Al Rajhi Capital recommends ‘Overweight’ on Leejam, Herfy, eXtra

Leejam Sports Co. is expected to deliver robust growth in the near term mainly due to strong expansion plans which would increase its market share, Al Rajhi Capital said in a note on the Saudi retail sector.

The company’s top-line growth is expected to be driven by double digit growth in female subscriptions, corporate segment and personal training segment.

Leejam posted a robust set of numbers in Q2 2019 as the net profit grew 24 percent year-on-year (YoY) to SAR 50 million, beating street estimates of SAR 42.5 million by 17 percent. 

“For male segment, we expect a modest growth of 4-5 percent in membership and expect the average revenue per member to remain flattish or marginally lower in the long-term,” Al Rajhi Capital said.

Al Rajhi recommended an “Overweight” rating on the stock, with a target price of SAR 90.

United Electronics Co. (eXtra) reported a robust top-line growth of 14 percent YoY driven by higher sales of smart devices, pick up in overall consumer spending and higher penetration of EMI sales.

“Going forward, we expect online sales and stores expansion to aid the company in gaining market share which should result in a healthy top-line growth,” Al Rajhi Capital added.

Gross margins are expected to improve as the company ramp-up its stores and improve its operational efficiency. The increasing mortgage lending suggests that there will be construction of new houses which in turn will boost the demand for household appliances and smart home devices.

“We like Extra over other players due to its strong brand image, wider product mix and increasing pick up of EMI sales,” it said.

Al Rajhi Capital set a target price of SAR 80 per share, and maintained an “Overweight” rating on the stock.

Herfy Food Services Co. reported a top-line growth of 8 percent YoY mainly driven by store expansion.

“We like the company mainly because of its strong brand image and product offering which aligns with the new consumer behavior focusing more on value products,” added Al Rajhi.

“Going forward, we are bullish on the long term story of Herfy even though current average sales per store are subdued,” it noted. “This is because, normally in a QSR (Quick service restaurant) business model, the yield per store starts improving once the stores mature and capex decreases.”

The equal weighted target price stands at SAR 68 per share, implying a 33 percent upside from current price of SAR 51. The stock was maintained at “Overweight”.

Tadawul has witnessed successful inclusion in the MSCI Emerging market index with a weightage of 2.83 percent. A total of 31 companies were included with the second tranche of inclusion ending August. Post the inclusion, there are concerns of lack of immediate upside triggers for the overall market.