Herfy’s Q3 in-line with estimates: Al Rajhi Capital

Herfy Food Services Co.’s third-quarter net profit of SAR 58 million, a 3.7 percent year-on-year (YoY) increase, was broadly in line with Al Rajhi Capital and consensus estimates of SAR 56 million and SAR 57 million, respectively, the brokerage said in an earning review on Sunday.

The growth in bottom-line was attributed to higher top-line and lower finance costs, it noted.

Herfy's Q3 revenue grew 5.6 percent YoY to SAR 329 million, matching Al Rajhi's estimates of SAR 325 million. Revenue from meat and bakery segments soared 21 percent and 13 percent YoY, respectively, while sales of restaurants rose 4.3 percent YoY, on the back of addition of new restaurants.

Gross margin grew to 29.4 percent, as the rise in cost of goods sold (4.9 percent YoY) lagged top-line growth. Like-for-like (LFL) sales declined 2.4 percent YoY beating the brokerage's estimates of 3.2 percent YoY decline.

Going forward, the company’s top-line growth is likely to grow due to continued expansion in the market share driven by higher number of restaurants. It opened 21 restaurants in the first nine months of 2018.

"We expect the company to open three to four new restaurants by the end of the year, while continuing expansion at a similar rate in FY 2019 as well," the report added.

Al Rajhi Capital maintained its ‘neutral’ rating on the stock, but revised the target price to SAR 48 a share.

"The company’s solid FY 2018 anticipated dividend yield of 4.7 percent should appeal to income-seeking investors. Moreover, the recent uptick in revenue in the bakery segment is likely to contribute to the topline growth in the near-to-medium term," the report added.