Aljazira Cap says Alhokair Q2 2020/21 losses miss estimates, maintains 'Neutral' rating

Fawaz Alhokair Co. reported a net loss of SAR 98.8 million in the second quarter of the fiscal year 2020/2021, which came below analysts’ estimates of SAR 42.8 million, Aljazira Capital said in a recent report.

The losses are attributed to a slight decline in the company's revenue and contraction in gross profit margin due to a hike in the value-added tax (VAT) rate, it said.

However, Aljazira expects Alhokair's margins to see improvement upon completing inventory write-off, rebound in consumer demand, and the easing of restrictions imposed to curb the spread of coronavirus.

"We believe Alhokair would benefit from increased retail demand, which would primarily drive growth in the long term. With the new management implementing cost-saving initiatives and completion of the inventory write-off, we expect the operating results to improve," the research firm said.

Aljazira Capital maintained its “Neutral” recommendation for Alhokair and adjusted the target price (TP) to SAR 22.7 per share.

The brokerage firm noted that its 'Neutral' rating implies that the stock is trading in the proximate range of its 12 months price target and is expected to move within +/- 10% range from the current price levels over next 12 months.