Earnings Report /
Saudi Arabia

Almarai: Stronger than expected margins raise profits

  • Revenues increased 15.1% yoy (+2.4% qoq) to SAR4.61bn, broadly in-line with our estimates of SAR4.70bn

  • Gross margins contracted by 2.0% yoy to 31.9% in Q2 22 vs 33.8% in Q2 21, but were higher than our estimates of 29.0%

  • Net operating expenses came in at SAR823mn, higher than our estimates of SAR793mn

SNB Capital
17 July 2022
Published bySNB Capital

Almarai reported a better than expected set of Q2 22 results, with net income increasing by 8.0% yoy (+23.8% qoq) to SAR520mn. This is higher than the SNB Capital and consensus estimates of SAR451mn and SAR482mn respectively. Although revenues were broadly in-line with our estimates, we believe the variance is mainly due to strong gross margins. This was slightly offset by an increase in impairment of financial assets and higher losses from the sale of dairy herd.

  • Revenues increased 15.1% yoy (+2.4% qoq) to SAR4.61bn, broadly in-line with our estimates of SAR4.70bn. The growth in revenue was recorded across channels, regions and products due to improved trading conditions as COVID-19 restrictions phased away. Dairy & Juice segment revenue grew by 8% yoy, Bakery grew by 42% yoy supported by the acquisition of Bakemart, while Poultry revenue grew 30% yoy. The yoy revenue growth in Saudi Arabia, GCC and other countries came in at 15.8%, 13.4% and 14.2% respectively. In addition, we highlight that price adjustments across different product categories supported the top-line growth. 

  • Gross margins contracted by 2.0% yoy to 31.9% in Q2 22 vs 33.8% in Q2 21, but were higher than our estimates of 29.0%. We believe the better than expected margin is one of the key positives of the results which we believe is due to strong sales and price adjustments. The yoy decrease in gross margins is mainly due to the higher input (corn, soya, and dairy commodities) and transportation costs which are intensified by higher inflation.

  • Net operating expenses came in at SAR823mn, higher than our estimates of SAR793mn. Opex-to-sales stood at 17.9% vs our estimates of 16.9% and 17.4% in Q1 22. The increase in selling and distribution expenses is due to higher costs incurred to support higher sales volumes. Expenses included 1) a SAR18.2mn increase in impairment of financial assets due to an increase in trade debtors mainly in the Food services channel and 2) SAR13.8mn increase in other expenses due to higher losses on sale of dairy herd. EBITDA stood at SAR994mn in Q2 22 vs SAR930mn in Q2 21.

  • Dairy and Juices category profits declined by 7.1% yoy driven by higher cost inflation and adverse mix due to Ramadan phasing. Poultry profits increased 15.3% yoy driven by revenue growth partly offset by the increase in corn and soya costs. Bakery profits increased by 125% yoy on higher sales.

 

Outlook

Based on our last update we are Neutral on Almarai, with at PT of SAR59.6. We believe margin resilience is a key positive of the results. However, we highlight that high costs, due to high commodity costs, remain a key near-term risk. The stock trades at 2022f P/E of 23.0x, lower than its 5-years historical average of 27.5x.