Earnings Report /
Saudi Arabia

Mouwasat: Revenue growth drives net income

  • Revenue increased by 3.5% yoy (+4.0% qoq) to SAR552mn and was in-line with our estimate of SAR550mn

  • Gross profit increased marginally by 0.8% yoy (+2.6% qoq) to SAR251mn, in line with our estimate of SAR254mn

  • Operating profit stood at SAR159mn, up 5.4% yoy (5.7% qoq) and was in-line with our estimates of SAR158mn

SNB Capital
17 March 2022
Published by

Mouwasat reported a net income of SAR147mn in Q4 21, up 2.6% yoy (+2.9% qoq). This is in line with the SNB Capital and consensus estimates of SAR147mn and SAR144mn, respectively. The earnings improvement was driven by revenue growth of 3.5% yoy (+4.0% qoq) and cost efficiencies with opex-to-sales declining to 16.7% vs 18.4% in the same period last year. We downgrade the stock to Neutral while maintaining our PT of SAR 214.1.

  • Revenue increased by 3.5% yoy (+4.0% qoq) to SAR552mn and was in line with our estimate of SAR550mn. The revenues for the full year 2022 increased by 4.8% yoy to SAR 2,144mn due to 1) to improved performance of new specialized departments, 2) improving contractual terms with customers, and 3) efficient utilisation of resources.

  • Gross profit increased marginally by 0.8% yoy (+2.6% qoq) to SAR251mn, in line with our estimate of SAR254mn. Gross margins declined by 123bps yoy (-60bps qoq) to 45.4% in Q4 21 and were marginally lower than our estimates of 46.2%.

  • Operating profit stood at SAR159mn, up 5.4% yoy (5.7% qoq) and was in line with our estimates of SAR158mn. Opex stood at SAR92mn and was marginally lower than our estimates of SAR96mn. The opex-to-sales ratio of 16.7% in Q4 21 was lower than our estimate of 17.5% and 17.8% in Q3 21. Subsequently, operating margin improved by 52bps to 5.4% yoy (+5.7% qoq).

  • On the other hand, non-opex costs increased substantially by 60.4% yoy (+58.9% qoq) to SAR12mn and were 6.7% above our estimate which we believe is due to higher zakat expenses, which mitigated the impact of lower finance cost.

Outlook

Based on our recent update published in January 2022, we downgraded the stock to Neutral with a PT of 214.1. Superior profitability profile, timely expansion, and healthy cash flow generation are Mouwasat’s key strengths. Moreover, the commercial operations of new expansions in Madinah and Dammam would support 2022f earnings growth. The stock trades at 2022f P/E of 42.2x, compared to the peer group average of 40.9x respectively.