- Initiates Coverage of NIC with Overweight Rating–
Al Rajhi Capital, the investment banking subsidiary of Saudi Arabia’s Al Rajhi Bank, extended its coverage universe on the petrochemical sector to include National Industrialization Co. (NIC), bringing the number of companies under coverage to 17 companies. The Research Department of Al Rajhi Capital currently covers the petrochemical, telecom, retail and food industries sectors, in addition to other individual companies such as Ma’aden and Saudi Ceramics.
The comprehensive 25-page report on NIC, entitled “National Industrialization Co.: Poised for a long haul” takes an in-depth look at the petrochemical industry, where growth continues to be fuelled by rising demand and comparative advantage of local producers. The report forecasts that Saudi petrochemical companies will outperform global rivals with margins driven by cheap feedstock costs and strong demand coming from Asia. It points to a shift towards heavier, more expensive feedstock in plants though this will not constrain profits growth as improving prices and higher volumes should offset the higher costs.
The report praises NIC’s diversified business model (presence in both industrial and petrochemical segments), which partially cushions the company from the current turbulent environment. Despite near-term headwinds, the report forecast that NIC will continue to deliver a solid performance on the back of robust TiO2 (this should be explained) demand outlook leading to higher margins from the industrial segment, and additional production of advanced petrochemicals from late 2013.
Further, NIC’s healthy balance sheet enables the company to pursue acquisition-oriented growth strategy as well as support healthy dividend payouts. With its well-diversified product portfolio, the report considers NIC as one of Al Rajhi Capital’s top picks; thus sets an overweight rating with a target price of SAR49.6.
