Saudi Electricity’s Q3 profit misses forecasts, says FALCOM

Saudi Electricity Co.’s (SEC) Q3 2018 net profit of SAR 4.9 billion came below consensus estimates, FALCOM Financial Services said in a report.

The third-quarter revenue growth to SAR 22.1 billion was driven by improved electricity sales amid higher government and industrial consumption, and a rise in tariffs.

However, this growth was offset by rising cost of sales due to SAR 4.9 billion in government fees, higher net finance expenses and taxes, along with a drop in net other income.

The utility benefitted from the revised tariffs rate in 2018, which boosted the topline, but high energy costs and government fees continue to pressure operating margins.

Operating margins are likely to remain under pressure until the end of this year.

“Although the company enjoys government support in the form of free government loans and waived off dividend rights, the lack of reform in the Kingdom’s utility sector limits the stock’s upside potential,” FALCOM added.

The research firm remained “neutral” on the stock, but cut its target price to SAR 14.8 from SAR 19.10, on the recent drop in SEC’s share price.