Equity Analysis /
Saudi Arabia

Shaker: Q2 19 – Higher sales and opex efficiencies drive earnings

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    7 August 2019
    Published by

    Shaker reported a strong set of Q2 19 results, with a net loss of SAR9.9mn vs a net loss of SAR38.9mn in Q2 18. This is significantly better than our estimates of net loss of SAR35.1mn. We believe the variance in earnings is attributed to 1) higher than expected sales, 2) opex efficiencies and 3) higher than expected share of profits from associates (LG Shaker).

    Shaker reported better-than-expected Q2 19 results, with a net loss of SAR9.9mn in Q2 19 vs SAR38.9mn in Q2 18. This is significantly lower than the NCBC estimates of a net loss of SAR35.1mn. The variance is mainly due to higher-than-expected sales and lower-than-expected opex. Earnings were further supported by a higher-than-expected share of profits from LG Shaker. 

    Sales increased 19.4% yoy to SAR254mn, coming higher than our estimates of SAR204mn. This is the first yoy increase in sales since Q1 16. We believe the strong growth in Q2 19 sales was driven c25% yoy increase in domestic revenues, supported by (1) higher B2B commercial AC sales, and (2) improved sales of home appliances. Shaker implemented a Breakthrough Program, which supported sales through multiple distribution channels and helped improve opex as well.

    Gross margins contracted marginally by 29bps yoy to 19.0%, but came higher than our estimates of 17.0%. We believe the variance is due to higher-than-expected share of high-margin home appliances segment in the product mix. However, growth was limited due to the ongoing stock liquidation to comply with the SASO regulations, which is scheduled to end in August 2019.

    Opex declined 23.6% yoy to SAR54mn, coming in lower than our estimates of SAR62mn. Opex as a percent of sales declined to 21.3% in Q2 19 from 33.4% in Q2 18. Non-operating expenses declined 55.3% yoy to SAR4.1mn, coming in lower than our estimates of SAR8.0mn. We believe this is due to higher-than-expected profits from LG Shaker. We believe LG Shaker reported a profit of SAR5.5mn vs. SAR1.1mn in Q2 18 and our estimates of SAR1.6mn. 

    We are Neutral on Shaker, with a PT of SAR9.0. We believe the yoy growth in sales, opex efficiencies and LG Shaker’s profitability are key positives.