Saudia Dairy and Foodstuff Company (Sadafco), a leading dairy and foodstuff producer, reported net profit of SR68 million ($18.12 million) for third quarter ending December 31, 2019, beating the estimate of SR55 million ($14.66 million) by 24 per cent, made by Al Rajhi Capital.

The top-line came in at SR488 million ($) which was mostly in-line with estimates of SR490 million, added Al Rajhi Capital.

The main reason for increase in net profit was gross margin improvement by 570bps (excluding Mlekoma it was 370bps) despite increase in cost of raw materials due to production efficiencies and lower discounting as a result of improving consumer sentiment.

The capacity addition in ice-cream segment earlier this year along with favourable weather helped the company in increasing its ice-cream revenue by 103 per cent which also helped in gross margin expansion.

Though there are concerns with the global increase in skimmed milk prices prices the company by far has been able to manage the gross margins by procuring skimmed milk prices from Mlekoma (its subsidiary) which has helped it in partially offsetting the impact of higher raw material prices.

Al Rajhi Capital have observed an improvement in consumer demand in Saudi Arabia and believe that the company will be able to maintain its leadership position in the UHT milk segment and improve the market share in ice-cream segment leading to similar level of margins in near term.

Accordingly Al Rajhi Capital revises its forward looking estimates and change the target price to SR164 per share from SAR156 per share. – TradeArabia News Service