Al Rajhi Capital reduces Fawaz Alhokair’s Target Price to SAR 24

Al Rajhi Capital has revised its target price downwards for Fawaz Abdulaziz Alhokair Company to SAR 24 per share from SAR 27 per share earlier, while remaining Neutral on the stock, the brokerage firm noted in its research report on Monday.

“We expect that the weak domestic like-for-likes (LFLs) are likely to continue despite increased promotions, which is likely to impact profitability in the near term,” the report noted, adding, “Alhokair closed total 42 stores (net) resulting in net decrease in total space by 2,326 sq. mt. in Q1 FY19. The company’s near-term outlook remains pressurized, given the still-weak consumer sentiments.”

However, the brokerage firm noted, the company’s profitability is likely to improve in the medium-to-longer term on the back of better negotiations with the brand partners and land lords, coupled with lower inventory provisions.

Moreover, it said, the company’s bottom-line is likely to be supported by turnaround of international business and Alhokair’s venture into value segments such as Lefties and its entry into cosmetics products.

“Alhokair’s domestic LFL sales (Q1 FY19: -12.3 percent) has witnessed a double digit decline in the past couple of quarters. We believe the downward trend to continue in the near-term as the consumers in the Kingdom gradually adjust their spending pattern to the new normal,” the firm noted.