Saudi Company for Hardware's (SACO) Q1 2020 net profit of SAR 11.7 million came in-line with Aljazira Capital and consensus estimates’ of SAR 10.7 million and SAR 10.3 million, respectively.
SACO is expected to take a hit from COVID-19 and higher value added tax (VAT), which could result in lower earnings for the next few quarters, the brokerage firm noted.
The company’s 2020 net income is expected to decline by 48% year-on-year (YoY) to SAR 32 million, it added.
The increase in VAT from 5% to 15% from July is likely to dent revenue in H2 2020, the brokerage said, expecting some pre-buying to happen in Q2 2020 that could boost sales in May and June, partially offsetting the negative impact of COVID-19 in the quarter.
According to Aljazira Capital, SACO has the potential to benefit from growth opportunities through store expansion, introduction of new product categories, and increased online sales, which could lead to higher market share in the long term.
The brokerage maintained its “neutral” rating on the stock, setting the target price at SAR 44.40 per share.
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