Al Rajhi upgrades Riyadh Cables to overweight with a TP of $30.66

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Saudi Arabia - Riyadh Cables, which posted another stellar quarterly performance with revenue up 7% and gross profit up 14%, has been upgraded by Al Rajhi Capital Research from neutral to overweight with take-profit (TP) price of SR115 ($30.7) per share.

The 2QFY24 results were impacted by a slowdown in construction activities owing to two Eids in the quarter, which affected the QoQ growth numbers, said Al Rajhi.

Despite this, the quantity sold has increased by 2% in 1HFY24 to 112 kilotonnes. “Given the decent backlog of SR5.2 billion (up 64/8% YoY/QoQ; translating to 115 ktons of backlog volume) and the absence of an extended holiday in 2HFY24, we believe that the company will witness a further uptick in volumes for the remainder of the year,” Al Rajhi said.

More importantly, gross profit (GP) margin per tonne swelled up by 18% YoY in 1HFY24, averaging around SR4,778/tonne for 1HFY24.

GP margin/tonne forecast

This has compelled Al Rajhi to revisit its FY24 assumptions, where it had initially forecast GP margin/tonne to clock in at SR4,303/tonne for FY24. Given the impressive margin performance in 1H, Al Rajhi increased its annual GP margin/tonne assumption by 8% to SR4,626/tonne.

“Consequently, we upgrade our FY24/25 EPS by 8/4% to SR4.4/5.0 per share. The company has also revised its guidance for the increase in profitability to 20-30% YoY as against the previous guidance of 10-15%. As a result, we revised our TP upwards by 11% to SR115/sh from the previous SR104/sh. The target price implies an upside of 16.0% to the last closing price. Hence, we upgraded our investment case from neutral to overweight.”