Al Hokair’s Q1 profit beats forecasts, says NCB Cap

Fawaz Abdulaziz Al Hokair Co. posted strong results for Q1 2017, with a net income of SAR 79.4 million, exceeding NCB Capital and consensus estimates’ of SAR 54.9 million and SAR 61.7 million, respectively.

“The strong results come despite a decline in revenues, suggesting a strong growth in gross margins due to better inventory management,” NCB Capital said in an earnings review on Sunday.

Sales declined 6.3 percent year-on-year (YoY) to SAR 1.42 billion, in line with the brokerage’s estimates of SAR 1.39 billion.

The lower sales were attributed to cautious consumer spending on discretionary products, following King Salman’s decision on cutting allowances.

Al Hokair’s gross margins topped NCB Capital’s estimates of 21.3 percent, after rising 737 basis points YoY to 23.2 percent in the same period, driven by lower inventory provisions.

The Saudi monarch’s decree restoring allowances for government employees to their original levels will boost spending on discretionary products, the report said.

“However, the positive impact of this may be slightly negated by the announcement of employing only Saudis at commercial centers which will lead to higher opex for companies such as Al Hokair,” the investment arm of National Commercial Bank added.

NCB Capital maintained its “neutral” rating on the stock, keeping its target price unchanged at SAR 37.7.

Further increases in profit margins from better inventory management is expected to be a key catalyst for the stock going forward.