Saudi’s consumer franchise Al Othaim reported a net profit of SAR 71.2 million for the second quarter this year, higher than Al Rajhi Capitals’ estimates of SAR 65.6 million.
This quarter’s profit is 43 percent higher year-on-year (YoY) compared to SAR 49.8 million in Q2 2016.
The company generated SAR 2.17 billion in revenues, indicating 9.6 percent growth YoY, lower than Al Rajhi Capital’s estimates of 15.7 percent growth.
Gross margin improved YoY from 15.8 percent in Q2 2016 to the current 16.5 percent increase. This increase is due to the stabilization of selling, general and administrative (SG&A) expenses, a factor that had previously impacted profitability in H2 2015 and much of 2016.
Gross margin is expected to further improve with the current product profile as well as the expanding store network, the brokerage said.
“We believe a focus on capping SG&A expenses, in the backdrop of lower than previously expected revenue growth but improving gross margin profile, will lead to ~17 percent earnings CAGR (compound annual growth rate) over FY16-18e,” the report added.
Al Rajhi Capital maintained its “neutral” rating, but revised target price (TP) from SAR 111/share to SAR 121.6/share.
“Though short term upside appears limited, long term investors can play Al Othaim for secular compounding gains in the next few years,” Al Rajhi’s report said.
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