        Net income: SAR29.9mn, +35% Y-o-Y, +53% Q-o-Q, +23% vs. EFGe
        Revenue: SAR1,299.8mn, +1% Y-o-Y, -1% Q-o-Q,  -5% vs. EFGe
        Gross profit: SAR67.6mn, -2% Y-o-Y, +5% Q-o-Q, +14% vs. EFGe
        Operating profit: SAR36.7mn, -9% Y-o-Y, -1% Q-o-Q,  +24% vs. EFGe
 
Aldrees reported 1Q19 KPIs, with headline earnings up 35% Y-o-Y on higher sales at its transport division and an increase in other income, beating our estimate by 23%. Also, also there was a decline in marketing and financial expenses while G&A and Zakat expenses rose Y-o-Y. We contacted the company and they confirmed that the results included SAR12mn from the collective bill (one-off) booked in other income. Accordingly, excluding this gain, earnings would have been down 19% Y-o-Y to SAR17.9mn and 26% below our estimate; the beat on the operating level (EBIT +24% vs. EFGe) is largely due to IFRS 16 restatement. Top-line was flat for the quarter (+1% Y-o-Y, -5% vs. EFGe) on higher contribution from the high-margin yet, volatile Maaden Waad Al Shamal transport contract (cSAR150mn in revenue/year, net margin c20-25%). There was greater reliance on truck transport due to ongoing technical issues with the railway. Gross margin was almost flat (-20bps Y-o-Y) at 5.2% (EFGe 4.3%) as cost of sales was almost unchanged (+1% Y-o-Y). Accordingly, gross profit inched down 2% Y-o-Y (+14% vs. EFGe). EBIT margin contracted a shy 30bps Y-o-Y to 2.8% (EFGe 2.1%) as SG&A costs were up 8% Y-o-Y  (+4% vs. EFGe), mainly on higher G&A expenses. Accordingly, operating profit declined 9% Y-o-Y and was ahead of our estimate (+24% vs. EFGe).
 
The strength of the transport division segment is the key surprise in the results set and could continue to deliver high growth through 3Q19. However, we currently have a Neutral rating on the stock as we believe KSA’s fixed petrol station margins (Aldrees’ core business) need to rise for operators to recover high station renovation capex and overcome cost headwinds (expat levy, etc.). 

Hatem Alaa, Nada Amin, Mirna Maher
 
Aldrees: SAR31.60 as of 16 Apr. 2019, Rating: Neutral, TP: SAR23.30/share, MCap: USD506mn, ALDREES AB/4200.SE