eXtra’s Q2 beats estimates on strong revenue, gross margin: NCB Cap

United Electronics Co.’s (eXtra) Q2 2017 net profit of SAR 43.4 million came significantly above NCB Capital’s estimate of SAR 19.2 million, the brokerage said in an earnings review.

“We believe the strong results are mainly due to better than expected sales and strong gross margins due to lower discounting,” NCB Capital said.

Sales at SAR 1.01 billion topped the brokerage’s estimate of SAR 893 million by 13.5 percent. Accordingly, the electronic and home appliance retailer had the highest Q2 revenue on record.

The company’s revenue will continue to be supported by positive like-for-like growth and improved market share, the report said.  

Gross margins increased by 64 basis points year-on-year to 17 percent, the highest level since 2014, coming ahead of NCB Capital’s forecast of 16.7 percent.

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

“We believe the increasing discretionary expenditure following the reinstated allowances will lead to lower discounting and promotional expenses. This will support further gross margin expansion,” the brokerage firm added.

NCB Capital remained “neutral” on the stock, setting its target price at SAR 32.1.