Almarai Co.’s net income of SAR 311 million in the fourth quarter of 2019 came below Al Rajhi Capital’s estimates of SAR 556 million, the brokerage firm said in a research note.
The firm attributed the decrease to rising input cost, labor cost as well as higher selling, general and administrative (SG&A) cost.
“Going forward, we expect the top-line to grow by 7% year-on-year (YoY), driven by stable growth in dairy and juice segment and double digit growth in poultry segment,” the note said.
It also also highlighted that the overall consumer sentiments have picked up for the second half of 2019 and should continue to remain positive in 2020.
Downside risks for Almarai include increase in raw material prices, and significant decline in market size amid expat exodus and stagnant population. In the meantime, upside risks include gains in market size despite increase in product prices, increase in export revenues amid economic recovery in GCC countries, and significant improvement in the consumer sentiments amid various reforms in the Kingdom.
For dairy, Al Rajhi doesn’t expect any price increase in near term unless the company decides to pass on the impact of subsidy removal on non-green fodders to the consumers.
Meanwhile the poultry business is doing well and re-opening of Saudi poultry by Kuwait should further ensure the double digit growth in this segment.
“Hence we revised our forecast to a ‘Neutral’ rating with a target price of SAR 50 per share,” AL Rajhi said.
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