Budget Saudi is in a much better-than-expected position, margins from used car sales intact: CEO
27/10/2020 Argaam Special
ShareCopy to clipboard
United International Transportation Co. (Budget Saudi) is in “a much better-than-expected position” as the market expectations were worse amid the coronavirus pandemic fallout, Fawaz Danish, President and Group CEO, told Argaam in a telephone interview.
The second quarter, which witnessed a total lockdown due to the pandemic, had a negative impact on the market sectors, including car rentals and sales.
“Reopening airports to domestic flights and the gradual market reopening since the beginning of the third quarter has partially contributed revenues to the short-term rentals. In addition, the car sales business reported better results in the same quarter,” Danish explained.
“A 10% decline on a year-on-year (YoY) basis in Q3 profit is a breakthrough for the company, which largely depends on tourism, Hajj and Umrah. As these activities were temporarily suspended, comparing the quarterly results with the year-earlier period will be unfair,” he added.
Budget Saudi is proud that the third quarter net profit rose by over 79% when compared to the previous quarter, the top official pointed out, expecting Q4 2020 results to see a marginal increase on a quarterly basis.
He also expected the company to resume growth starting Q1 2021, taking into account the impacts of travel resumption, market reopening, and finding a new vaccine for the coronavirus.
Moreover, the profit margins from used car sales were not affected after tripling value-added tax (VAT) to 15%. “Many clients preferred buying used cars following the VAT hike. Last June, a large number of cars were sold to save money from the VAT hike, as demand slowed significantly in July and then started to improve in August and September, as Budget Saudi offers top quality products, which are in high demand,” Danish added.
“It is difficult to determine the company’s market share as several firms have exited the market due to the COVID-19 pandemic. Demand for short-term rentals also declined by nearly 30% during the lockdown period. However, the demand improved after the economic reopening, but slowed by around 10%. Accordingly, the short-term rentals segment witnessed a decline in the number of cars,” the Group CEO said.
On the other hand, the long-term rentals did not witness weak demand, as the Saudi economy is still strong and the companies are showing strong performance.
Budget Saudi’s long-term rental sales exceeded SAR 100 million during the second quarter of the year, which spurred the company’s results during the third quarter and will also lift them in the upcoming quarters.
“I am looking forward to the initial public offering (IPO) of Theeb Car Rental Company, which has recently obtained the market regulator’s nod to list shares in the Saudi market. Theeb will enable investors to realize the sector indicators and size, as Budget Saudi has long remained the sole sector player,” Danish concluded.