Dar Al Arkan's net profit of SAR 36.7 million for the third quarter of 2018 - its lowest since Q3 2017 - missed NCB Capital's estimates of SAR 90.1 million, the research firm said in an earnings review on Monday.
"We believe the main reason for the weakness is lower than expected land sales and gross margin contraction," it noted.
Sales fell 33.4 percent year-on-year (YoY) to SAR 988 million, coming lower than the brokerage's estimates of SAR1.48 billion. Land sales came-in at SAR 958 million missing NCB Capital's estimates of SAR1.45 billion.
"We believe Dar Al Arkan reduced its prices and margins to mitigate the weakness of the real estate market," the report added.
Gross margins stood at 16.7 percent, contracting YoY from 23.8 percent, as weak margins suggested that the developer had sold undeveloped land, along with the usual sale of developed land.
NCB Capital kept its “neutral” rating on the stock, revising the target price to SAR 13.1 per share.
"Dar Al Arkan’s strategy and ability to liquidate undeveloped land despite the white land fees is a key positive," the brokerage added.
The developer has estimated white land fee on its land bank to be SAR 22 million per annum.
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