Dar Al Arkan reported a stronger-than-expected set of Q4 21 results, with net income increasing by 351% yoy (+124% qoq) to SAR56.4mn, coming-in higher than SNB Capital estimates of SAR28.5mn. We believe the positive variance was mainly driven by higher revenue, which stood at SAR775mn in Q4 21, increasing by 56.2% yoy (+30.2% qoq) and compares to our estimate of SAR604mn. We believe this came as a result of higher than expected land sales, as we expect the contribution from residential development units is yet to appear.
Revenue increased 56.2% yoy to SAR775mn in Q4 21 (+30.2% qoq) and was significantly higher than our estimates of SAR604mn. As residential sales of Shams Ar Riyadh and Urban Oasis in Dubai (ILFT, previously) are yet to be recognized, we believe that the revenue growth was mainly driven by higher land sales. Leasing revenue decreased due to the impact of renovation activities in Azizia Towers project in Makkah.
Gross margins contracted by 511bps yoy to 34.6% in Q4 21, lower than our estimates of 37.0%. We believe the yoy decline in margins is mainly due to lower margins on land sales. As a result, gross profit stood at SAR268mn (+36.1% yoy, +23.7 qoq), versus our estimates of SAR223mn.
Opex in absolute terms increased 51.0% yoy to SAR71.4mn, their highest quarterly operating expenses on record. This compares to our estimate of SAR57.3mn and SAR58.3mn in Q3 21. Subsequently, opex-to-sales stood at 9.2% in Q4 21, compared to our estimates of 9.5% and Q3 21 levels of 9.8%.
Net other expenses stood at SAR140mn (+3.8% yoy, +5.4% qoq) and was in-line with our estimates of SAR137mn. We believe the yoy increase in non-opex was due to higher financing costs and lower income from Islamic Murabaha deposit which was partially offset by higher income from associates.
On 27 March 2022, Dar Al Arkan announced the sign-off of a contract with Omran (Omani Co. for Development and Tourism) for SAR6.0bn. The project will be developed over 10 years with an area of 3.5mn sqm, with the financial impact expected to be reflected in 2027.
Based on our last update, we are Neutral on Dar Al Arkan, with a PT of SAR11.1. We expect the company will begin recognizing sales from its Shams Ar Riyadh and Dubai projects this year, which will be a key positive for the company. We also believe the higher contribution from its development projects going forward will support margin expansion. The stock is trading at a 2022f P/B of 0.7x, in-line with its historical average.