Equity Analysis /
Saudi Arabia

Fitness Time: Q2 19: Expansions and opex efficiencies drive yoy growth

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    4 August 2019
    Published by

    Fitness Time reported an in-line set of Q2 19 results with a net income of SAR49.6mn, increasing +24.7% yoy. Adjusting for a one-off refund of SAR2.9mn related to government fees, net income increased +17.4% yoy to SAR46.7mn. The yoy growth in net income was driven by opening new centres, LFL growth and opex efficiencies. Fitness Time trades at a 2019f PE of 20.7x vs covered retail peers average of 19.0x.

    NCBC view on the results:

    Fitness Time reported an in-line set of Q2 19 results with a net income of SAR49.6mn, increasing +24.7% yoy. Adjusting for a one-off refund of SAR2.9mn related to government fees, net income increased +17.4% yoy to SAR46.7mn. The results are also in-line with the consensus estimates of SAR42.7mn. The yoy growth in net income was driven by opening new centres, LFL growth and opex efficiencies.

    Revenues increased 17.0% yoy in Q2 19 to SAR219mn. We believe the growth in top-line came primarily as a result of the expansion in fitness centres. The company opened 10 new fitness centres in 2019 (6 male and 4 female), taking the total number of centres to 134 (2 temporarily closed to be switched to female fitness centres). This compares to 126 branches in 2018 and 112 branches in 2017. This reflects a positive LFL of c+9.0% in Q2 19. Faster ramp-up of female fitness centres (1-3 months vs 12 months for male centres) combined with higher prices further supported the top-line growth.

    Gross margins expanded by 132bps yoy to 37.2%. We believe the expansion in gross margins is mainly supported by higher prices of female fitness centres and lower discounts at male fitness centres.

    Opex stood at SAR16mn (7.3% of sales) in Q2 19 vs SAR21.4mn (11.5% of sales) in Q2 18 and our estimates of SAR23.3mn (10.3% of sales). We believe opex efficiencies despite the aggressive store expansions is a key positive from the results.

    We are Overweight on the stock with a PT of SAR76.6. The stock trades at a 2019f PE of 20.7x vs covered retail peers average of 19.0x. We believe aggressive expansions in ladies’ fitness centres will to be a key earnings driver for Fitness Time. We forecast a CAGR earnings growth of 15.6% between 2018-2023f, driven by a CAGR top-line growth of 12.4%.