Earnings Report /
Saudi Arabia

Saudi Ground Services: Q3 22 Results Analysis | High operating costs offset top line improvement

  • Revenues increased by 31.9% yoy (+12.0 qoq) to SAR555mn, higher than our estimates of SAR520mn

  • Gross profit stood at SAR47mn, down 17% yoy (-9.7% qoq) vs a profit of SAR52mn

  • Operating loss stood at SAR20mn, compared to losses of SAR11mn and SAR29mn in Q2 22 and Q3 21 respectively

SNB Capital
10 November 2022
Published bySNB Capital

SGS reported a net loss of SAR51mn in Q3 22 vs losses of SAR43mn in Q3 21 and SAR67mn in Q2 22. The yoy increase in losses is mainly due to an increase in the cost of revenue driven by higher employee cost and higher Zakat charge of SAR13.9mn. The losses are significantly higher than the SNB Capital and consensus estimates of losses of SAR25mn and SAR17mn, respectively. Revenues came in at SAR555mn (+31.9% yoy, 12.0% qoq), higher than our estimates at SAR520mn which we believe is a key positive driver.

 

  • Revenues increased by 31.9% yoy (+12.0 qoq) to SAR555mn, higher than our estimates of SAR520mn. The growth in revenues reflects the increase in flights traffic and operations after the lifting COVID-19 restrictions and the Hajj and Umrah seasons. Based on our estimates, we believe SGS served c76,800 flights in Q3 22 vs c73,800 flights in Q2 22.

  • Gross profit stood at SAR47mn, down 17% yoy (-9.7% qoq) vs a profit of SAR52mn, SAR57mn in Q2 22 and Q3 21, respectively. It is lower than our estimates of SAR62mn. This reflects a margin of 8.5% in Q3 22, down 510bps yoy, 200bps qoq. We believe the decline in margins is due to higher costs incurred due to higher number of employees to support Hajj operations.

  • Operating loss stood at SAR20mn, compared to losses of SAR11mn and SAR29mn in Q2 22 and Q3 21 respectively, and our estimate of a profit of SAR2mn. Opex came-in at SAR67mn, in line with our estimates of SAR65mn. Opex to sales stood at 12.0% vs our estimates of 12.4%. We believe high operating cost is a key concern.

  • Net non-opex stood at SAR31mn, higher than our estimates of SAR23mn. This compares to a non opex of SAR56mn and SAR15mn in Q2 22, and Q3 21, respectively. We believe the increase in non-opex is mainly due to increase in Zakat expense of SAR13.9mn yoy. Excluding this, net loss would be SAR37mn.

 

Outlook

Based on our last update, we are Overweight on SGS with a PT of SAR39.5. We await for the detailed financials to update our estimates and PT. Despite the weak Q3 22 results, we believe the outlook for SGS is positive supported by Saudi tourism initiatives. However, the ongoing increase in cost of operations is a key concern. The stock trades at 2023f P/E of 14.2x lower than its peer average of 18.5x.