Taiba Holding Co.'s Q3 net profit of SAR 60.1 million has beaten NCB Capital estimates of SAR 55 million, the research firm said in an earnings review.
Q3 net profit fell 2.5 percent year-on-year (YoY).
“With sales growing 2 percent YoY, we believe the decline in earnings came as a result of lower investment income and higher Zakat. This offset the opex efficiencies recorded by the company,” the report said.
Sales stood at SAR 134 million versus estimates of SAR 122 million, which is believed to be on higher average daily rate (ADR) and occupancy rates.
Gross margins expanded 177 basis points (bps) YoY to 64.3 percent in Q3, while the earnings before interests and taxes (EBIT) Margins jumped to 56.6 percent from 49.6 percent a year earlier, due to continued opex efficiencies.
Opex-to-sales declined to 7.7 percent in Q3 versus 12.9 percent a year earlier, as well as the estimates of 10.2 percent.
Taiba Holding invested SAR 446 million in SABIC and Makkah Construction upon receiving the compulsory purchase order (CPO) payment from the government in 2014-2015. It also increased its investment in SAFCO by SAR 269 million to SAR 895 million.
The current value of these investments stands at SAR 1.27 billion.
“We believe investing CPO compensations in equities exposes Taiba to a significant risk, which may impact its ability to build new hotels,” the report said.
Although the company has several hospitality projects planned, the potential revenue is significantly lower than the hotels that received CPOs. Moreover, all these projects, except for the Madinah Airport Hotel, remain in the design phase and not yet finalized.
“The company has a 2019f dividend yield of 5.5 percent, which we believe is sustainable and is among the highest in the sector,” the report added.
NCB Capital’s rating is “Neutral” on the stock with a target price of SAR 33.7 per share.
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