Herfy Foods Q1 net profit misses estimates: Al Rajhi Cap

Herfy Food Services Co.’s (Herfy Foods) net profit of SAR 48.1 million for the first quarter of 2019 has missed Al Rajhi Capital and market consensus estimates of SAR 51 million, the research firm said in an earnings review.

“The miss in bottom-line was mainly due to higher administrative and marketing expenditure and increase in finance costs due to implementation of IFRS16,” the report said.

Revenue increased 9.5 percent year-on-year (YoY) to SAR 313 million in Q1, beating the forecast of SAR 302 million, likely on better than expected performance from restaurants segment, supported by a growth in the meat and bakery units.

Restaurant sales rose as the firm opened 25 new restaurants in 2018.

Gross profit grew 18.4 percent YoY, mainly due to lower cost of goods sold (COGS) as the company sourced most of the raw material needs from its own bakeries and meat factory.

While gross margin expanded 150 basis points YoY to 29.1 percent, and operating profit rose 14 percent YoY to SAR59.2 million, Q1 net profit was subdued for the higher interest cost due to implementation of IFRS 16, Al Rajhi Capital said.

“We expect the bottom line growth to pick up due to higher sales and better margins once the impact of finance cost due to IFRS implementation is fully settled,” it said.

Store expansion and the like for like (LFL) growth are seen to remain key revenue growth drivers, going forward.

The brokerage maintained an “Overweight” rating for the stock with a target price of SAR 67 per share.