We remain Neutral on SSP with a PT of SAR21.7. Saudi Industrial development and IKTVA programs are key growth catalyst for the stock. We believe strong pipeline of projects from Saudi Aramco and Tenaris Global provide revenue sustainability. Aramco’s plans to increase its MSC to 13.0 mmbpd by 2026f and its gas supply by 38% by 2027f bodes well for the company. We expect revenue and net income to grow to SAR762mn (2021-24f CAGR of 26.8%) and SAR68mn (CAGR 318%) respectively by 2024f, while EBITDA margins to expand by 440bps in 2022f and remain stable thereafter. The stock trades at a 2023f P/E and EV/EBITDA of 15.5x and 11.2x vs industry avg of 11.0x and 20.4x, respectively.
Favourable industrial programs support demand for pipes: We believe SSP stands to benefit from increased demand through Saudi’s National Industrial Development and Logistic Program launched in 2019 as part of the Vision 2030 plan aiming to transform Saudi into an industrial hub especially in the energy, mining, industry, and logistic sectors. We also expect the demand for oil related pipes in Saudi to remain strong due to the ongoing infrastructure expansion. Going forward, we expect demand to be supported by Saudi Aramco’s plans to increase its MSC to 13.0mmbpd by 2026f and its gas supply by 38% from 18.3bcfd in 2021 to c25bcfd. Additionally, we expect Aramco’s IKTVA program targeting increased localization in its supply chain to continue to be a key growth driver for SSP.
Well established contract pipeline supports revenue: Historically contracts from Saudi Aramco were the major revenue contributor for the company. (c80% of the topline in 2021). In 2021-22 SSP has been awarded notable contracts including 1) suppling oil & gas steel pipes to Saudi Aramco with cumulative contract value to SAR575mn with an expected financial impact upto H2 2023, 2) suppling oil & gas steel pipes to Tenaris Global services (Uruguay) with contract values cumulatively amounting to SAR462mn with an expected financial impact upto Q1 2023. We believe the strong existing pipeline of contracts provides better visibility of SSP’s future revenue stream. We expect revenue to grow significantly to SAR787mn in 2022f (up 111% yoy) and reach to SAR762mn in 2024f (2021-24f CAGR of 26.8%).
Strong operating efficiencies to bring in shareholder returns: SSP has an advantage in terms of low-cost production facilities, strategically located plants and favourable access to raw material. With growing demand and cost control initiatives, we expect gross margins to improve to 13.6% in 2024f (vs 7.3% in 2021) and net margin to reach 8.9% in 2024f (vs 0.2% in 2021). We expect SSP’s net income to grow to SAR55mn in 2022f and reach SAR68mn in 2024f. (2021-24f CAGR of 318%). The improved profitability is expected to support free cash flows and accordingly we project SSP to repay its existing debt by 2024f.
Remain Neutral on SSP with a PT of SAR21.7: We remain Neutral on SSP with a PT of SAR21.7. We believe SSP is set to benefit in the mid-long term from 1) growing industrialization and infrastructure development in Saudi and 2) strong project pipeline from Saudi Aramco and Tenaris. The stock trades at 2023f P/E and EV/EBITDA of 15.5x and 11.2x vs industry average of 11.0x and 20.4x.