Pre-minority earnings: SAR73.5mn, +36% Y-o-Y, -15% Q-o-Q, +19% vs. EFGe Revenue: SAR462.5mn, -4% Y-o-Y, -6% Q-o-Q, -14% vs. EFGe Gross profit: SAR189.3mn, +14% Y-o-Y, -9% Q-o-Q, +2% vs. EFGe Operating profit: SAR75.2mn, +29% Y-o-Y, -17% Q-o-Q, +16% vs. EFGe   SADAFCO’s KPIs for 2Q16/17 (ending 30 Sep. 2016) reflected another impressive quarter with pre-minority earnings up 36% Y-o-Y on a combination of commodity-driven gross margin expansion, tame growth SG&A expenses and higher interest income. Earnings came in 19% above our estimates, mainly on lower-than-expected COGS and SG&A expenses. Revenue dropped for the second quarter in a row (-4% Y-o-Y; -14% vs. EFGe) due to lower consumer spending, increased price promotions by competition to boost sales and a decline in export business (c7% of sales) due to regional unrest. Volumes were slightly up, with SADAFCO’s market share increasing in long-life milk, ice cream and tomato paste, as per the company’s disclosure. Gross margin expansion remained solid, adding c6.4pp to 40.9% (vs. EFGe of 34.6%) on sustained benefits from lower SMP prices (the company’s main input). Accordingly, gross profit increased 14% Y-o-Y (+2% vs. EFGe). EBIT margin also widened an impressive c4.2pp to 16.3% (versus EFGe of 12.1%) as SG&A expenses were flattish Y-o-Y (+6% Y-o-Y; -5% versus estimate). Accordingly, EBIT grew 29% Y-o-Y and was 16% above our estimate. Operating costs have been flat to declining for four quarters in a row (after increasing 40%+ for a year prior) being a main source of earnings beats lately.   SADAFCO remains one of our top KSA consumer picks with this quarter yet again confirming its very strong operational visibility given: i) low commodity prices; ii) sustained easing in SG&A costs; and iii) being relatively unaffected by recent subsidy reforms (impact of higher petrol and electricity prices is negligible; receives no direct government subsidies). The main red flag is the revenue weakness on slowing consumption trends and aggressive competition. However, we believe the company can invest heavily to boost top-line given its high product margins and strong, debt-free balance sheet. (Earnings release, Hatem Alaa, Nada Amin)   SADAFCO: SAR116.25 as of 19 October 2016, Rating: Buy, FV: SAR188.00 per share, MCap: USD1,008mn, SADAFCO AB / 2270.SE