SGS Q3 misses estimates on lower gross margin: NCBC

Saudi Ground Services’ net profit of SAR 92.7 million for the third quarter of 2018, missed NCB Capital and the market consensus estimates of SAR 157 million and SAR 132 million, respectively, the research firm said in an earnings review.

“With top-line coming in-line with our estimates, we believe the variance came from the lowest gross margin in record due to higher employee costs,” the report said.

Revenue stood at SAR 710 million, as expected. The company is believed to have served 96,644 flights in Q4 compared to 94,700 a year earlier and 92,650 in Q2.

Average revenue per flight likely reached SAR 7,250, in-line with the estimates.

The Hajj season for this year concluded during the quarter, recording the biggest number of pilgrims at 2.37 million since 2012.

Gross margin reached 23.6 percent in Q3, the firm’s lowest level ever, missing the projections of 31.6 percent.

The cost increase was attributed to the cost of living allowance, higher  expat costs, and higher fuel prices.

“We believe the increase in expats cost is related to higher costs associated with temporary staff hired during Hajj season,” the report said.

Selling, general and administrative expenses came in at SAR 81 million versus SAR 69 million a year earlier and the estimates of SAR 70 million.

“The expected growth in Hajj and Umrah pilgrims, the expansion in Saudia fleet, operation of Haramain Rail as well as and the attractive dividend yield of 7.3% are the key stock catalysts.

However, the inability to control operating expenses is a key concern going forward,” the report added.

NCB Capital recommended an “Overweight” rating on the stock with a target price of SAR 44.5 per share.