Fawaz Alhokair’s Q3 FY2020/21 earnings miss estimates: Al Rajhi Cap

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Fawaz Abdulaziz Alhokair Co.’s net loss of SAR 128 million for the third quarter (Q3) ended December 2020 came below Al Rajhi Capital’s estimates of SAR 11 million in loss and analysts’ estimates of SAR 21 million in profit.

The brokerage firm attributed the deviation in Q3 earnings to lower gross margins arising from inventory write-off and other non-recurring expenses.

Al Rajhi Capital expects gross margins to improve on the back of higher revenue and lower provisioning in FY2022, indicating that local spending will be impacted once traveling resumes, which might affect the overall business.

The firm maintained its “Neutral” rating on Fawaz Alhokair with a share target price (TP) of SAR 18/share.

The upside risks to the share valuation include significant increase in consumer spending locally due to delay in flight resumption and faster-than-expected ramp up of newly acquired brands.

Meanwhile, the downside risks include further inventory write-offs in 2022 and any prolonged lockdown, which is more than 30 days in February 2021.