Earnings Report /
Saudi Arabia

Savola: Q3 22 Results Analysis | Lowest gross margins since 2016

  • Revenues stood at SAR7.07bn, up 16.9% yoy, (+2.7% qoq) and was higher than our estimates of SAR6.64bn

  • Gross profit came in at SAR1.15bn up 12.2% yoy (-7.9% qoq) and was in-line with our estimates

  • Operating profit stood at SAR421mn up 39.4% yoy (-16.5% qoq), lower than our estimates of SAR458mn

SNB Capital
1 November 2022
Published bySNB Capital

Savola reported a net profit of SAR164mn in Q3 22 up 33.7% yoy ( -23.5% qoq). This is lower than the SNB Capital and consensus estimates of SAR192mn and SAR214mn respectively. We believe the variance is due to 1) lower than expected gross margin and 2) higher than expected operating expenses. This was partly offset by higher-than-expected revenues. The yoy growth in earnings were due to 1) higher gross profit due to improved food processing margins and 2) higher share of profits from associates. Based on our last publish update, we are Overweight on Savola with a PT of SAR37.8. We await full financials to update our PT.

  • Revenues stood at SAR7.07bn, up 16.9% yoy, (+2.7% qoq) and was higher than our estimates of SAR6.64bn. Based on our calculations, the revenues from the food processing segments increased by c39.3%yoy (+5.6%qoq) to SAR4.30bn driven by increase in commodity prices and higher volumes. The retail segment revenues decreased by 6.3%yoy (-2.4%qoq) to SAR2.37bn. The food services segment revenue declined by 13.3% yoy (+4.9% qoq), while frozen food segment revenues increased 2.3%yoy (-7.8% qoq)

  • Gross profit came in at SAR1.15bn up 12.2% yoy (-7.9% qoq) and was in-line with our estimates. Gross margins stood at 16.2% lower than our estimates of 17.0% and 18.1% in Q2 22. We highlight that this is the lowest quarterly gross margins since Q4 16. The qoq decrease in gross profit is due to lower margins in the food processing, retail, and frozen foods segments.

  • Operating profit stood at SAR421mn up 39.4% yoy (-16.5% qoq), lower than our estimates of SAR458mn. Net operating expenses (including income from associates) stood at SAR728mn, higher than our estimates of SAR671mn and compared to SAR744mn and SAR722 in Q2 22 and Q3 21 respectively. Opex to sales stood at 10.3% lower than 11.9% in Q3 21 and 10.8% in Q2 22 but higher than our estimates of 10.1%. We believe the higher share of profits from associates yoy mitigated the impact of higher opex

  • Net non-opex increased 43.3% yoy (-11.3% qoq) to SAR257mn and was in line with our estimates of SAR266mn. We believe the yoy increase is due to higher net financing costs and expenses related to zakat and taxes.

 

Outlook

Based on our last update, we are Overweight on Savola with PT of SAR37.8. We await full financials to update our PT. We believe despite the quarterly decline in profits, Savola is well positioned to grow as the operating environment normalizes. Panda’s break-even remains the major catalyst in the near term. The stock trades at 2023f P/E of 16.8x lower than its sector average of 19.1x.