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Saudi Airlines Catering: Q3 22 Results Analysis | Highest revenue and profits since Q4 19

  • Revenues increased significantly to SAR502mn, up 51.1% yoy (+21.4% qoq) and were higher than our estimates of SAR448mn

  • We believe the positive variance in earnings is mainly driven by higher-than-expected revenue

  • Gross profit came in at SAR148mn, up 45.5% yoy (+30.8% qoq) vs gross profits of SAR101mn and SAR113mn in Q3 21 and Q2 22

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
10 November 2022
Published bySNB Capital

Catering reported a strong set of Q3 22 results, with the net profit increasing SAR71.2mn compared to SAR15.4mn in Q3 21 (15.4% yoy) and SAR43.5mn in Q2 22 (+43.5% qoq). This is higher than the SNB Capital and consensus estimates of a profit of SAR46.3mn and SAR48.8mn, respectively. We believe the positive variance in earnings is mainly driven by higher-than-expected revenue, which increased by 51.1% yoy (+21.4% qoq) to SAR502mn vs our estimates of SAR448mn, due to gradual resumption of flights and other business operations. The accumulated losses at the end of Q3 22 stood at SAR43.5mn (5.3% of the share capital).

  • Revenues increased significantly to SAR502mn, up 51.1% yoy (+21.4% qoq) and were higher than our estimates of SAR448mn. The growth in revenue is a result of the resumption of flight and other business operations post the removal of covid related restrictions.

  • Gross profit came in at SAR148mn, up 45.5% yoy (+30.8% qoq) vs gross profits of SAR101mn and SAR113mn in Q3 21 and Q2 22, respectively and was higher than our estimates of a profit of SAR122mn. Gross profit margin stood at 29.4% decreasing from 30.5% in Q3 21, but was higher than our estimates of 27.3%.

  • Operating profit came-in at SAR84.2mn in Q3 22, significantly higher than SAR29.3mn in Q3 21 and SAR55.5mn in Q2 22. This was higher than our estimates of SAR59.1mn. We believe opex stood at SAR63.5mn in Q3 22 (12.6% of sales), compared to SAR72.2mn in Q3 21 (21.7% of sales) and in-line with our estimate of SAR63.1mn (14.1% of sales).

  •  The accumulated losses at the end of Q3 22 stood at SAR43.5mn representing 5.3% of the share capital. We highlight that this has improved from 14.0% of the share capital in Q2 22 and is lower than the 20% threshold. The profit of SAR150mn achieved in 9M 22 represents 17.2% 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 16.8x versus its peer group average of 18.5x.