Reported earnings: SAR55.4mn, 22% Y-o-Y, -6% Q-o-Q, 27% vs. EFGe Revenue: SAR280.2mn, +3% Y-o-Y, -11% Q-o-Q, -4% vs. EFGe Net operating profit: SAR57.9mn, +26% Y-o-Y, -7% Q-o-Q, +25% vs. EFGe   Herfy reported solid 4Q16 KPIs, with earnings up 22% Y-o-Y driven largely by strong margin gains, which were the key reason behind the 27% bottom-line beat. Also, had it not been for the booking of other expenses below the EBIT line (vs. other income in 4Q15), earnings growth would have been even stronger. FY2016 headline earnings rose 7% Y-o-Y. Revenue grew 3% Y-o-Y to SAR280mn, coming mostly in line with our forecast (-4%), driven by store openings, with LFL trends likely remaining slightly negative. Herfy opened 10 new locations during the quarter, bringing its total restaurant openings to 36 in FY16 (target was to open at least 30). Gross margin was the main bright spot of the results set, advancing c6pp to 32.7% (and beating our flattish expectations), reversing a contractionary trend that lasted for eight quarters straight. The company cited favourable raw material prices and savings on some indirect costs as the main factors behind the strong margin gain. Gross profit jumped 25% Y-o-Y and came in 18% ahead of our forecast. EBIT margin widened a tamer c4pp to 20.7% (still ahead of our 15.8% forecast) as SG&A costs grew 22% Y-o-Y (+8% vs. EFGe), likely on increased staff and marketing costs. Operating profit was thus up 26% Y-o-Y and 25% ahead of our forecast.     We are positive on the results set, particularly the strong gross margin gains, which, if sustainable, offer a significant upside risk to our numbers. Herfy remains one of our top KSA consumer picks, as we expect resilient fast food spending in the Kingdom and earnings growth to improve as newly-launched locations reach a more profitable point in the maturity cycle. (Company disclosure, Nada Amin, Hatem Alaa)   Herfy: SAR76.45 as of 18 January 2017, Rating: Buy, TP: SAR91.00 per share, MCap: USD942mn, HERFY AB / 6002.SE