VTB Says Buy Saudi Petchem Stock Tasnee on Paint-Pigment Rebound

National Industrialization Co., the worst performer on the Saudi petrochemicals index last quarter, will rebound quickly amid growing demand for paint pigments and as it resolves operational issues, VTB Capital Plc. said.

“We would advise heavy exposure to National Industrialization in the run up to the results season for short-term investors and continued exposure for longer-term investors,” analyst Digvijay Singh wrote in a note to clients dated yesterday. If the company known as Tasnee “can deliver even 80 percent of its normalized earnings performance, we are likely to see a swift rerating of the stock,” he said.

Tasnee reported a 32 percent decline in first-quarter profit because of a drop in sale price of titanium dioxide product and other expenses. Titanium dioxide, which is used to add opacity to paints and plastics, is known by its chemical formula TiO2. The stock dropped 15 percent in the second quarter, the worst performer on the 14-member Tadawul All Share Petrochemical Industries Index.

“The TiO2 pigment segment has turned a corner for midstream producers after the fall in raw material prices,” VTB said. “All that could have gone wrong with the stock has gone wrong: an industry-margin squeeze in TiO2 pigments, operational problems in both TiO2 and petrochemical facilities and waning retail investor sentiment.”

Singh is among six analysts that have a buy rating on Tasnee, while five have a hold rating on the stock and one says sell, according to data compiled by Bloomberg. VTB’s price estimate for Tasnee shares is 52 riyals, compared with a closing price yesterday of 26.5 riyals.

The Tadawul petrochemicals index, which includes Saudi Basic Industries Corp., the world’s biggest petrochemicals maker by market value, fell 2.7 percent in the second quarter, trimming this year’s advance to 3.7 percent. The benchmark Saudi Tadawul All Share Index climbed 11 percent in 2013.

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