Riyad Capital ‘bullish’ on Saudi Kayan, maintains ‘buy’ rating

Riyad Capital has adopted a “bullish” outlook for Saudi Kayan Petrochemical Co. (Saudi Kayan), backed by its ability to generate healthy operating cash flow (OCF) despite unfavorable conditions and its progress in deleveraging its balance sheet.

“We reaffirm our buy recommendation but reduce our target price to SAR 16 from SAR 18 earlier,” the brokerage firm noted.

Saudi Kayan recently entered into a memorandum of understanding (MoU) with leading specialty company Clariant to evaluate a joint venture to manufacture alkoxylates.

“Producing new and specialized competitive products is part of the company’s strategic objectives,” Riyad Cap said in its report on petrochemicals.

Kayan’s large depreciation expense puts heavy pressure on earnings (especially in weak markets) which distorts their performance, it further added.

Additionally, the company receives strong support both financial and non-financial from its parent company Saudi Basic Industries Corporation (SABIC) and this is a key factor in its rating.

The key valuation risks are weak product prices, substantial rise in feedstock costs, higher financing cost, and currency fluctuations.