Al Othaim Q4 beat estimates on higher sales, efficiencies: NCB Capital

Abdullah Al Othaim Markets Co’s net income of SAR 166.8 million for Q4 2017 was ‘significantly’ higher than NCB Capital and consensus estimates of SAR 107 million and SAR 114 million, respectively.

The company’s positive results were backed by higher sales from new store openings and operational efficiencies, Riyadh-based research firm said today.

"We believe the year-on-year growth is mainly due to a strong revenue growth of 15.8 percent, operational expenditure (Opex) efficiencies and higher other income," it said.

The supermarket chain reported sales of SAR 2.21 billion, much in line with the research firm's estimate of SAR 2.14 billion.

"We believe the growth is mainly attributed to aggressive store expansions, which offset the relatively flat organic growth rate as a result of the depreciating Egyptian pound and muted growth in the spending power in Saudi Arabia," NCB said.

Al Othaim opened 29 new stores in 2017, taking its current store count to 202 (165 in Saudi Arabia and 37 in Egypt).

Gross margins stood at 20.1 percent beating NCB's estimate of 19.6 percent, supported by higher rebates from suppliers and lower discounts offered. Opex increased 15.4 percent to SAR 295.5 million, but remained lower than the research firm’s estimate of SAR 306.6 million. 

Meanwhile, Al Othaim reported other income of SAR17.6 million due to reversal of a bad debt provision of SAR 4.6 million and receipt of an insurance claim of SAR 4.9 million. 

"We believe lower financing expenses as a result of early settlement of debts, in addition to a higher income from OREDCO, also contributed to this increase," the report added.

NCB Capital assigned an “overweight” rating on Al Othaim, setting the target price at SAR 121.5.

"We believe a strong performance in Egypt will be a key catalyst," it noted.