Yanbu National Petrochemical Company - YANSAB 21 October 2014 Recommendation Fair Value (SR) Overweight 74.00 Price as of 20 October 2014 (SR) Expected return 63.00 17.5% 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 Financial indicators 2011 2012 Revenues (million SR) Net Income (million SR) EPS (SAR) PE ratio (x) P/BV (x) Dividend yield Net Income growth *Ending Q3 2014 9,659 3,174 5.64 11.16 3.37 0.0% %.88. 9,299 2,428 4.32 14.59 2.73 0.0% %5.81- 170 2290.SE 77.75 58.00 -15.7% 649 35,438 9,450 562.5 36.7% 3102 Yansab Tadawul Petrochemicals Index Tadawul Index 9,354 2,645 4.70 13.40 2.36 4.8% %.88 LTM* 2,302 4.09 15.39 2.49 4.8% %5.81- Interim Financial Results for the Third Quarter 2014 Yanbu National Petrochemical Company (Yansab) released its KPIs for the period ended September 30, 2014 unveiling a 20.06% annual drop in its Q3 2014 earnings to SAR 691.3 million down from SAR 864.8 million. Nevertheless, the results outpaced our estimate of SAR 680 million as well as the market consensus estimate of SAR 677 million reported by Bloomberg. The figure, however, is 11.07% higher than Q2 2014. Operational profit (OP) in Q3 2014 plunged 18.03% reaching SAR 784.5 million down from SAR 957.1 million, however the figure is 11.98% higher than Q2 2014. In the same direction, gross profit (GP) dwindled 17.8% registering SAR 844.8 million, versus SAR 1,027.7 million in Q3 2013. However, Yansab reported a 11.07% QoQ increase in GP versus the second quarter’s level of SAR 700.6 million. On a 9M level, bottom line remarkably shrank 15.55% culminating at SAR 1,860 million versus SAR 2,202.4 million in 9M 2013, whereas GP retreated 12.2% amounting to SAR 2,313.8 million. Meanwhile, OP totaled SAR 2,130.4 million down from SAR 2,457.8 million, experiencing a 13.32% decline. The YoY decrease in net profit in for Q3 2014 emanated from lower sales volumes which more than offset decreases in financial and general & administrative expenses, while the QoQ increase has been fueled by moderate increases in average selling prices for certain products. On the other side, the significant drop in 9M earnings resulted from higher COGS with the increase in some feedstock prices, in addition to the effect of higher zakat provisions despite lower financial costs. 160 150 140 130 120 Recently, as depicted in the chart below, prices of major petrochemical products followed a downward sloping trend matching a similar movement in oil price, coupled with the concerns over the growth in global economy and the launch of new production capacities. 110 100 Latest Developments 90 80 In July, Yansab paid its shareholders a SAR 1.5 per share as dividends for the first half of 2014. Sources: Albilad Capital estimates, Tadawul Our Comment For more information you may contact: Yansab’s financial results for Q3 2014 matched our expectations, accordingly our fair value estimate will remain unchanged at SAR 74. Turki Fadaak Research & Advisory Manager tfadaak@albilad-capital.com Price Movements of Main Petrochemical Products (USD/Metric Ton) 1,700 1,600 Or Albilad Capital Head Office: Tel : +966 11 203 9892 Fax : +966 1479 8453 P.O. Box 140 Riyadh 11411 1,500 1,400 1,300 1,200 1,100 Our website: www.albilad-capital.com/en/research 1,000 Ethylene Polyethylene Benzene Propylene Polypropylene 1 Yanbu National Petrochemical Company - YANSAB 21 October 2014 Balance Sheet (million) Current Assets Fixed Assets Other Assets Total Assets Current Liabilities Long Term Debt Other Long Term Liabilities Shareholders' Equity Total Liabilities and Shareholders' Equity 2010 4,427 18,426 311 23,163 2,261 10,911 2,651 7,340 23,163 2011 5,121 17,588 267 22,975 3,555 6,542 2,362 10,515 22,975 2102 5,353 16,498 538 22,388 2,471 6,821 135 12,961 22,388 2102 6,782 15,623 495 22,901 2,174 5,523 161 15,043 22,901 Change 26.7% -5.3% -7.9% 2.3% -12.0% -19.0% 19.2% 16.1% 2.3% Balance Sheet (million) Current Assets Fixed Assets Other 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 Net Income 2010 5,822 3,652 2,170 123 376 (43) 456 1,713 40 1,673 2011 9,659 5,866 3,793 175 413 (62) 526 3,267 92 3,174 2102 9,299 6,190 3,109 234 361 (31) 563 2,546 118 2,428 2102 9,354 6,129 3,225 232 260 (29) 463 2,762 118 2,645 Change 0.6% -1.0% 3.7% -0.8% -27.9% -6.8% -17.8% 8.5% 0.0% 8.9% 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 Net Income Cash Flow Statement (million) Net Income Before Tax 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 Beginning Cash Balance Ending Cash Balance 2010 1,713 835 (163) (1,215) 510 2011 3,267 1,018 (269) (503) (204) 2102 2,546 1,018 43 (102) (62) 2102 2,762 1,080 (8) 182 (109) Change 8.5% 6.1% -117.4% 17 (649) (13) (211) (98) (123) (287) (106) 193.3% -13.6% (663) (201) 606 790 (37) (3,238) 790 599 (219) (3,073) 599 530 (98) (1,279) (561) 530 2,106 -55.1% -58.4% 0.0% -11.6% 297.6% Cash Flow Statement (million) Net Income Before Tax 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 Beginning Cash Balance Ending Cash Balance 75.9% 9M 2013 9M 2014 - Change - 9M 2013 9M 2014 2,635.2 2,202.4 2,313.8 1,860.0 9M 2013 9M 2014 - Change -12.2% -15.5% Change - - - - - - - - - Source: YANSAB Filings 2 Yanbu National Petrochemical Company - YANSAB 21 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 ≥ 10%. 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 ≥ 10%. 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