NCB Capital downgrades Yansab to ‘neutral’

NCB Capital has downgraded the rating of Yanbu National Petrochemical Co. (Yansab) to “neutral” from “overweight”, cutting the stock’s target price to SAR 74 from SAR 82.60.

The downgrade came amid weak product prices, which will offset expected improvement in efficiency, NCB Capital said in a recent report.

On the other hand, the petrochemical producer is likely to record a 2.6 percent rise year-on-year to SAR 2.48 billion in 2019. The higher profit will be bolstered by better operating rates and profit margins despite a decline in prices.

Operating rates are projected to increase to 98 percent this year, upon completion of the scheduled maintenance at Yansab’s ethylene glycol plant expansions.

Accordingly, production capacity at the plant is expected to increase to 850,000 tons annually, leading to an expansion in profit margins to 40.1 percent this year, from 37.6 percent in 2018.

The higher operating rates, production capacity and profit margins are likely to offset lower product prices.

Key upsides are an attractive dividend yield of 5.9 percent. In addition, Yansab will be added to FTSE and MSCI emerging market indices.