Shaker’s Q3 misses estimates, says Al Rajhi Cap

Al-Hassan Ghazi Ibrahim Shaker Co.’s (Shaker) Q3 2017 net loss came in at SAR 49.2 million, well below Al Rajhi Capital’s estimate of a loss of SAR 22 million.

Q3 revenue was also a disappointment, falling 50 percent year-on-year (YoY) to SAR 201 million, significantly missing the brokerage’s estimate of a 28 percent YoY decline to SAR 287 million.

“While the company mentioned Eid Al Adha holidays to have impacted market demand during Q3, we believe it is also a case of continuing higher competition (mainly from Chinese products), which has been impacting Shaker over the last few quarters,” Al Rajhi Capital said in an earnings review.

“In an environment of consumer spending not witnessing a reasonable uptick, down-trading is more a norm than exception for discretionary products, especially those with higher ticket size such as white goods, including ACs,” the firm added.

Gross margin slipped to 14.6 percent (down 890 basis points YoY) and much lower than Al Rajhi Capital’s estimate of 23 percent, mainly attributed to higher discounts and inventory provisions.

Looking ahead, the key catalyst for the stock is turnaround in revenue performance, which can be achieved either via introduction of price competitive products, or uptick in consumer disposable income.

Meanwhile, key risks are no uptick in revenue in the near to medium term, and deteriorating quality of receivables, the report said.

 Al Rajhi Capital maintained a “neutral” rating on Shaker’s stock but cut the target price to SAR 11.3 from SAR 12 per share.