Jarir’s Q3 net profit meets estimates, says Al Rajhi Cap

Jarir Marketing Co.’s third-quarter net profit of SAR 246.5 million came in-line with Al Rajhi Capital’s estimates of SAR 239.7 million, the brokerage said in an earnings review.

Revenue grew 8.6 percent year-on-year (YoY) in Q3, marginally below the brokerage’s estimate of 10.7 percent.

“Revenue growth was driven by an increase in store count to 49 (four stores rolled out year-to-date, two in this quarter), but was partially negated by a 1.5-2 percent decline in like-for-like revenue of older stores,” Al Rajhi Capital said, noting that it estimated flattish LFL.

Gross margins were up 100 basis points YoY to 17.6 percent, beating Al Rajhi Capital’s projection of 16.3 percent, on better product management and rebates from suppliers.

However, the benefits of the gross margin expansion were offset by an increase selling, general and administrative expenses, which came in at SAR 48.3 million, higher than the estimate of SAR 40.4 million.

“Overall, we believe higher store roll-outs will enable Jarir to tap the vacuum created by exit of smaller electronic chains and closure of smaller telecom shops due to mandatory Saudization,” the brokerage said.

Al Rajhi Capital factors in six new stores in 2017 and thereafter, five each per year until 2020.

Better pricing power for larger electronic chains will help Jarir nullify the headwinds such as the value added tax (VAT), and maintain margins, the report said.

The brokerage maintained a “Neutral” rating on the stock and revised the target price to SAR 153.8 per share from SAR 145 per share.

It revised the target P/E to 16x for fiscal year 2018’s earnings (earlier 15x), factoring better margins would improve the returns profile of Jarir.