Dar Al-Arkan Q4 earnings beat estimates on record land sales: NCBC

Dar Al-Arkan Real Estate Development Company (Dar Al-Arkan) net income of SAR 321 million for Q4 2017 was “significantly” higher than NCB Capital’s estimates, driven by strong sale of developed and undeveloped land, the research firm said in an earnings review.

The developer posted its strongest earnings since Q2 2012 as land sales hit an all-time high. In the past, land sales account for 90 percent to 95 percent of total sales, but in Q4 2017 this segment is expected to have made up about 98 percent of total sales, NCB Capital said.

“We believe land sales came-in at SAR 2,395 million versus our estimates of SAR 403 million. This is the highest land sales on record, and represents an increase of 642 percent YoY,” the report said.

Gross margins stood at 19.1 percent, contracting from 41.5 percent in 4Q16 and were lowest on record.

According to the analysis, the strong sales and weak margins suggest that Dar Al-Arkan sold undeveloped land, along with the usual sale of developed land.

“Assuming 0.5 million sqm of developed land was sold at Shams Al Arous, similar to Q3 2017, we believe up to 6.7 million sqm of undeveloped land was sold during Q4 2017,” NCB Capital said.

The majority of land sales are likely to have been in Jeddah, as 66 percent of Dar Al-Arkan’s land bank is located.

The Dar Al-Arkan stock is currently under review, NCB Capital said. Although heightened sale of undeveloped land is a positive catalyst, there is lack clarity on the company’s plans for the cash levels.