Earnings Report /
Saudi Arabia

Saudi Airlines Catering: Q2 20 results – first net loss on record due to COVID-19

  • Revenues stood at SAR113mn, down -79.2% yoy (-75.0% qoq). This is the lowest revenues on record.

  • Gross loss came in at SAR41mn in Q2 20 vs gross profit of SAR193mn in Q2 19 and SAR119mn in Q1 20

  • Operating loss came-in at SAR128mn in Q2 20 vs an operating profit of SAR134mn in Q2 19

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

Follow
SNB Capital
13 August 2020
Published bySNB Capital

Catering reported an in-line set of Q2 20 results, with a net loss of SAR144mn. This compares to a net profit of SAR117mn in Q2 19 and SAR16mn in Q1 20. This is the first net loss on record, mainly attributed to the impact of COVID-19 lockdown on the aviation sector. The company recorded an account receivable provision of cSAR32.1mn. Adjusting for that, net loss would be SAR111.7mn.

Revenues stood at SAR113mn, down -79.2% yoy (-75.0% qoq). This is the lowest revenues on record, but higher than our estimates of SAR53mn. The yoy and qoq revenue decline was due to the lower number of flights due to COVID-19 lockdown. Domestic flights resumed on 31 May 2020 while international flights remain suspended.

Gross loss came in at SAR41mn in Q2 20 vs gross profit of SAR193mn in Q2 19 and SAR119mn in Q1 20. This compares to our estimates of a gross loss of SAR114mn. Gross loss margin stood at 36.0% vs gross profit margin of 35.4% in Q2 19 and 26.3% in Q1 20. Despite the significant decline in sales, fixed costs remained high which increased pressure on margins.

Operating loss came-in at SAR128mn in Q2 20 vs an operating profit of SAR134mn in Q2 19 and SAR35mn in Q1 20. This compares to our estimates of a loss of SAR142mn. We believe opex stood at SAR87mn vs SAR59mn in Q2 19 and our estimate of SAR27mn. The company recorded a receivable provision of cSAR32.1mn. Adjusting for the provision, net loss would be SAR111.7mn.

We are Neutral on Catering with a PT of SAR80.5. Despite short-term headwinds, the long-term outlook for Catering is positive driven by the strong potential of the Saudi tourism sector, the growth of airline fleets and an increase in the number of pilgrims. The stock is trading at 2021f PE of 20.8x, lower than its peer group average of 28.7x and compared to its historical average of 13.2x.