Saudi Ceramics plans to set up a new factory for the production of porcelain tiles at a cost of SR249.3 million ($66.4 million), said local reports on Thursday, August 19.
With an annual capacity of 8.25 million sq m, the facility is expected to be financed through internal accruals and fresh borrowings.
The project is expected to commence from the fourth quarter of 2021 and will be completed by Q2 2023, said financial services provider Al Rajhi Capital from Saudi Arabia.
“Based on our estimates, the company is currently operating at near-full capacity (current capacity 50-60 million sq m depending on the size of the tiles) and we view the fresh capacity addition as a positive move,” said Al Rajhi Capital.
“Given the higher return on incremental capital employed, stemming from increase in gross margins in recent years, we expect this investment to add significant value to shareholders. We expect ROCE to increase from 13.3% in 2021 to 22.7% in 2025,” it added.
“We do not expect the company to face difficulty in financing the project. Overall, we expect the capacity expansion to have a positive impact on the financials of Saudi Ceramics and increase our target price from SR69/share to SR75/share and maintain our ‘Overweight’ rating,” it said.