SACO’s Q1 2019 net profit in line with estimates: Aljazira Cap

Saudi Company for Hardware’s (SACO) Q1 2019 net profit of SAR 19.2 million matched Aljazira Capital’s estimate of SAR 18.4 million and analysts’ forecasts of SAR 20.1 million.

The company added 14,671 sq. m in FY18, representing 85.8 percent of its target of 17,100 sqm for fiscal year 2018. SACO plans to add another 40,000 sqm and increase store count to 40 by the end of fiscal year 2020, the brokerage firm said in an earnings note.

“We expect a mid-single digit increase in average revenue per sqm and an addition of stores (6 stores until FY20) to drive the company’s revenue in FY19 and FY20. The rise in store count and the pick-up in retail sector lending should benefit SACO in the medium term,” Aljazira Capital added.

Long-term market share gains through expansions in a highly fragmented market

Is still SACO’s main catalyst.

“We believe that SACO has the potential to capitalize on growth opportunities (potential increase in residential construction) through store expansion, introduction of new product categories, increased online sales, resulting in higher market share,” the brokerage added.

A higher-than-estimated expansion in operating margins, going forward, could play out as the upside risk to valuation.

The key downside risks are a larger impact on revenue from pressure on purchasing power and loss of market share to competitors.

Aljazira Capital added that it remained “neutral” on the stock, setting its target price at SAR 65.