Earnings Report /
Saudi Arabia

Al Othaim: Q4 19 review: Store expansions offset negative LFL growth

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

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    SNB Capital
    10 February 2020
    Published bySNB Capital

    Al Othaim reported a broadly in-line set of Q4 19 results, with net income increasing +33.0% yoy to SAR142.2mn in Q4 19 vs our estimates of SAR133.6mn. Adjusting for the one-off impairment provisions, net income declined -2.3% yoy in Q4 19. Revenues increased +8.1% yoy, driven by aggressive store expansions in Saudi. This offset the negative LFL of c-0.5%, indicating market share loss to key competitors such as Panda (+5% LFL in Q4 19).

    Al Othaim reported a broadly in-line set of Q4 19 results, with net income increasing +33.0% yoy from SAR106.9mn in Q4 18 to SAR142.2mn in Q4 19. However, adjusting for the one-off impairment provisions of SAR38.7mn in Q4 18, net income declined -2.3% yoy. This is broadly in-line with the NCBC estimates of SAR133.6mn and compares with the consensus estimates of SAR154.7mn. Revenues increased +8.1% yoy to SAR2.1bn, coming in-line with our estimates. This is the highest Q4 revenue on record, which we believe is driven by stores expansions. 

    Al Othaim’s revenues increased +8.1% yoy to SAR2.1bn in Q4 19, coming inline with our estimates. This is the highest Q4 19 revenue on record, which we believe is driven by stores expansions. Al Othaim opened 27 new stores in Saudi (22 supermarkets and 5 convenience stores) and one in Egypt (minimarket) during the year, taking store count to 262 stores (216 in Saudi and 46 in Egypt). We believe LFL stood at c-0.5% vs estimates of c-1.9%. 

    Gross profit increased +6.7% yoy to SAR508.4mn, coming in-line with our estimates of SAR495.7mn. Gross margins contracted marginally by -31bps yoy to 24.1% vs our estimates of 23.7%. Opex increased +7.2% yoy to SAR348.2mn, coming in-line with estimates. We believe the yoy increase in opex is due to expenses associated with new store openings and expat levies. 

    We downgraded Al Othaim to from Overweight to Neutral in our Q4 19 company update, with a revised PT of SAR83.0. Despite store expansion supporting overall top-line growth of Al Othaim, we believe the revival of its competitor Panda (LFL +5% in Q4 19) and emergence of e-commerce food retailing platforms pose a key risk to Al Othaim’s market share going forward. Al Othaim trades at a 2020f PE of 23.3x vs covered peers PE of 19.7x.