Equity Analysis /
Saudi Arabia

Akaria: Mixed results, high opex offset by other income

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    12 May 2019
    Published by

    Saudi Real Estate Company (Al Akaria) reported a mixed set of Q1 19 results, with net profit declining -58.6% to SAR18.5mn. This compares to the NCBC estimates of a profit of SAR16.0mn. The consolidation of new companies has led to a significant increase in opex of Al Akaria. However, this was offset by higher other income. In view of the substantial changes in the strategy and structure of the company, we have placed the stock Under Review.

    NCBC view on the results 

    Al Akaria reported a mixed set of Q1 19 results, with net profit declining -58.6% yoy to SAR18.5mn. This compares to the NCBC estimates of a profit of SAR16.0mn. Despite a low occupancy at its office segment, opex increased significantly yoy. However, this was offset by higher than expected non-operating other income.

    Revenues decreased -9.7% yoy to SAR72.4mn, coming in-line with our estimates of SAR70.0mn. We believe the yoy weakness and deviation came as a result of lower occupancy in the office segment due to terminations of contracts. Moreover, we believe the company may have reduced the rental prices for other office buildings. This resulted in gross margins contracting significantly yoy from 67.5% in Q1 18 to 62.7% in Q1 19. This compares to our estimates of 60.0%.

    EBIT declined -95.7% yoy to SAR1.4mn in Q1 19 vs SAR32.9mn in Q1 18 and our estimates of SAR9.0mn. Opex stood at SAR44.0mn vs SAR21.2mn in Q1 18 and our estimates of SAR33.0mn. We believe the yoy increase and deviation in opex is due to the impact of consolidating newly established associate companies and also the impact of the expat levy.

    Other income increased 45.7% yoy to SAR17.1mn in Q1 19 vs SAR11.7mn in Q1 18 and our estimates of SAR7.0mn. We believe this is due to a higher than expected gain on investments and financial derivatives.

    We place the stock Under Review due to the substantial changes in the strategy and structure of the company. We believe the decline in the rental income of the office segment would impact the company going forward. However, the company’s mass expansion in the hospitality and residential segments are expected to improve the long-term outlook. As a result of the company’s mega projects we believe dividends may be at risk going forward.