Sales Revenue: SAR1,744.7mn, +7% Y-o-Y, -14% Q-o-Q,  -15% vs. EFGe
Gross Profit : SAR339.9mn, +7% Y-o-Y, -9% Q-o-Q,  -8% vs. EFGe
Operating Profit: SAR45.1mn, +0% Y-o-Y, -33% Q-o-Q,  -7% vs. EFGe
Recurring Net Income: SAR54.3mn, +7% Y-o-Y, -25% Q-o-Q,  -6% vs. EFGe 
 
Al Othaim Markets reported 3Q18 headline earnings of SAR54.3mn, down 64% Y-o-Y. However, recurring earnings (excluding SAR100mn mainly in capital gains from sale of Hail mall in 3Q17), increased 7% Y-o-Y on decent top-line growth, stable margins and lower finance costs as a result of early settlement of long-term loans. Earnings were 6% below of our estimate on lower-than expected revenue.
 
Top-line rose 7% Y-o-Y to SAR1.74bn driven by both network expansion while we estimate that LFLs were down. The company’s sales and COGS figures were restated in accordance with IFRS 15; both items were reduced against supplier rebates granted to customers on POS in addition to vouchers no longer being recognized as sales (the related commission is being recognized and presented in a separate line instead). The net impact on earnings is neutral. Accordingly, comparison to our revenue estimates is not very relevant. 
 
Margins relatively held up across the baord; gross margin inched down 10bps Y-o-Y to 19.5% (EFGe: 18.0%) likely on higher fixed rebates with gross profit up 7% (-8% vs. EFGe). EBIT margin also inched down 26bps to 2.6%. Accordingly, operating profit was flat at SAR45.1mn as SG&A costs net of other income grew 8% (ahead of revenue).
 
A fairly solid results set with the company continuing to deliver positive top-line growth amidst weakened structural demand and heightened competition. Also, Othaim continues to deliver stable margins despite increased operational costs (related to Saudisation, expat levy, etc). We remain Buyers of the name (one of our top KSA consumer picks).

Al Othaim: SAR70.60 as of 5 Nov. 2018, Rating: Buy, TP: SAR90.00/share, MCap: USD1,694mn, AOTHAIM AB/4001.SE