  3. Yanbu Cement Cement –Industrial 10 May 2018 Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction. Explanation of Al Rajhi Capital’s rating system Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 12 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Target price": We estimate target value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations. Contact us Mazen AlSudairi Head of Research Tel : +966 1 211 9449 Email: alsudairim@alrajhi-capital.com Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh 11432 Kingdom of Saudi Arabia Email: research@alrajhi-capital.com Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37. Disclosures Please refer to the important disclosures at the back of this report. 3