FALCOM says Saudi Kayan’s Q4 2020 performance improved, hikes TP to SAR 13.80

Saudi Kayan Petrochemical Co.’s (Saudi Kayan) performance improved considerably in the fourth quarter of 2020, driven by growing demand for petrochemical products due to gradual recovery in economic activities led to a surge in the prices of petrochemicals, FALCOM Financial Services said in a new report.

The recent approval received by the company from the Ministry of Energy to increase ethane allocation by 30 million standard cubic feet per day (mmscfd) is also likely to lead to a significant reduction in feedstock costs, higher profitability and margins in the long term.

However, Saudi Kayan remains heavily leveraged, with net-debt-to-EBITDA at about 7.3x and a debt-to-equity ratio at 1.2x in the fiscal year 2020, which remains a concern in the near term, the brokerage noted.

Furthermore, scheduled shutdowns for maintenance in the first half of 2021 may impact production and sales volume and hurt the bottom line.

FALCOM Financial maintained its “Neutral” rating on the stock but increased the target price to SAR 13.80 from SAR 9.80 a share.