Earnings Report /
Saudi Arabia

Savola: Weak sales partially mitigated by higher margins

  • Revenue stood at SAR6.88bn

  • Gross profit came in at SAR1.25bn

  • Operating profit stood at SAR504mn up 21.6% yoy

SNB Capital
28 August 2022
Published bySNB Capital

Savola reported a net profit of SAR214mn in Q2 22, up 6.9% yoy (-21.1% qoq). This is lower than the SNB Capital and consensus estimates of SAR232mn and SAR220mn, respectively. We believe the variance is due to 1) lower revenues which came in 4.7% lower than our estimate and 2) higher than expected non-opex mainly due to higher financing and zakat expenses. This was partially offset by higher than expected gross margins.

  • Revenue stood at SAR6.88bn, up 16.7% yoy, (-8.0% qoq). However, it was lower than our estimates of SAR7.23bn. Based on our calculations, the revenues from the Food Processing segments increased by c53.3% yoy (-6.3% qoq) to SAR4.05bn driven by higher volumes. The Retail segment revenues declined by 14.8% yoy (-13.6% qoq) to SAR2.42n. The Food Services segment revenue declined by 9.5% yoy (-11.2% qoq), while the Frozen Food segment revenues increased 4.6% yoy (-10.0% qoq).

  • Gross profit came in at SAR1.25bn, up 11.6% yoy (-2.9% qoq) and was higher than our estimates of SAR1.16bn. Gross margins stood at 18.1% higher than our estimates of 16.0% and 17.2% in Q1 22. We believe the variance is attributed to higher sales volume in the Food Processing segment.

  • Operating profit stood at SAR504mn up 21.6% yoy (-4.8% qoq), significantly higher than our estimates of SAR419mn. Net operating expenses (including income from associates) stood at SAR744mn, in-line with our estimates and compared to SAR703mn and SAR757 in Q2 21 and Q1 22, respectively. Opex to sales stood at 10.8% lower than 11.9% in Q2 21 but higher than 10.1% in Q1 22 and our estimates of 10.2%. We believe the higher share of profits from associates contributed positively to the net opex.

  • Net other expenses increased 35.2% yoy (+12.3% qoq) to SAR290mn and was significantly higher than our estimates of SAR187mn. We believe the variance is due to higher net financing costs and expenses related to zakat and taxes.

Outlook

Based on our last update, we are Overweight on Savola with PT of SAR37.8. Despite the quarterly decline in profits, we believe Savola is well positioned to grow as the operating environment normalizes and sales pick up for different business segments. Panda’s break-even remains the major catalyst in the near term. The stock trades at 2022f P/E of 23.7x in-line with the sector’s average of 23.6x.