Saudi aviation and tourism push to support sector equities – SNB Capital

Saudi Arabian equities related to travel and hospitality are expected to benefit from the government initiatives to boost aviation and tourism sectors, said Riyadh-based SNB Capital in a sector update.

Saudi Ground Services Co. (SGS), Seera Group Holding, and Saudi Airlines Catering Co. (Catering) are the names expected to benefit from the government’s target to reach 100 million tourists and more than 330 million passengers by 2030, the fleet expansions launched by major airlines.

Tourism is one the key tools of Vision 2030 to diversify the economy. The main tourism targets set by the government include 1) increasing outbound tourists to 100 million from 20 million currently, 2) grow the sector contribution to 10% of GDP versus 3.2% in 2022, and 3) creating one million jobs. This complements the $1 trillion investment in mega/giga projects, the brokerage said.

Saudi Ground Services Co.

SNB Capital expects SGS to report a profit of SAR 216 million in 2023 versus a loss of SAR 244 million in 2022. The brokerage remains overweight on SGS with a target price of SAR 35.5 as it believes the company is a key beneficiary of the growth in the Saudi aviation sector due to its dominant market position. "We expect SGS to serve 0.38 million flights in 2023, and to reach 0.5 million by 2025, compared to 0.31 million in 2022."

Seera Group Holding

The brokerage also expects Seera to return to profitability. The company, which is a constituent of MSCI Saudi Arabia Small Cap Index, is set to report a profit of SAR 166 million in 2023 versus a loss of SAR 48 million in 2022. Already, in Q1, Seera swung to a net profit of SAR 57 million from loss of SAR 63 million in the year-ago period.

SNB has maintained a Neutral rating on Seera with a target price of SAR 25.8. "We believe Seera’s key drivers are the strategic restructuring initiatives notably the Lumi IPO and strong growth in GBVs which we believe are priced in at the current level."

Saudi Airlines Catering Co.

SNB Capital said Catering’s profit is estimated to grow by around 91% year-on-year (YoY). The brokerage has upgraded Catering's rating to Overweight with a target price of SAR 102.7 driven by the tourism sector positive outlook and the company’s initiatives to diversify and broaden its revenue streams. "For Catering, we expect the number of in-flight meals to record a strong growth of 20% YoY to 36 million in 2023 and to reach 44.3 million by 2025."




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