Saudi Airlines Catering Co.’s revised top-line is expected to rise by 2.5 percent year-on-year (YoY) in fiscal year 2018, Aljazira Capital said in a recent report.
Short-term revenue growth is likely to remain moderate till the business cycle picks up, but the company can potentially enhance its long-term revenue growth on fleet expansion from airline operators and higher aircraft traffic.
Net profit is expected to grow by 4.4 percent and 2.3 percent YoY to SAR 502.7 million and SAR 514.5 million in fiscal years 2018 and 2019, respectively.
Net profit margins are expected to reach 22.3 percent by the end of fiscal year 2019.
In the next fiscal year, gross profit is estimated to increase at 0.5 percent YoY, compared to a 1.2 percent YoY rise in revenue, due to a 1.6 percent increase YoY in the cost of goods sold amid higher labor fees.
The company’s steady cash flow and low capex requirements allowed it to maintain a consistent dividend payout ratio of more than 90 percent for 2018, supporting stock’s attractiveness to the investors.
“FY18 DPS is estimated to stand at SAR5.65 per share, (92.2 percent payout of SAR 463.3 million) at a yield of 6.5 percent at current prices,” the brokerage firm added.
Saudi Airline strategic expansion plans and National Transformation Program (NTP) initiatives to boost number of pilgrims are key growth catalysts going forward.
Key risks are the emergence of other low-cost carriers and an elevated level of doubtful debt provisions, and the inability to renew Saudia contract, which expires in 2020, at a favorable price level.
“Downside risk to valuation would include further price revisions from Saudia and slower than expected growth in number of flights,” Aljazira Capital added.
The brokerage firm downgraded Saudi Catering to “neutral”, but kept the stock’s target price unchanged at SAR 94.30.
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