Al Jouf Agricultural’s Q2 misses estimates, says Aljazira Cap

Al Jouf Agricultural Development Co.’s (Al Jouf) net profit of SAR 7.7 million missed Aljazira Capital and the market consensus estimates of SAR 22.9 million and 22.5 million, respectively, the brokerage said in an earnings review.

The deviation was mainly due to higher than expected production cost, operating expenses, other expenses and capital losses of SAR 2.5 million.

The company’s compliance with the government decision to reduce the cultivation of high margin products, such as wheat and green fodder, increased production cost in Q2, the report said, adding that the impact of higher cost of goods sold (COGS) is likely to continue in H2 2017.

Revenue declined by 9 percent YoY to SAR 67.21 million in Q2, missing Aljazira Capital’s estimate of SAR 74.9 million, as sales declined despite seasonal productivity and strong demand for some product categories.

“We believe that government initiative to stop domestic production of green fodder would noticeably impact Al Jouf’s total revenue from green fodder by end of 2018-2019 and onwards, diluting to 19.5 percent in fiscal year 2019 of total sales, as compared to 33.4 percent in 2016,” Aljazira Capital said.

Gross profit declined 36 percent YoY to SAR 22.25 million, missing the estimates of SAR 30.6 million, while gross margin contracted 1,353 basis points YoY to 33.1percent.

Al Jouf is expected to post a net profit of SAR 72.5 million for fiscal year 2017, 6.7 percent lower YoY due to sales decline and higher COGS. The company is also seen to maintain dividend payment at SAR 1 per share in 2017.

Aljazira Capital has revised its rating on the stock to “Neutral” and the target price to SAR 29.20 per share.

Going forward, the brokerage expects the company to maintain recording YoY sales decline in H2, due to the impact of low wheat cultivation and decline in green fodder production.

“However, the successful expansions in olive cultivation and other crops with high margins such as potatoes will help the company in maintaining a healthy margin,” the report said.