JEDDAH: Global Investment House (GIH), in its initial coverage of Saudi Arabian Mining Company (Ma'aden), has issued a ‘Buy' recommendation with a target price of SR25.1, an upside potential of 15 percent. The given well integrated operational structure (production process-flow) of phosphate and aluminium projects, which include the mining of aluminum and phosphate ore to refining and processing, will lead Ma'aden to amplify its core-operational activities from mining (only) to both mining and processing of various precious metals and other industrial products. Consequently, this will also help the company's product-line to expand further with the addition of other precious metals along with the processed and refined products. According to the given expansion plans, phosphate project will commence its commercial operation in the fourth quarter of 2010, while the commercial production of aluminum project is expected to instigate in early 2014. “We believe the addition of new products from the upcoming expansion will lead the company to diversify its dependence on different products including precious metal (gold, silver, bauxite, zinc and so on), fertilizer and industrial (aluminum phosphoric & sulfuric acid),” GIH said. “The addition of well-diversified products will help the company to strengthen the ability to stabilize its sales revenue, which is expected increase at a CAGR of 86.4 percent during 2009-13 to SR7.7 billion in 2013,” it added. The expected commencement of phosphate project in 4Q2010 will remain the key for the company's bottom-line growth, which is expected to increase at a CAGR of 44.4 percent, during 2009-13 to SR1.7 billion in 2013. The well-integrated operational structure of upcoming project will lead the company's gross margin to remain strong and stabilize at an average level of 65.5 percent in 2010-13, while the company's net profitability margin is expected to stabilize at the average level of 20.6 percent in 2010-13. Based on the company's current and upcoming businesses, we have used different valuation techniques and arrived at a consolidated value of SR25.1, which indicates the potential upside of 15.0 percent over the market price of SR21.8 as of 20th Oct 2010 and trading at the prospective 2010E and 2011E PBV of 1.1x and 1.0x, respectively, GIH noted. Saudi Arabian Mining Company (Ma'aden) awarded three contracts, valued at $148.8 million (SR558 million), to Red Sea Housing Services for the rental of large residential buildings in Ras Azzour on the eastern coast of Saudi Arabia. The facilities will support the aluminum plant that Ma'aden and U.S. company Alcoa are currently building there, which is scheduled for completion in 2014. Ma'aden also awarded a $73.3 million (SR275 million) contract to Mohammad Al-Mojil Group to supply mechanical and electrical materials to the aluminum complex. Meanwhile, the Middle East Investor Relations Society nominated Ma'aden as a leading quoted company for Investor Relations in Saudi Arabia.
