Saudi Ground Services Co. (SGS) second-quarter net profit of SAR 122 million, down 37.6 percent year-on-year, fell short of NCB Capital’s estimate of SAR 197.5 million and consensus forecasts of SAR 184 million.
“We believe provisions were the key reason behind the variance,” NCB Capital said in an earnings review.
Revenue also missed the brokerage expectations of SAR 737.5 million, coming in at SAR 659 million in the same period.
The company’s revenue was hurt by weaker-than-expected number of flights, revised service charges following Saudia’s contract revision in April 2017.
Meanwhile, gross profit margin expanded to 37.4 percent in Q2, from 34.6 percent in the previous quarter and 36.4 percent in Q2 2016, beating NCB Capital’s forecast of 35.1 percent.
“We believe margin expansion is a key positive and will help support earnings growth in the coming quarters,” the brokerage firm added.
Key strengths are growth in Umrah and Hajj, along with an attractive dividend yield of 6.3 percent.
On the other hand, downsides are slower-than-expected growth in the number of flights and the increasing receivables from Saudi Airlines.
On-going provisions on receivables may impact the company’s ability to maintain higher dividends in the near term.
NCB Capital maintained “overweight” rating on the stock, keeping its target price unchanged at SAR 60.8.
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