Abdullah Al Othaim Markets’ Q2 2019 profit of SAR 59 million came below market consensus of SAR 85 million and analysts’ expectations of SAR 77 million, Al Rajhi Capital said in a research note.
“The decrease in net profit was mainly due to IFRS 16 adjustment to SAR 5.33 million, higher expat levy, and decline in income from associates,” the research firm noted.
The company’s revenue is set to grow by 9 percent in 2020, driven by an aggressive store expansion as the company is planning to open more than 28 stores in fiscal year 2019.
“Other drivers are improving LFL performance, increasing consumer spending, shifting of consumption basket towards more of value products and increasing basket size,” Al Rajhi Capital said.
“However, due to the company’s continuous effort to reduce cost of goods by procuring it at lower price due to strong bargaining power from suppliers, the gross margins are expected to improve,” it noted.
“Therefore, post Q2 results, we revise our target price to SAR 79 per share, thus implying 2 percent downside from the current market price. We change our rating from Overweight to “Neutral” on the stock,” Al Rajhi concluded.
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