Maaden key beneficiary of NTP 2020

Driven by the National Transformation Program (NTP) 2020, investment theme in Saudi Arabia is shifting to industrial sector, as the authorities plan to triple the contribution of mining industry to national wealth (as measured by GDP) by 2030.
Industry experts say the Saudi Arabian Mining Co. (Maaden) is the key beneficiary of the NTP.
Commodity prices have risen steeply in the past few weeks mainly due to expectation of higher infrastructure spending by the United States and cut in coal supply in China. Aluminium price was up 4 percent while Copper was up 19 percent in the last eight weeks. Mining stocks on an average have surged 4 percent (Bloomberg World Mining Index).
Maaden has also benefited from rally, with the stock now at SR39.85 per share.
Economists at Al-Rajhi Capital say: “We revise our TP higher to SR40 per share using a mix of discounted cash-flow (DCF) and relative valuations post the rally in commodity prices. We have a neutral rating on the stock. Further upside may be possible in case of a sustained increase in commodity prices or announcements of newer projects.”
Maaden announced the development of its third phosphate fertilizer project on Nov. 30. The estimated cost of the project is around SR24 billion with an annual production capacity of 3 million tons.
The project will increase the company’s phosphate fertilizer production by 50 percent (from 6 million tons currently) once it reaches full capacity by 2024.
Analysts observe that the global phosphate fertilizer market is currently oversupplied with massive planned capacity expansions of 7 million tons of P2O5 (out of which Maaden’s WAS contributes 3 million tons) during 2015-2020.
Price of Phosphate fertilizer has been under pressure in 2016 due to the oversupplied market. Further capacity additions over the next few years will keep prices under check unless demand picks up.
“While the third project is still under feasibility stage and subject to various regulatory approvals, we believe the announcement is in-line with Saudi Vision 2030 and NTP announcements. We would not be surprised to see further related announcements/investments,” say analysts.
According to experts at Al-Rajhi Capital, given that Maaden is a commodity producer, it is exposed to the fluctuation in commodity prices, which can significantly impact the profitability of all its business segments.
“In our base case, we assume a gradual increase in gold, copper and aluminum prices during the forecasted period.
However, we expect prices of phosphate fertilizers (DAP and Ammonia) to remain under pressure over the next couple of years, largely owing to an oversupplied market. While we do not expect any significant change in commodity prices from our base case, we have analyzed the possible impact on Maaden’s profitability and valuation in case of a 5-10 percent deviation in commodity prices for from our base case.”
“We remain confident on the long term prospects as the company stands to gain from the support of the government in the Kingdom through its NTP and Saudi Vision 2030 plans.”

Source: Arab News