NCB Capital initiates coverage of Catering, SGS, Al Tayyar

NCB Capital has initiated coverage on Saudi Airlines Catering (Catering) with an Overweight rating and a target price of SAR 103.4, the brokerage said in a report on Sunday.

The firm also started coverage on Saudi Ground Services (SGS) and Al Tayyar Travel Group with Overweight ratings and target prices of SAR 60.8 and SAR 40.0 respectively.

The three companies will be key beneficiaries of growth in the religious tourism sector, driven by Saudi Arabia’s Vision 2030 and the National Transformation Program 2020 initiatives, the report said.

Under its plans to develop the tourism industry, the kingdom is looking to increase the number of Hajj and Umrah pilgrims by 39 percent and 150 percent respectively by 2020, representing a key growth driver for Catering, SGS, and Al Tayyar.

NCB Capital’s rating on Catering was driven by the expansion of Saudi Arabian Airlines’ (Saudia) fleet, a diversified product mix, high market share of around 90 percent and an attractive dividend yield of 7.7 percent.

However, the expiry of the Saudia contract in 2019 is believed to be a key risk. Catering is forecasted to report a net income of SAR 617 million in 2017, growing 13.9 percent YoY.

NCB Capital’s overweight recommendation on SGS was also based on the company benefitting from the fleet expansions by Saudia and Flynas, as well as the start of commercial operations by Nesma and Saudi Gulf Airlines.

The valuation’s key upside risks include a high market share of around 95 percent, operations across all Saudi airports and an attractive dividend yield of 5.6 percent for 2017. SGS’s net income for 2017 is seen to grow 11.7 percent YoY to SAR 766 million.

As for Al Tayyar, NCB Capital said the expansion in the hospitality sector and e-business platforms will be the main growth drivers.  Al Tayyar’s net income is projected to rise 4.3 percent to SAR 861.6 million in 2017.