Aljazira Capital ups Saudi Kayan TP to SAR 16.70

Saudi Arabia-based Al Jazira Capital upgraded its rating on Saudi Kayan Petrochemical Co. from “hold” to“overweight” and reviewed the stock's 12-month target price to SAR 16.70.​

Saudi Kayan inked an agreement last Thursday with SABIC and the ministry of oil to buoy its​ profitability

​ and production​. The petrochemical producer expects to save SAR 280 million this year alone, and SAR 600 million annually after the completion of its scheduled projects.

The agreement’s financial impact is expected to reflect o​n third quarter 2015 results. Gross margins are forecasted to rise from 8.4 percent in 2014 to 13.2 percent in 2017. Operating margin will likely jump from 4.5 percent in 2014 to 10.3 percent in 2017, the firm said​

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​Aljazira's rating followed a review of expected cash flows from major changes in the company’s business model. The firm also indicated that the scheduled maintenance, which took place twice during 2015, is routine and is expected to have only a short-term negative impact this year.

Saudi Kayan’s dependence on inventory and SABIC’s distribution network will help mitigate the maintenance impact. Other units are expected to continue operations.

Alj​azira Capital sees the bourse-listed petrochemical producer making SAR 469 million net losses in 2015, while generating SAR 627 million profit in 2016.