Saudi Catering’s Q1 above consensus estimates, says Falcom

Saudi Airlines Catering Co.’s Q1 2018 net profit (SAR 120 million) came ahead of analysts’ forecasts despite a 0.9 percent decline year-on-year (YoY), due to weak retail segment performance and losses from as associate, Falcom Financial Services said in an earnings note.

Catering’s retail business was hit by the Saudi government reforms, such as the value-added tax (VAT), expat fees along with electricity and gasoline price hikes. Further decline in the consumer spending over the next couple of months will weigh on the airlines industry in general, particularly Catering.

The company’s quarterly net profit, however, jumped 21.6 percent on implementation of IFRS9, in addition to narrowing losses from equity accounted affiliates.

“We believe the company needs to focus on operational efficiency and cost optimization to moderate the impact of any future hike in fuel and electricity costs, apart from macro-economic headwinds and unexpected changes in the contract terms. Also, we think the ‘Sky sales’ segment will remain pressured over the next few quarters, driven by constricted consumer spending,” the brokerage firm added.

“Despite the short-term pressures, we believe that the company will start to witness growth in the core segment from 2018 and beyond, driven by Saudi Airlines expansion after launching its 5-years SV2020 strategic plan, coupled with the NTP initiatives to increase Haj pilgrims and Umrah visitors,” Falcom said.

The brokerage firm added that it remained “neutral” on the stock, upping its target price to SAR 84.9 in-line with current share price run-up and incorporating 1Q18 performance.