Aljazira Capital expects SAFCO’s operating rate to rise in Q4 2019; maintains ‘Neutral’ stock rating

Saudi Arabian Fertilizer Co.’s (SAFCO) operating rate is likely to increase in Q4 2019, driven by higher ammonia capacity after the reliability enhancement project during the first half of 2019, Aljazira Capital said in a recent report.

The project aims to improve energy utilization and boost annual production capacity by 100,000 tons.

“Operating efficiency and operating rate are the key catalyst for the company beyond H1 2019, where operating rate is likely to stabilize above 95 percent in fiscal year 2020,” the report said.

Safco’s net profit of SAR 414.2 million for Q3 2019 came below Aljazira Capital and the market consensus’ expectations of SAR 443 million and SAR 420 million, respectively.

Earnings were hurt by lower sales volumes, higher cost of goods sold (COGS) and lower profit share from Ibn Al-Baytar, despite a reversal of a SAR 40 million zakat provision, the research firm said.

Aljazira Capital maintained a “Neutral” rating on the stock with a target price of SAR 73.5 per share.