Dar Al-Arkan’s Q1 results disappointing, says NCB Cap

Dar Al-Arkan Real Estate Development Co. reported a disappointing net profit for Q1 2017, plunging 79 percent year-on-year (YoY) to SAR 12.1 million – the lowest level on record, coming in well below NCB Capital’s estimate of SAR 38.5 million.

“We believe the weak results are attributed mainly to weak land sales and lower margins on land plots sold,” the brokerage firm said in an earnings review on Thursday.

Land sales dropped 18.8 percent YoY to SAR 323 million in the first quarter, falling short of NCBC’s forecast of SAR 375 million and actual SAR 373 million in Q4 2016.

Gross margins decreased by 643 basis points to a lifetime low of 37.7 percent in Q1, from 44.1 percent in the same period last year.

In light of the Saudi cabinet’s decision to impose white land fees in Riyadh, Jeddah and Dammam at 2.5 percent per annum,  NCBC said it expects the fee on Dar Al Arkan’s 38.4 million square-meter land bank to be between SAR 137-160 million, which is 55-64 percent of 2016 net income.

The brokerage firm has placed the stock under review, adding that vacant land fees and the overall slowdown in real estate transaction values remain key risks.