Earnings Report /
Saudi Arabia

Jarir: Revenue growth offset by higher opex

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

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    SNB Capital
    30 January 2020
    Published bySNB Capital

    Jarir announced a broadly in-line set of Q4 19 results, with net income declining 4.6% yoy to SAR277mn vs our estimates of SAR298mn. We believe the revenue growth of 12.0% was the key positive from the results. This came as a result of store expansions and LFL growth (c+8.4%), supported by consolidation trends and higher consumer spending. However, this was offset by higher opex as a result of higher marketing expenses on e-commerce.

    NCBC View on Results

    Jarir announced a broadly in-line set of Q4 19 results, with net income declining 4.6% yoy to SAR277mn vs our estimates of SAR298mn and consensus estimates of SAR292mn. Revenues (+12.0% yoy) and gross profits (+8.8% yoy) came in-line with our estimates. We believe the variance was mainly due to higher than expected opex due to higher marketing expenses on e-commerce.

    Revenues increased 12.0% yoy to SAR2.4bn, coming in-line with our estimates. This is the highest quarterly revenue on record, supported by store expansions and higher consumer spending. We believe revenue growth was driven by 1) net opening of two new stores (+3.6% yoy) and 2) positive LFL growth of c8.4%, driven by increased consolidation in the sector. Jarir’s total stores stood at 57 stores in Q4 19 (excl. Jeddah airport store and adjusting for Buraida’s replacement store) vs 55 stores in Q4 18.

    Gross margins contracted by 43bps yoy to 14.5% in Q4 19 vs our estimates of 15.0%. We believe the marginal yoy contraction in margins is due to a shift in the product mix towards relatively lower margin electronics segment.

    Opex increased to SAR51mn in Q4 19 vs SAR21mn in Q4 18 and our estimates of SAR32mn, driven by 1) store openings 2) higher marketing expenses on e-commerce and 3) decrease in rental income. Opex-to-sales stood at 2.1% in Q4 19 vs 1.0% in Q4 18 and our estimates of 1.4%. Nonoperating expenses increased to SAR20mn vs our estimates of SAR23mn and SAR8mn in Q4 18, which we believe is due to higher finance costs post-IFRS 16 and higher zakat expenses.

    We are Neutral on Jarir, with at PT of SAR162.0. We believe continued store expansions and positive LFL growth are the key positives for the stock. The stock trades at a 2020f PE of 17.8x, vs covered stocks at 18.7x.