Modern Fleet And GCC Wins Will Ignite Secular Demand

Key Takeaways

• Full utilization of modern, high-margin rigs and expansion into new GCC markets could drive revenue, EBITDA, and backlog growth well ahead of current expectations.
  
• Aggressive cost control, balance sheet strength, and a young fleet position the company for outsized profitability and sustained long-term gains amid rising sector demand.
  
• Sustained rig suspensions, market concentration, industry overcapacity, and structural shifts toward renewables pose significant risks to revenue stability, profit margins, and long-term growth.

Catalysts

Operates as an onshore and offshore gas and oil rig drilling company in Saudi Arabia.

• Analyst consensus views the 13 new unconventional rigs as simply a source of incremental revenue, but this significantly understates their strategic value: full utilization of these modern, high-margin assets could unlock far superior EBITDA margins and position Arabian Drilling as the preferred contractor when unconventional activity accelerates, driving an outsized rebound in both top-line and bottom-line growth as early as 2026.
  
• Analysts broadly acknowledge international expansion as a supplementary growth driver, but the company's direct win of its first GCC contract (outside Shelf Drilling alliance) shows capability to independently scale operations in fast-growing regional markets, opening the possibility for step-change increases in backlog, revenue visibility, and multi-year contract durability well ahead of market expectations.
  
• Heightened government focus on energy security and the chronic global underinvestment in upstream CAPEX are set to trigger a supercycle in rig demand, advantaging Arabian Drilling's young, technologically advanced fleet and local content credentials, making sustained utilization recovery and premium day rate realization plausible, materially impacting long-term revenue and net profit.
  
• The company's aggressive cost rationalization-structurally lowering SG&A and operating costs during the downturn-positions it for enormous operating leverage as suspended rigs return and new contracts ramp, meaning incremental revenues will be converted to profits at a much higher rate than consensus models, lifting both margin and earnings power.
  
• Arabian Drilling's disciplined balance sheet management through recent market turbulence ensures it retains ample liquidity and debt capacity to rapidly scale, pursue M&A or invest in next-generation rigs and digitalization, thus accelerating competitive gains and embedding multi-year EBITDA and cash flow growth well above industry averages.

Arabian Drilling Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Arabian Drilling compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Arabian Drilling's revenue will grow by 10.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.8% today to 18.1% in 3 years time.
• The bullish analysts expect earnings to reach SAR 860.2 million (and earnings per share of SAR 9.65) by about August 2028, up from SAR 237.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 21.5x on those 2028 earnings, down from 27.6x today. This future PE is lower than the current PE for the SA Energy Services industry at 24.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.76%, as per the Simply Wall St company report.

Arabian Drilling Future Earnings Per Share Growth

Risks

• Ongoing rig suspensions by Saudi Aramco have significantly reduced Arabian Drilling's utilization rates, with no clear visibility on when all suspended rigs will be reactivated; this persistent uncertainty directly threatens long-term revenue stability and earnings growth.
  
• The company's growing reliance on unconventional land rig revenue and the shift of its revenue base toward onshore operations highlight a concentration risk in Saudi Arabia, making Arabian Drilling more exposed to local market downturns or contract renegotiations, which could threaten future earnings and margin consistency.
  
• The need to return two leased offshore rigs-along with continued discounted day rates in the offshore segment-reflects intense regional competition and overcapacity, which drives down pricing power and compresses net margins for Arabian Drilling over the long term.
  
• Structural industry headwinds from the global energy transition toward renewables, as well as the risk of oil demand destruction from substitutes like electric vehicles and hydrogen, could reduce drilling activity and contract backlogs, resulting in meaningful long-term declines in revenue and equipment utilization rates.
  
• High capital expenditures required for maintaining and upgrading rigs, combined with an increasing portion of the fleet being inactive or under suspension, compress net margins and put pressure on free cash flow, limiting the company's ability to fund growth, service debt, or restore dividend payments in a sustained low utilization environment.

Valuation

• The assumed bullish price target for Arabian Drilling is SAR118.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Arabian Drilling's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SAR118.0, and the most bearish reporting a price target of just SAR63.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be SAR4.8 billion, earnings will come to SAR860.2 million, and it would be trading on a PE ratio of 21.5x, assuming you use a discount rate of 20.8%.
• Given the current share price of SAR73.7, the bullish analyst price target of SAR118.0 is 37.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.