Saudi Ceramics has announced plans to set up a new factory for the production of porcelain tiles with a capacity of 8.25 million sqm annually, at a cost of $66.4 million, with financing through internal accruals and fresh borrowings.

According to a report by Al Rajhi Capital, the Saudi financial services provider, the project is expected to commence in the fourth quarter of 2021 and will be completed by the second quarter of 2023.

“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,” the report said.

“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 2021e to 22.7% in 2025e.

“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 concluded.