Saudi Fransi Capital starts Maaden at ‘hold;’ sets TP at SAR 32.50

Saudi Fransi Capital has initiated coverage of Saudi Arabian Mining Co. (Maaden) with a “hold” rating and a target share price of SAR 32.50, saying that weak commodities prices will strain the servicing of the miner’s debts.

Maaden is capital intensive with phosphate and aluminum businesses primarily funded by SAR 36 billion debt on favorable rates and deferred payment terms.

Aluminum and DAP prices, however, are down 18 percent and 6 percent respectively from year ago levels, which is seen to pressure debt servicing particularly if prices fail to rebound to their long-term averages, the brokerage firm said.

However, Saudi Fransi expects Maaden’s gross sales to grow nearly 23 percent when Waad Al Shamal project (WAS) goes on stream in 2017.

The company’s topline earnings is projected to rise 12 percent annually over 2014-2017 reaching some SAR 16.7 billion from SAR 10.8 billion last year. Net earnings of 2015, however are expected to decline 22 percent year-on-year to SAR 1.36 billion.

Although gold production is set to rise, weak prices are expected to impact total H2-2015 revenues by 18 percent compared to the same period last year, the firm added.

The Saudi government is said to be in talks with some motor vehicle manufacturers in an attempt to reach an agreement to set up parts manufacturing and possibly assembly plants in the kingdom.

Maaden stands to substantially benefit by potentially locking-in long-term aluminum sales. This can reduce exposure to international demand swings and ensure optimum capacity utilization, the brokerage said.