Earnings Report /
Saudi Arabia

Al Othaim: Weak results on higher opex and non-opex

  • Revenues increased by 3.8% yoy (-8.4% qoq) to SAR2.26bn, but came lower than our estimates of SAR2.38bn.

  • Gross margins expanded by 188bps yoy to 20.3% in Q2 22, and came higher than our estimates of 18.8%.

  • Opex in absolute terms increased by 16.3% yoy to SAR401mn.

SNB Capital
18 August 2022
Published bySNB Capital

AlOthaim reported a weaker than expected set of Q2 22 results, with net profit declining by 2.7% yoy (-48.9% qoq) to SAR46.6mn. This is lower than the SNB Capital and consensus estimates of SAR64.1mn and SAR73.3mn, respectively. Revenues increased by 3.8% yoy (-8.4% qoq) to SAR2.26bn, vs our estimates of SAR2.38bn. We believe the variance in earnings is mainly driven by 1) higher than expected opex due to increased selling costs associated with the new stores, 2) an increase in non-opex driven by derecognition of share in the profits of Abdullah Al-Othaim Investment Company.

  • Revenues increased by 3.8% yoy (-8.4% qoq) to SAR2.26bn, but came lower than our estimates of SAR2.38bn. We believe the yoy increase in revenue is due to higher trading activities during the Ramadan season. We believe the company may have gained market share from its competitors (such as BinDawood and Panda), as it benefited from the consumer down trading due to inflationary pressures during the quarter.

  • Al-Othaim opened 2 new retail stores in Saudi during the quarter, taking the total store count to 325 (of which 281 in Saudi and 44 in Egypt). Accordingly, LFL stood at -3.8% in Q2 22.

  • Gross margins expanded by 188bps yoy to 20.3% in Q2 22, and came higher than our estimates of 18.8%. We believe the yoy expansion and variance in margins is due to higher than expected target incentives from suppliers. As a result, gross profit increased by 14.4% yoy to SAR458mn and was marginally higher than our estimate of SAR446mn.

  • Opex in absolute terms increased by 16.3% yoy to SAR401mn and came higher than our estimates of SAR377mn. Accordingly, opex-to-sales stood at 17.8% vs our estimates of 15.9%. We believe the yoy increase and variance in opex is mainly due to selling costs associated with the new stores.

  • Non-operating expenses increased by 33.0% yoy to SAR10.8mn in Q2 22 vs SAR8.1mn in Q2 21 and our estimate of SAR4.4mn. This is mainly due to derecognition of share in the profits of Abdullah Al-Othaim Investment Company following the BoD’s resolution to approve the sale of the investment.

Outlook

Based on our update, we are Neutral on AlOthaim with a PT of SAR123.0. Revenue growth and expansion in gross margins are the key positives of the result, while increasing opex is the major concern. We believe the company’s expansion plans and sector consolidation will support the company’s earnings growth. The stock is trading at a 2022f P/E and EV/EBITDA of 30.0x and 14.8x vs peer group average of 27.5x and 14.5x, respectively.