Saudi Electricity should get a pleasant jolt when the company reports third-quarter earnings, analysts say. The Arab world's largest power producer should see the benefits this quarter from increased tariffs for the first time since they were implemented in July. Tariffs for industrial, commercial and government customers were expected to rise by 9.6 per cent, which could add as much as 3.2 billion Saudi riyals in revenue.
"The new tariff structure will change and would increase revenue for the company significantly," said Ahmed al Qahtani, an analyst at NCB Capital in Riyadh. "Considering the company has very low margins to begin with, any change in revenue that would not affect their costs will have a sizable effect on Saudi Electricity's profits," he said. Mr al Qahtani estimates Saudi Electricity will report 2.4bn riyals in net income for the third quarter, a 41 per cent increase over the same period last year. Two key drivers include a hotter than expected summer and much tighter control over operating and maintenance costs.
The analyst said it would be difficult to reliably estimate the impact of the tariffs on a quarterly basis due to the seasonality of consumption and the complexity of the new tariff structure. Saudi Electricity shares, traded on the Saudi Tadawul Exchange, gained 2.5 per cent to 14.30 riyals, well below NCB's price target of 18.50 riyals. The brokerage maintains an "overweight" recommendation on the stock.
"The market still has not yet priced in the full impact of the tariffs despite the 29 per cent increase since the last upgrade of the stock," Mr al Qahtani said. Saudi Electricity last week received a 1.8bn riyal contract from its main shareholder, the government, to connect a planned high-speed rail link to its grid. The power utility company will also provide power to stations along the 482km railway between Mecca and Medina.