Abdullah Al Othaim Markets Co.’s Q1 2019 net profit of SAR 68 million topped Al Rajhi Capital’s estimate of SAR 65 million on higher sales and better-than-expected income from associates.
“Going forward, we expect top-line to continue to grow 6 percent in FY19E as the company increases its market share, on the back of store expansion in Saudi Arabia and Egypt,” Al Rajhi Capital said in an earnings note.
“We believe that the net profit margin should improve to 4.6 percent (currently 4.1 percent) by the end of FY19E driven by cost efficiency and reduced cost related to Saudisation,” It added.
Consumer sentiments improved in Q1 2019 especially in food and beverages sector, which will help Al Othaim improve its like-for-like growth and basket size.
“Al Othaim remains an attractive bet for long term investors who seek value appreciation along with attractive dividend yields (FY19E: 5.2 percent),” the report said.
Upside risks are faster than expected shift of the unorganized share in the consumer sector towards organized players and higher than expected store openings on the back of aggressive expansion.
Meanwhile, higher employment costs on the back of Saudization versus the brokerage firm’s expectations are the key downside risks.
Al Rajhi Capital maintained its "overweight' rating on the stock, upping the target price to SAR 88 from SAR 76.
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