National Industrialization Co. (Tasnee) is projected to post improved earnings in the medium term, backed by lower operating expenses and financial charges following the sale of Cristal, Bahrain-based SICO Investment Bank said in a note on Wednesday.
Net profit is expected to surge to SAR 672 million and SAR 815 million in 2017 and 2018, respectively, compared to SAR 208 last year.
The petrochemical firm will also see higher profit margins across the board. Operating and net margins are seen rising to an average of 30 percent and 11 percent, respectively in the fiscal year 2018, from 10.9 percent and 1.4 percent in FY16.
SICO has maintained its “neutral” rating on the stock, keeping its target price unchanged at SAR 18.
Finance charges are forecast to decline to SAR 673 million in FY18, compared to SAR 801 million in the fiscal year 2016, driven by a decline in gross debt after Cristal’s full repayment of its SAR 6.27 billion bank debt in Saudi Arabia.
“Deconsolidation of Cristal should enable Tasnee to concentrate more on its petrochemical assets with a considerably deleveraged balance sheet,” analysts at SICO added.
Tasnee will likely deleverage its balance sheet from SAR 24.6 billion to SAR 18.2 billion, with lower debt-to-equity ratio of 1.31x following the deal closure.
The target price could increase to SAR 24 per share, driven by expected improvement in earnings per share (EPS) to SAR 1.51 in FY18, from SAR 0.31 in FY16.
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