Earnings Report /
Saudi Arabia

Jarir: Q3 19 results - Expansions and LFL growth drive record high earnings

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    15 October 2019
    Published by

    Jarir announced an in-line set of Q3 19 results, with net income increasing +5.9% yoy to a record high of SAR305mn. We believe the yoy growth in earnings was driven by +16.5% yoy increase in revenues, supported by store expansions and positive LFL growth. However, this was partially offset by 1) a marginal contraction in gross margins, 2) increase in selling & marketing expenses and 3) increase in finance costs post IFRS 16 implementation.

    NCBC view on the results:

    Jarir’s Q3 19 net income increased +5.9% yoy to a record high of SAR305mn, in-line with the NCBC and consensus estimates of SAR302mn and SAR306mn, respectively. We believe the yoy growth in earnings was driven by +16.5% yoy increase in revenues to SAR2.25bn, supported by 1) six new stores opening (+11.3% yoy) and 2) positive LFL growth of c5.2% driven by increased consolidation in the sector. 

    Revenues increased +16.5% yoy to SAR2.25bn (higher than our estimates of SAR2.09bn). This was the highest Q3 revenue on record, supported by increased sales of smartphones and computers. We believe the growth was driven by 1) six new stores opening (+11.3% yoy) and 2) positive LFL growth of c5.2% driven by increased consolidation in the sector post Saudization measures. Jarir’s total stores stood at 59 in Q3 19 vs 53 in Q3 18.

    Gross margins contracted by -24bps yoy to 17.3% in Q3 19 and were marginally lower than our estimates of 17.8%. We believe the marginal yoy contraction in margins is due to promotional discounts and a shift in the product mix towards relatively lower margin electronics segment. However, margins expanded by +493bps on qoq basis, benefiting from higher stationary sales due back to schools season.

    Opex increased +36.0% yoy to SAR60mn (vs our estimates of SAR45mn) due to an increase in selling & marketing expenses and opening of six new stores. Opex-to-sales stood at 2.7% in Q3 19 vs 2.3% in Q3 18. Non-operating expenses increased to SAR24mn vs SAR7mn in Q3 18, mainly due to increase in finance costs post IFRS 16 implementation. 

    We are Neutral on Jarir, with at PT of SAR157.8. We believe continued store expansions and positive LFL growth are the key positives for the stock. The stock trades at a 2019f PE of 17.6x, in-line with covered stocks at 17.5x.