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Advanced Petrochemical Industries Sector APPC AB - 2330.SE October 5, 2016 Advanced Petrochemical Co. Recommendation Fair Value (SAR) Overweight Price as of July 10, 2016 68.44 5:.93 Expected Return %3:.: Tadawul Symbol 2330.SE Company Data 52 Week High (SAR) 44.20 52 Week Low (SAR) 26.60 YTD Change 23.05% 3-Month Average Volume (Thousand Shares) 482 Market Cap. (SAR Million) 7,612 Market Cap. (USD Million) 2,030 Outstanding Shares (Million Shares) 196.7 National Polypropylene Limited 9.;7% General Organization for Social Insurance 8.59% Major Shareholders ( > 5% ) 52-week Stock Price Movement APPC Petrochemical Sector Tadawul Index Q3 2016 Advanced Petrochemical Company posted a remarkable drop in its bottom line in Q3 2016 hitting SAR 188 million, tumbling 19.7% from SAR 234 million in Q3 2015. However, net earnings grew 0.76% QoQ. Over the nine months, bottom line plunged 8.1% to SAR 521 million sliding from SAR 567 million in the same period last year. Gross profit (GP) came in at SAR 202 million in Q3 2016 slumping 18.6% YoY due to lower selling prices. Nonetheless, GP soared 0.36% QoQ driven by the decrease in feedstock prices. Operating income (EBIT) hit SAR 193 million in Q3 2016 shifting down 19.7% YoY while surging 0.75% QoQ. The average propane price fell 24% in Q3 2016 YoY and 9% QoQ, while polypropylene prices declined 6.5% YoY and increased 2.2% QoQ. Thus, the polypropylene - propane price spread in Q3 2016 stood at USD 700, which is the reason of the gross margin improvement. The third quarter’s net earnings missed our estimate of SAR 218 million and analysts’ consensus of SAR 203 million. Our estimates of SAR 218 million were based on projected sales of 150 thousand tones in Q3 2016 where we believe the actual figure of SAR 188 million stemmed from 140 thousand tons. Furthermore, the results included an income from the investment in SK Advanced Limited in South Korea which amounted to SAR 14.3 million declining 5.9% from our estimate of SAR 15.2 million. In addition, the bottom line included an impairment charge of SAR 14 million for available for sale investments. 130 120 110 100 90 80 70 60 Source: Tadawul Quarterly Net Income (SAR mn) 300 We expect growth in earnings in Q4 2016 compared to the third quarter due to polypropylene prices stabilization, hiking volume sales and the expansion in polypropylene - propane price spread. We believe that the company is able to continue pay cash dividends at SAR 2.5 per annum, and our fair value for Advanced Petrochemical Company is SAR 46 with “overweight” recommendation. 200 100 FY - Ending December - Source: Company Filings, Albilad Capital Research Estimates Turki Fadaak Research & Advisory Manager [email protected] Mohammed Alghalbi Financial Analyst [email protected] 4436A 4437A 4438E 4439F EV/EBITDA :.37 :.44 :.44 9.:6 EV/Sales 4.75 5.4; 5.75 5.49 P/E 34.36 34.8: 34.97 34.58 Dividend Yield %8.7 %8.7 %8.7 %8.7 P/BV 5.44 5.45 4.9; 4.7: P/Revenue 5.99 3.84 4.;5 6.46 Revenue Growth %;.4 %43.9- %34.7- %6.9 Source: Company Filings, Albilad Capital Research Estimates 1 Advanced Petrochemical Industries Sector October 5, 2016 Income Statement (SAR mn) APPC AB - 2330.SE 2013A 2014A 2015A 2016E 2017F Sales 4,9:8 5,458 4,599 2,126 4,448 COGS 3,;89 4,469 3,5:5 3,355 3,464 SG&A 67 67 63 76 79 EBITDA 774 945 954 949 929 EBITA Margin %4: %53 %64 %66 %64 Depreciation and amortization 44; 44; 433 446 439 EBIT 566 735 743 715 712 Net interest income 37 35 3: 44 44 Others 8 4 )7( 56 87 Net Income 557 751 713 798 735 ROS %44 %47 %54 %55 %55 EPS 2883 3882 3862 3869 3873 Balance Sheet (SAR mn) 2013A 2014A 2015A 2016E 2017F Cash and Marketable securities 766 ::6 :7 569 763 Receivables 488 3;: 444 456 467 Inventory 367 345 346 335 346 Others 39 4; 44 44 43 Total ST Assets 972 1,234 453 714 931 Net Fixed Assets 4,385 4,394 4,39; 4,347 4,468 Intangible Assets 79 3: 7 7 7 Others 4; 4: 48 48 48 Total LT Assets 2,251 2,594 3,433 3,328 3,323 Total Assets 3,223 3,828 3,886 4,942 4,254 Accounts Payable 579 493 43: 39: 3;7 Others 34; 78 87 87 57 Total ST Liabilities 485 327 283 244 23 1 Total Long Term Debt 677 3,4:: 3,46: 3,44: ;;: Other Non-Current Liabilities 4: 58 68 7: 95 Equity 2,254 2,377 2,599 2,732 2,952 Total Liabilities and Equity 3,223 3,828 3,886 4,942 4,254 Source: Company Filings, Albilad Capital Research Estimates Presentation of financial statements may differ from the company’s presentation. However, there is no impact on the final results. 2 Advanced Petrochemical Industries Sector October 5, 2016 APPC AB - 2330.SE 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%. Neutral: The Target share price is either more or less than the current share price by < 10%. Underweight: The Target share price is less than the current share price by ≥ 10%. To be Revised: No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research. Albilad Capital Client Services E-mail: Tel: [email protected] +966-11-203-9888 Toll-free: 800-116-0001 Research & Advisory E-mail: [email protected] Tel: +966-11-290-6250 Website: www.albilad-capital.com/en/research Brokerage E-mail: Tel: Asset Management E-mail: Tel: [email protected] +966-11-290-6280 [email protected] +966-11-290-6230 Investment Banking E-mail: Tel: [email protected] +966-11-290-6256 Disclaimer AlBilad Capital exerted utmost efforts to ensure that the information included in this report is accurate and correct. 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