SACO’s Q3 2019 figures miss forecast, says Aljazira Cap

Saudi Company for Hardware (SACO) posted a net income of SAR 14.6 million in Q3 2019, which came below Aljazira Capital’s and market estimate of SAR 26.2 million and 28.7 million respectively, Aljazira Capital said in a note.

Net income was adversely impacted by higher-than-expected cost of goods sold (COGS) and operating expenses (OPEX).

“We expect margins to improve slightly in Q4 2019 due to cost savings initiatives. We maintain our “Neutral” rating on the stock with a TP of SAR 65.00/share,” the brokerage said.

The company opened one showroom in Jubail Industrial City in Q3 2019, which replaced its existing showroom in Jubail. The financial impact of the new store was effective partially in Q3 2019, as it was opened in Aug 2019. The full impact would be visible in Q4 2019.

“We expect the company to open two showrooms in Q4 2019,” Aljazira Capital noted, adding that SACO’s overall results were below expectations. New store openings would be the key revenue driver for the company in Q4 2019.

“We believe SACO has the potential to benefit from growth opportunities (potential increase in residential construction) through store expansion, introduction of new product categories, and increased online sales, all of which could result in higher market share,” Aljazira Cap concluded.