Itqan Capital initiates coverage of Leejam Sports, TP at SAR 76

Itqan Capital initiated coverage on Leejam Sports Co. (Fitness Time) with an “Overweight” recommendation and a target price of SAR 76, the research firm said in note.

“Despite short-term COVID-19 disruptions, Leejam’s unique business model and financial strength will enable a fast return to normality post pandemic,” the brokerage added.

Leejam Sports, the largest operator of fitness centers in Saudi Arabia and the Middle East and Africa (MENA) region, has a network of 136 fitness centers and a subscriber base of around 265,000 members as of December 2020.

Although the company was hit hard by COVID-19, the current short-term disruptions will unlikely change the positive long-term outlook of Leejam.

“We expect a relatively fast return to normality for Leejam post gyms re-opening thanks to possible market share gains amid continued plans for aggressive expansion and industry consolidation; Leejam’s launch of a highly demanded low-cost brand, and its unique selling points and diversified service offerings.”

Leejam’s strong liquidity position, despite COVID disruptions, enables it to survive current gyms closure and continue forward with expansions, the brokerage noted.

The company is forecast to recover to FY2019 revenues during FY2022, as the current year will remain pressured by Q1 2021 gym closures, but at lower margins.

Attractive industry growth prospects on the long term, Leejam’s recent focus on low-cost gyms, the company’s unique business model and its strong cash position are considered key growth catalysts.

Leejam is forecast to report net income of SAR 58 million in 2021, SAR 166 million in 2022 and SAR 199 million in 2023, Itqan Cap stated.