Aljazira Capital expects Saudi Kayan to post losses of SAR 747.2 mln in FY2020

Saudi Kayan Co.’s Q1 2020 losses of SAR 516.8 million came above Aljazira Capital’s and consensus estimates of SAR 342.9 million and SAR 353.3 million, the brokerage firm said in a research note.

Terming the results as disappointing, the firm said that the result was mainly impacted by an increase in feedstock cost, weak volumetric sales and additional expenses related to the plant maintenance during Q1 2020.

“We expect the weak volumetric sale during Q1 2020 is likely to continue in the next few quarters, impacted by global slowdown in demand due to COVID-19, and slow recovery is expected by end of FY2020,” Aljazira noted.

Thus, short-term outlook remains under concern on the company due to an increase in cost of goods sold, weak demand and product prices, it further added.

Aljazira expected repaying and debt restructuring strategy to reduce finance cost by SAR 380 million in FY2020 to SAR 665 million from actual SAR 1,045 million in FY2019.

“This, we believe, will mitigate the impact on the bottom line, improving the company’s capability to reduce debt level to SAR 16.5 billion (down SAR 1.5bn) during FY2020,” it said.

The brokerage firm revised its recommendation to “Neutral” with a target price of SAR 9.20 per share, as it believes Saudi Kayan to post losses of SAR 747.2 million for FY2020, as compared to losses of SAR 636.8 million in FY2019.