Al Rajhi Cap re-initiates Saudi Ceramic coverage with “Overweight” recommendation

Al Rajhi Capital re-initiated its coverage on Saudi Ceramic Co. with an “Overweight” recommendation and a target price of SAR30 per share.

The brokerage firm said in a research note that the company managed to reduced its losses significantly, thanks to higher demand for its products, change in strategy by enhancing its portfolio, and opening new showrooms.

“Its economic moat is its leadership position in the local market, efficient capacity utilization and strong distribution channel,” the note said.

The brokerage firm believes that the worst is over for ceramic industry and there are ample opportunities in tiles, sanitary ware and water heater segments due to social housing projects as well as growth in hospitality and entertainment sectors.

“We believe there is strong visibility for high growth and improvement in margins as the company is deleveraging with no major capex plans,” Al Rajhi said.

“Further, introduction of new premium products and rising export avenues to African countries could aid margins. With an upside of 26 percent from the current price, the stock looks attractive factoring in the current and long-term development in the construction sector,” it noted.

Al Rajhi expects the company’s top-line to grow in the near-term due to increasing housing construction as a part of social housing program.

“Going forward, net margins are expected to improve due to the premium products offering as well as reduced capex requirements,” it said.