Earnings Report /
Saudi Arabia

Saudi Airlines Catering: Profits rise with increase in business operations

  • Revenues stood at SAR413mn, up 60.8% yoy (+4.8% qoq). However, it was lower than our estimates of SAR442mn.

  • Gross profit came in at SAR113mn, up 110% yoy (+9.6% qoq) vs gross profits of SAR54mn and SAR103mn in Q2 21 and Q1 22.

  • The accumulated losses at the end of Q2 22 stood at SAR115mn representing 14.0% of the share capital.

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
9 August 2022
Published bySNB Capital

Catering reported a net profit of SAR43.5mn in Q2 22, vs net loss of SAR17.4mn in Q2 21 and net profit of SAR35.3mn in Q1 22 (+23.2% qoq). This is lower than the SNB Capital and consensus estimates of a profit of SAR50mn and SAR48mn respectively. We believe the variance is mainly due to lower-than-expected revenue, partially offset by lower-than-expected opex. The accumulated losses at the end of Q2 22 stood at SAR115mn (14.0% of the share capital)

  • Revenues stood at SAR413mn, up 60.8% yoy (+4.8% qoq). However, it was lower than our estimates of SAR442mn. The growth in revenue is a result of the increase in business operations after the resumption of flight services post the removal of covid-related restrictions.

  • Gross profit came in at SAR113mn, up 110% yoy (+9.6% qoq) vs gross profits of SAR54mn and SAR103mn in Q2 21 and Q1 22, respectively. However, it was lower than our estimates of a profit of SAR123mn. Gross profit margin stood at 27.3% expanding from 20.9% in Q2 21 and is broadly in-line with our estimates of 27.9%. We believe the growth in gross profit is due to higher revenues.

  • Operating profit came in at SAR56mn in Q2 22 vs a profit of SAR46mn in Q1 22, and an operating loss of SAR7mn in Q2 21 and was lower than our estimates of a profit of SAR61mn. We believe opex stood at SAR57mn in Q2 22 (13.9% of sales), compared to SAR57mn in Q1 22 (14.4% of sales) and lower than our estimate of SAR63mn (14.2% of sales).

  • The accumulated losses at the end of Q2 22 stood at SAR115mn representing 14.0% of the share capital. We highlight that this has improved from 19.3% of the share capital in Q1 22 and is less than the 20% threshold. The profit of SAR79mn achieved in H1 22 represents 9.0% of the net assets of SAR873mn as of 31 December 2021.

Outlook

Based on our April 2022 update, we are Neutral on Catering with a PT of SAR93.2. We expect the removal of Covid-related travel restrictions to bring about a recovery to Catering’s business and 2022f profitability. We believe Catering’s outlook is positive due to 1) Saudi aviation and tourism strategies, 2) strong growth in the number of pilgrims and 3) business diversification to capitalize on opportunities in Saudi. The stock trades at 2023f P/E of 17.3x versus its peer group average of 19.7x