Jarir’s Q1 beats estimate on store expansions: Al Rajhi Cap

Jarir Marketing Co.’s Q1-2017 net profit of SAR 221.4 million, came in higher than Al Rajhi Capital’s estimate of SAR 190.4 million, the brokerage said in an earnings review on Tuesday.

The earnings beat was attributed to higher-than-expected growth in revenue at 20.3 percent year-on-year (YoY) and gross margin at 14.5 percent YoY, versus the brokerage’s forecast of 16 percent YoY and 13.8 percent YoY, respectively.

Jarir’s revenue was likely backed by aggressive new store openings and the better-than-expected like-for-like (LFL) growth of old stores.

“We believe Jarir is in a sweet spot to benefit from aggressive store roll-outs as they are coming in an environment where smaller retailers are finding it difficult to operate, either due to regulations or due to other headwinds such as lower payable days to suppliers [or] costlier working capital credit from banks,” Al Rajhi Capital added.

Accordingly, unorganized retailers will lose a significant market share to organized players such as Jarir and United Electronics Co. (eXtra).

Electronic retailers are also likely to benefit also from the Saudi government’s decision to reinstate financial allowances for the public sector employees.

Jarir is expected to pay a dividend of SAR 8.1 per share this year, with a 6.1 percent dividend yield at the current market price.

“Hence we view Jarir as an attractive investment opportunity at the current market price,” the brokerage added.

Al Rajhi Capital maintained its “neutral” rating on the stock with a target price of SAR 145.8.