Al Tayyar’s Q1 matches estimates, says Aljazira Cap

Al Tayyar Travel Group Holding Co.’s first quarter net profit of SAR 137 million (-28.3 percent YoY) came in line with Aljazira Capital’s estimates of SAR 141.7 million.

“We attribute the declines to i) A drop in top line (-12.7 percent). ii) an increase in SG&A (9.6 percent), iii) and an increase in the share of losses from investment associates and JVs (SAR 20.9 million) for the quarter, compared to SAR3.7 million for the same quarter last year,” Aljazira Capital said in an earnings review.

Gross profit margins contracted to 74.3 percent, from 75.3 percent in Q1-2016.

The brokerage firm added that it maintained its 2017 outlook for the travel group, as estimates incorporate lower profit margins as the company’s segments are gradually shifting to higher online bookings and lower estimated forward margins from government contracts.

The Kingdom’s decision to reinstate public sector employees’ bonus and allowances is expected to mitigate macro pressure on Al Tayyar’s Q2-2017 earnings.

Payoffs from the recent capital allocation decisions are projected to take effect on the long term, which unlocks potential value from the company’s investment in Careem and Thakher.

Al Tayyar is projected to generate net profit of SAR 691.7 million for fiscal year 2017.

Main upside is the higher-than-expected returns from integrating business lines in leveraging inbound tourism (Hajj & Umrah).

Downside risks are mainly reflected in the company’s ability to alleviate the negative impact of lower value of government related contracts.

Aljazira Capital added that it reaffirmed its “overweight” recommendation on the stock, cutting its target price to SAR 39 from SAR 40.