Saudi Catering’s Q1 disappoints on weak sales, margins: NCB Capital

Saudi Airlines Catering Co.’s net profit of SAR 121.4 million for Q1 2017 was significantly below NCB Capital and the consensus estimates of SAR 143 million and SAR 147 million, respectively.

“We believe lower than expected airline catering income and weak gross margin were the main reasons behind the variance,” NCB Capital said in an earnings review.

Revenues declined 4.5 percent year-on-year (YoY) to SAR 534 million, 7.7 percent lower than NCB Capital’s estimate.

Gross margin rose to 31.3 percent in Q1-2017 from 29.7 percent in the previous quarter, but came lower than the brokerage firm’s forecast of 33.4 percent.

“We believe the margin decline is due to 1) flat growth in the number of flights and lower meal prices and 2) higher contribution of Sky Sales,” the report added.

Key upsides are an increase in the number of Hajj and Umrah performers, reinstatement of government allowances and attractive dividend yield.

Meanwhile, weak profit margin is the key downside.

NCB Capital maintained its “overweight” rating on the stock, keeping the price target unchanged at SAR 103.4.