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Sadafco

Sadafco misses estimates; remain neutral

JEDDAH, January 25, 2021

Saudia Dairy & Foodstuff Company (Sadafco), a leader in the GCC milk market and the No 1 Long Life Milk in Saudi Arabia, registered a top-line of SR482 million ($128.49 million) in Q3 2020, declining 1.3% y-o-y and 4% below analyst’s estimates of SR501 million. 
 
The revenue growth was mainly impacted by 8.1% y-o-y drop in milk segment sales which was impacted by significant discounting by the competitors, according to Al Rajhi Capital Research. 
 
Ice-cream sales grew ~18% y-oy while tomato paste grew ~4% y-o-y. The gross margins diluted ~270bps in Q3 2020 mainly due to discounting induced by competitors. The operating expense reduced by ~SR11 million mainly due to lower A&P spending. 
 
As a result of lower revenue and gross margins the net profit dropped 6% y-o-y which was 10% below expectations of SR71 million.
 
OUTLOOK
The tripling of VAT has increased the basket cost and has impacted consumption. “We revise our forecast for 2022e and expect a rebound in milk segment sales as we believe that companies would adjust the oversupply of milk and discounting would rationalise,” Al Rajhi said. 
 
For the ice-cream segment once the company starts production in new factory the revenue should pick up significantly on the back of market share gains. 
 
“We however expect the gross margins to dilute further in FY 2022e due to rising commodity prices globally. As per the recent data, over 257,000 expat workers exited the workforce this indicates a declining expat population and if this trend continues it might impact the overall revenue in near future. We remain “Neutral” on Sadafco with a tp (trading price) of SR177/sh (share) which implies 9% upside from CMP (current market price) of SR163/sh.” -- Tradearabia News Service
 



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