Al Rajhi Capital assigned a “neutral” rating to Saudi Arabian Mining Co. (Maaden), but revised up the stock’s target price to SAR 40 from SAR 38, due to a recent rise in commodity prices and the announcement of the firm’s third phosphate fertilizer project.
“We believe Ma’aden is the one of the best plays on the National Transformation Plan (NTP) theme,” the brokerage firm said, adding that investments in the kingdom are shifting to the industrial sector as the government is planning to triple the mining sector’s contribution to GDP by 2030.
Commodity prices have risen steeply in the past few weeks mainly due to expectation of higher infrastructure spending by the U.S. and a cut in China’s coal supply. Aluminum prices were up 4 percent while copper rose 19 percent in the last eight weeks, the brokerage said.
Meanwhile, Maaden’s third phosphate fertilizer will boost the company’s fertilizer output by 50 percent upon reaching full capacity by 2024, compared to its current capacity of six million tons.
“While the third project is still under feasibility stage and subject to various regulatory approvals, we believe the announcement is in-line with Government’s Vision 2030 and NTP announcements,” the investment arm of Al Rajhi Bank said, adding that it would not be surprised to see further related announcements or investments.
Maaden’s net income is projected to decline to SAR 543 million in 2016, compared to SAR 605 million, ahead of rising to SAR 1.14 billion next year.
Downside potentials are linked to fluctuations in commodity prices and production levels in the near term, as well as movement in SAIBOR and key input prices, the brokerage firm noted.
Meanwhile, further upside may be possible in case of a sustained increase in commodity prices or announcements of newer projects.
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