Extra’s Q3 profit above estimates on margin expansion, says NCB Cap

United Electronics Co.’s (Extra) third-quarter net profit of SAR 26.1 million topped NCB Capital’s estimate of SAR 23.9 million, the brokerage said in an earnings review.

“We believe this growth is mainly attributed to higher discretionary spending from the reinstated allowances and gross margin expansions from lower discounts,” NCB Capital said.

However, sales at SAR 778 million – the highest Q3 revenue since 2014 – missed the brokerage’s estimate of SAR 834 million by 6.7 percent.

The company’s revenue will continue to be supported by higher market share and increased consumer spending from the reinstatement of allowances in April this year.

Gross margins increased by 145 basis points year-on-year to 19.3 percent, the highest level on record, beating NCB Capital’s forecast of 17.9 percent.

The gross margin expansion was attributed to lower promotional expenses and a change in the overall product mix towards higher margin products.

The home appliance retailer continued to control operating expenses, which rose by 1.1 percent YoY to SAR 123 million, matching the brokerage firm’s expectations of SAR 124 million.

The company announced a cash dividend of SAR 0.75 per share for H1 2017, lower than NCB Capital’s estimates of SAR 1 per share.

The brokerage reaffirmed its “neutral” rating on the stock with a target price at SAR 32.1, noting that positing like-for-like (LFL) growth and higher market share will continue to support revenues.

“Moreover, we believe the increasing discretionary expenditure following the reinstated allowances will lead to lower discounting and margin expansion,” the firm added.