25/04/2017 05:37 AST
The Saudi religious tourism sector will be a major beneficiary of economic growth and development in the Kingdom under Vision 2030 and the National Transformation Program 2020 initiatives of the government, NCB Capital, the Kingdom’s largest asset manager, said in it update report on the sector.
“Religious tourism has been a key area of focus and will continue to be so going forward, capitalizing on the large infrastructure investments over the last decade in Holy Makkah, Al Madinah and Jeddah,” Iyad Ghulam, NCB Capital equity research analyst said. “Saudi Arabia is planning to increase the number of Hajj and Umra pilgrims by 39% and 150%, respectively by 2020. This initiative will be a key growth driver for companies operating in this sector such as Saudi Airlines Catering, SGS and Al Tayyar. We expect the net income of these companies to grow between 4.3-17% in 2017E, driven by the expansion of local airline fleets, new airlines and new hotels commencing operations.”
Consequently, NCB Capital has initiated coverage of Saudi Ground Services Company (SGS) with an Overweight rating and a PT of SR103.4 while designating Overweight ratings to SGS and Al Tayyar and PTs of SR60.8 and SR40, respectively.
Moreover, NCB Capital gave also its ratings update on selected Saudi companies, to wit:
Saudi Airlines Catering
One of the first Saudi Airlines divisions to privatize as part of the airline’s overall privatization plan, Saudi Airlines Catering provides catering and related services to Saudi and other airlines flying into and out of the Kingdom. The company’s activities are divided across two major divisions, the airline division and the non-airline division. The non-airline division primarily provides catering and other related services to non-airline customers, including universities, large corporates and remote oil fields and, during the Hajj and Umra season, to pilgrims.
“Catering operates in five different segments which include Sky Sales, airport lounge operations and non-airline catering. Sky Sales are expected to grow at a CAGR of 5.9% between 2016-2020 supported by the expansion of retail shops in airports. Non-airline catering sales will be driven mainly by religious tourism and demand from sites in remote areas. The company is also planning to expand operations to railway catering services, security and restaurants. We believe this will help in reducing the dependency on Saudia which represented 66.9% of total revenues in 2016”
“We initiate coverage on Saudi Airlines Catering with an Overweight rating and a PT of SR103.4 (17.9% upside),” wrote Iyad Ghulam. “Saudi Airlines Catering is trading at 11.7x P/E 2017E, lower than the peer group average of 20.5x. The expansion of Saudia’s fleet, a diversified product mix, high market share of c.90% and an attractive 7.7% 2017E dividend yield are the stock key strengths. However, the expiry of Saudia contract in 2019E is a key risk. We expect Saudi Airlines Catering to report a net income of SR617 million in 2017E, growing 13.9% YoY, with a CAGR growth of 1.5% between 2016 and 2020.”
Saudi Ground Services Company
SGS is a leading ground services operator in Saudi Arabia, providing its services to both local and foreign airlines across all 27 airports in Saudi Arabia. The company provides a range of handling services including passenger, fleet, ramp and transportation services. SGS is a subsidiary of Saudia.
“Saudia, the parent company of SGS is expected to increase its fleet from 126 aircraft in 2016 to 200 aircraft by 2020. This, in addition to the focus on Haj and Umrah, is expected to increase the top-line of SGS by 6.1% in 2017E, with a CAGR of 4.7% during 2016-2020E. The recent announcement of Flynas to increase its fleet by 80 planes will also be a key catalyst going forward. Additionally, Nesma Airlines and Saudi Gulf Airlines started operations in November 2016 with 10 p
Saudi Gazette
Please wait...
