Increasing consumption from the GCC's most populous country is likely to power Saudi Electric shares.
Saudi Electricity Company expects to have a customer base of 7.9 million by the end of 2016 as it seeks to meet rising demand for power, it said in a statement to the Saudi Tadawul yesterday.
The company expects to add 309,000 new customers next year and attract a further 1.79 million between by 2016, the statement said, citing the chief executive Ali al Barrak.
Shares in the company dropped 1.06 per cent to 14.05 Saudi riyals on the Tadawul All-Share Index yesterday. But the stock has gained almost 24 per cent this year compared with last year and the outlook is bright for the long term.
"Whether it's up today or down today is not relevant, what really matters is what will happen over the next five years," said Ahmed al Qahtani, an analyst at NCB Capital in Riyadh.
Mr al Qahtani has an "overweight" recommendation on the stock and a price target of 18.50 riyals.
He expects energy consumption in Saudi Arabia to increase by between 6 per cent and 8 per cent annually over the next six years in line with a growing population.
Saudi Electricity is the only direct seller of electricity in the country. But Mr al Qahtani said the company's return on equity was lower than it might be because the country's electricity regulator limits the price of electricity to consumers.
"[The company] can't sell at any price and for the majority of their sales, which are residential, they are losing revenue because the selling price is lower than the cost of producing energy," he said.
Sales to the commercial and industrial sector, however, which have higher tariffs, have recouped some losses.
Electricity tariffs were first set in 2001 and although electricity prices to industrial and commercial users were raised this year, residential prices have yet to be changed.
The company, based in Riyadh, says it will add 6,510 megawatts next year in new projects, including 56 new power transfer stations, the upgrade of 10 existing stations and the addition of 33 power-transforming stations.