Herfy Food Services Co.’s Q4 2017 net profit of SAR 47.9 million missed Albilad Capital and the consensus estimates of SAR 51 million and SAR 49.7 million, respectively.
“The downturn in net profit in Q4 2017 was attributed to lower sales, higher SG&A expenses and mounting interest expenses, in spite of the 6.6% increase in sales,” Albilad Capital said in an earnings review.
Sales dropped to SAR 299 million in Q4, compared to SAR 312 million in the previous quarter due to seasonal factors.
Operating income (Earnings before interest and taxes -EBIT) stood at SAR 61.3 million in Q4 compared to SAR 66 million in the same period of 2016, but jumped 8 percent on a sequential basis.
Eying to enhance its presence locally and overseas, the fast food chain opened two franchised branches in Bangladesh.
Herfy, however, is facing a fierce competition in the Saudi bakery sector.
“The company has to grapple with arduous challenges in 2018, most notably skyrocketing cost of non-Saudi labor, mounting levies on foreign families, squeezed purchasing power on trimming subsidies of electricity and some oil products coupled with a value added tax,” the brokerage firm added.
Operating margins are likely to be impacted in 2018.
Albilad Capital recommended a “Neutral” rating on the stock, maintaining its target price at SAR 52.
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