Earnings Report /
Saudi Arabia

Dar Alarkan: Strong earnings growth on higher property sales

  • Revenue increased by 24.7% yoy (+9.5% qoq) to SAR743mn in Q3 22, in-line with our estimates of SAR713bn

  • Gross margins expanded by 461bps yoy to 41.0% in Q3 22 and came higher than our estimates of 37.0%

  • Opex, in absolute terms, increased by 47.0% yoy (-2.5% qoq) to SAR85.7mn

SNB Capital
10 November 2022
Published bySNB Capital

Dar Al Arkan reported an in-line set of Q3 22 results, with net income of SAR79.4mn (+216% yoy, -14.2% qoq). This compares with the SNB Capital estimates of SAR82.5mn. Revenue increased by 24.7% yoy (+9.5% qoq) to SAR743mn, in-line with our estimate of SAR713mn. Gross margins improved by 461bps yoy to 41.0% vs our estimate of 37.0% due to higher margin developed properties in the sales mix. However, this was offset by the higher non-opex driven by increased finance costs and lower income from Murabaha deposits and income from associates.

  • Revenue increased by 24.7% yoy (+9.5% qoq) to SAR743mn in Q3 22, in-line with our estimates of SAR713bn. We believe revenue growth was mainly driven by higher property sales and lease revenues.

  • Gross margins expanded by 461bps yoy to 41.0% in Q3 22 and came higher than our estimates of 37.0%. We believe the variance is mainly due to increased proportion of higher margin developed properties in the sales mix. As a result, gross profit stood at SAR304mn (+40.5% yoy, +23.9 % qoq) vs our estimates of SAR264mn.

  • Opex, in absolute terms, increased by 47.0% yoy (-2.5% qoq) to SAR85.7mn. This compares to our estimate of SAR82.0mn and SAR88.0mn in Q2 22. We believe the yoy increase and variance is due to higher marketing expenses related to the new projects. Subsequently, Opex-to-sales stood at 11.5% in Q3 22, compared to our estimates of 11.5% and Q3 21 levels of 9.8%.

  • Net other expenses stood at SAR139mn (+4.6% yoy, +114% qoq) and was higher than our estimates of SAR99.1mn. We believe the variance in non-opex was due higher finance costs and lower income from Murabaha deposits and decrease in the share of income from associates.

Outlook

Based on our last update, we are Neutral on Dar Al Arkan, with a PT of SAR11.8. Strong growth in revenue and margin expansions are the key positives of the result. We expect the company to begin realizing sales from its Dubai projects this year, which will be the key positive. We also expect the higher contribution from its development projects to support margin expansion. The stock is trading at a 2023f P/B of 0.7x, in-line with its historical average.