Earnings Report /
Saudi Arabia

Al Othaim: Q3 22 Results Analysis | Weak results on lower gross margins

  • Revenues increased by 17.4% yoy (+4.0% qoq) to SAR2.35bn and came in-line with our estimates of SAR2.28bn

  • Al-Othaim opened 5 new retail stores in Saudi during the quarter, taking the total store count to 337.

  • Gross margins contracted by 34bps yoy to 19.7% in Q3 22, and came lower than our estimates of 20.9%

SNB Capital
10 November 2022
Published bySNB Capital

Al-Othaim reported a net income of SAR745mn in Q3 22, which include one-off capital gain of SAR701.2mn from the sale of land in Medina. Adjusted for the one-off, Al-Othaim reported a weak set of Q3 22 results, with a net profit of SAR43.4mn vs a net profit of SAR44.9mn in Q3 21 and SAR46.6 in Q2 22. This is lower than SNB Capital and consensus estimates of SAR52.4mn and SAR51.5mn, respectively. Revenues increased by 17.6% yoy (+4.0% qoq) to SAR2.35bn and were in-line with our our estimates of SAR2.28bn. We believe the variance in earnings is mainly driven by lower than expected gross margins which contracted by 34bps yoy to 19.7% vs our estimates of 20.9% due to increased sale of discounted products. 

  • Revenues increased by 17.4% yoy (+4.0% qoq) to SAR2.35bn and came in-line with our estimates of SAR2.28bn. We believe the yoy increase and variance in revenue is the result of increased contribution from existing and new stores driven by back-to-school season sales. Al-Othaim’s revenue growth is higher than Panda which reported a 5% yoy decline in revenue.

  • Al-Othaim opened 5 new retail stores in Saudi during the quarter, taking the total store count to 337 (of which 293 in Saudi and 44 in Egypt). Accordingly, LFL stood at 7.2% during Q3 22.

  • Gross margins contracted by 34bps yoy to 19.7% in Q3 22, and came lower than our estimates of 20.9%. We believe the yoy contraction and variance in margins is due to increased sale of discounted products.

  • Opex in absolute terms increased by 19.8% yoy to SAR412mn and came in-line with our estimates. Accordingly, opex-to-sales stood at 17.5% vs 17.2% in Q3 21 and our estimates of 18.1%. We believe the yoy increase in opex is mainly due to selling costs associated with the new stores.

  • Net operating income increased significantly to at SAR694mn in Q3 22 vs net non-opex of SAR12.2 in Q3 21 and our estimate of net non-opex of SAR12.1mn. This is mainly due to one-off capital gains from the sale of investments in Al-Othaim Investment Co. and land in Medina.

Outlook

Based on our last update, we are Neutral on Al-Othaim with a PT of SAR123.0. Growth in revenue is the key positive of the result, while the decline in margins is the main concern. We believe the company’s expansion plans and sector consolidation will support the earnings growth. The stock is currently trading at a 2023f P/E and EV/EBITDA of 23.7x and 12.2x vs peer group average of 19.5x and 11.2x, respectively.