Saudi Arabian Fertilizer Company (SAFCO) stated that its bottom line jumped by 60% YoY and 52% QoQ in Q1 2017 hitting. SAR 423.4 million compared to SAR 265 million and SAR 279 million in Q1 2016 and Q4 2016, respectively. The profit margin in Q1 2017 surged to 50% versus 38.3% in Q1 2016 .



SAFCO attributed the robust increase in net earnings to urea selling prices and lower sales cost despite a decrease in the sales volume. The company benefited from increased investment income from IBN AL-Baytar that boosted its net profit. The following table depicts the change in ammonia and urea prices in the first quarter of the year.

Operating profit (EBIT) increased 52.82% YoY and 49.61% QoQ hitting SAR 395 million. Likewise, operating profit margin rose 47% versus 37.35% in Q1 2016. Gross profit came in at SAR 480 million in Q1 2017 soaring 35.41% YoY and 30.09% QoQ.

SAFCO’s preliminary profit came higher than our expectation of SAR 353 million. International Fertilizer Association (IFA) stated that world demand for fertilizer products are positive and could grow by 2.9% for 2017. Furthermore, (IFA) forecasted a potential surplus of 8% during next couple years. Which will weigh on fertilizers prices. The company plans to shutdown several plants for maintenance and upgrade reasons.

Taking into account Q1 results and global supply/demand projections in 2017, we estimated our fair value of SAFCO at SAR 64.5 per share, with an “Neutral” recommendation.


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