Itqan Capital says eXtra’s 2020 margins healthy, maintains ‘Neutral’ rating

A branch of United Electronics Co.

United Electronics Co. (eXtra) showed healthy margins in 2020, despite major challenges in the market on the back of the pandemic, Itqan Capital said in a recent research note.

A flat demand is expected on the retail segment due to the impact of the value-added tax (VAT) and the travel spending that will occur once the travel ban is lifted.

Meanwhile, revenue from Tas’heel Finance is likely to largely offset any possible disruption in the retail segment.

The retail segment’s contribution is projected to rise significantly until it reaches normal growth levels by the fiscal year (FY) 2026, the brokerage firm added.

The consumer financing service is a highly regulated segment, which significantly reduces competition risks. Moreover, it enjoys high levels of net interest margin, resulting in a higher return on equity (ROE).

eXtra is forecast to distribute a cash dividend of SAR 1.23 per share for the second half of 2020. The company is expected to report a net profit of SAR 319 million in FY 2021 and a net profit of SAR 369 million in FY 2022.

Itqan Capital maintained its “Neutral” recommendation on the stock, setting the target price (TP) at SAR 106.50.