Equity Analysis /
Saudi Arabia

Taiba: Strong results driven by higher sales

    Mohamed Tomalieh
    Mohamed Tomalieh

    Associate, Equity Research Analyst

    SNB Capital
    30 July 2019
    Published by

    Taiba reported a better than expected set of Q2 19 results, with net income increasing 5.9% yoy to SAR49.2mn. This compares to NCBC’s estimates of SAR33.1mn. We believe the variance is mainly due to higher than expected sales and gross margin. This was further supported by higher dividend income from investments.

    NCBC view on the results

    Taiba reported better than expected Q2 19 results, with net income increasing 5.9% yoy to SAR49.2mn. This is higher than NCBC’s estimates of SAR33.1mn. We believe the better than expected results came mainly due to 1) higher than expected sales of SAR108mn (+0.7% yoy) vs our estimates of SAR94mn, 2) higher than expected gross margins and 3) higher dividend income from investments. 

    Sales increased +0.7% yoy to SAR108mn, coming 15.2% higher than our estimates of SAR94mn. We believe the variance was due to higher than expected rental revenue and hotel occupancy levels. Gross margins contracted by 123bps yoy to 58.8%, leading to a gross profit decline of 1.4% yoy to SAR63.6mn. This compares to our estimates of 55%. 

    We estimated an investment income of SAR3.0mn, with total non-operating losses standing at SAR6.1mn. However, non-operating income came in at SAR5.9mn, which we believe is mainly due to higher dividends from investments and lower zakat expenses. 

    Taiba has exited its investments in SABIC in Q3 18 (0.14% stake), realizing a capital gain of SAR47.6mn. We believe this is a key positive as the company would use the proceeds to finance future expansions in hospitality related projects. However, Taiba still holds a stake of 0.81% in Makkah Construction, 1.91% in SAFCO and 3.2% in Knowledge Economic City. 

    We are Neutral on Taiba with a PT of SAR33.7. Any announcements on expansion projects will be a key positive driver. The company has a 2019f dividend yield of 5.7%. This is among the highest yields in the sector. However, dividends may be at risk going forward provided the planned projects of Taiba and the current high pay-out levels of >100%. Taiba trades at a 2019f PE of 18.5x.