Falcom maintains Saudi Electricity Co.’s “Neutral” recommendation

Falcom Financial Services maintained its “Neutral” recommendation for Saudi Electricity Co.’s (SEC) share and set target price at SAR 19.60.

SEC’s net profit slipped 57.3 percent year-on-year (YoY) to SAR 789 million during Q2 2019 due to lower electricity sales and higher financing charges over the comparable period.

The brokerage firm said that SEC managed to contain its fuel and purchased power costs, driven by an improvement in operational efficiency.

However, the company’s operating income slumped 31.9 percent YoY to SAR 1.9 billion. On a quarterly basis, its revenues improved 45 percent due to seasonality factors.

“SEC is working to offset the flattening demand with improved operational efficiency through reducing fuel consumption and boosting thermal efficiency,” Falcom said.

“The investments in the consumption rationalization continue to reduce the burden of capital expenditure on SEC and indicate the success of KSA’s reform policy in raising the demand-side consumption efficiency,” it added.

However, Falcom also noted that a shift to privatization and reforms in the Kingdom’s utility sector holds the key to SEC’s future performance.