Riyadh- Mubasher: Dar Al Arkan reported a strong set of the third quarter of 2016 results, with net income increasing 21.3% year-on-year to SAR 112.5 million to beat NCB Capital’s estimates of SAR 54.6 million.
We believe the strong results and deviation are attributed to strong land sales and lower than expected Opex, according to NCBC.
The company recorded land sales at SAR 580 million above NCBC’s estimates of SAR 390 million.
“This would be the highest land sales level since Q1-15, representing an increase of 14.6% year-on-year,” the research firm said.
On the other hand, gross margins stood at 39.7%, which is the lowest level since Q3-14, which was supported by selling at lower margins, according to the research firm.
“Opex stood at SAR 43.3 million versus our estimates of SAR 52 million and SAR 60 million in Q3-15. We believe this is positive, and led to a limited margin contraction of 99bps on the EBIT level to 32.7%,” NCBC said.
Although execution of projects is a positive catalyst, fees on white land and the overall slowdown in real estate transaction values remain key risks. Dar Al Arkan currently trades at a 2016E P/B of 0.3x vs. historic levels of 0.6x.
