Equity Analysis /
Saudi Arabia

Dar Alarkan: Q1 22 earnings call summary

  • Q1 22 revenues increased substantially by 192% yoy (+109% qoq) to SAR1.62bn, compared to SAR0.56bn in Q1 21

  • Management added that they repaid a part of its debt, which should have an impact on its cash balance in Q2 22

  • Management expects the SG&A to remain between SAR50mn-60mn per quarter going forward

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

SNB Capital
24 May 2022
Published by

Financial Highlights

  • Q1 22 revenues increased substantially by 192% yoy (+109% qoq) to SAR1.62bn compared to SAR0.56bn in Q1 21.

  • The growth came from Developed Properties sales which grew to SAR1.59bn in Q1 22 compared to only SAR0.53bn in Q1 21. This was driven by recognition of new sales from Shams Ar Riyadh and Urban Oasis Dubai projects. The management stated that this is in line with IFRS 15.

  • Leasing revenue, on the other hand, declined to SAR27mn in Q1 22 from SAR30mn in Q1 21. The contribution of leasing revenues was less than 2% in Q1 22 compared to c6% in Q1 21.

  • Gross profit increased by 175% yoy (110% qoq) in Q1 22. The management stated that it was due to higher sales, however the gross margins contracted by 200bps from Q1 21 to 35% during Q1 22, due to a change in product mix.

  • SG&A increased substantially by 76% yoy (+11% qoq) due to an increase in marketing expenses.

  • Despite an increase in EBITDA to SAR528mn in Q1 22 from SAR209mn in Q1 21, EBITDA margins contracted by 5% due to higher SG&A costs.

  • Net income for the quarter stood at SAR221mn compared to SAR28mn in Q1 21. Net margins expanded to 13.6% in Q1 22 compared to 5.1% in Q1 21.

Balance sheet

  • Gross Debt/ Capitalization ratio improved to 33% vs 35% in Q1 21. The management said that the group had repaid a debt of SAR1.9bn in April 2022. Post debt repayment, pro forma cash balance was at SAR3.16bn that according to management can fully cover repayments till the end of 2023.

  • The group’s cash balance stood at SAR5.0bn at the end of Q1 22 compared to SAR4.5bn in Q1 21. The management added that they repaid a part of its debt, which should have an impact on its cash balance in Q2 22. The management pointed out that none of the cash is restricted. Any amount in escrow accounts is being used in projects under development and cannot be classified as restricted.

  • The management stated that the reduction in gross debt to SAR9.4bn in Q1 22 from SAR10.2bn in Q1 21, helps the group in keeping cost of interest in check. The majority of Murahabas are payable in the next 5 years.

  • The effective cost of funding was flat at 6.18% on yoy basis and slightly lower than 6.38% in Q4 21. The group managed to keep the cost of funding below 6.5%.

  • Dar Alarkan investment in properties increased 3% yoy to SAR2.3bn in Q1 22. The company added properties worth SAR243mn in Q1 22 vs SAR248mn in Q1 21.

  • Investments in land (67%) and project lands and properties (27%) still form the bulk of the group’s investment portfolio which now stands at SAR19.2bn.

Upcoming projects

  • The group has sold 76 plots in the Bosnia project by the end of Q1 22 out of 171 released plots. The total plots number is 440.

  • In the Jeddah project, all 238 released plots have been sold by the end of Q1 22 out of the total number of plots of 869.

  • The Urban Oasis project, which is also the group’s first project in Dubai, has sold 394 units out of 422 released units. The total units are 455.

  • Pagani and W residences projects have sold 13 and 315 units out of total 33 and 360 units, respectively.

  • The eastern project is still awaiting approval from authorities.

Guidance

  • The management expects the SG&A to remain between SAR50mn-60mn per quarter going forward.

  • Gross debt is expected to remain around 35% of capitalization but the net debt may change due to fulfillment of operational expenses in cash.

  • Interest rates: fixed rate Sukkuks account for c.80% of total debt, financing expense from these loans will remain constant in the rising interest rate environment. Whereas for Murabahas on floating rates the management is currently in talks with bankers to align hedges to mitigate the risk of rate hikes.