Net Loss: SAR36.6mn, +74% Y-o-Y, +78% Q-o-Q, +450% vs. EFGe
Revenue: SAR212.3mn, -37% Y-o-Y, -1% Q-o-Q,  -21% vs. EFGe
Gross Profit: SAR41.1mn, -40% Y-o-Y, -22% Q-o-Q,  -35% vs. EFGe
 
Al Hassan Ghazi Ibrahim Shaker reported 2Q18 headline losses (seventh consecutive quarter) of SAR36.6mn nearly doubling Y-o-Y and Q-o-Q, and coming higher than our net loss estimate of SAR6.7mn mainly as revenue continued to tumble.  Results were also impacted by a 79% Y-o-Y in share of profit from associates (mainly its 49% stake in AC manufacturing JV LG Shaker) to SAR1.1mn. 
 
Revenue fell 37% Y-o-Y (-21% vs. EFGe) due to intense competition and slower demand for ACs as a result of continued slow construction activity (weak residential sales) and a declining population (due to expat departures).
 
Gross margin contracted c1pp Y-o-Y to 19.3% (EFGe: 23.5%) with gross profit declining 40% Y-o-Y (-35% vs our estimate due to the revenue miss). Meanwhile, the company reported a negative EBIT of SAR30mn (also doubling Y-o-Y) vs. our positive EBIT estimate of SAR2.1mn. While SG&A costs fell 15% Y-o-Y, they were up 15% Q-o-Q and 19% above our estimate due to one-time charges related to terminating some LT rental contracts and increased marketing activity to promote inverter-technology (energy-saving) ACs. 
 
Another set of alarming results - we have a Sell rating on Shaker until revenue resumes growth (low visibility given slow discretionary spending and a weak real estate market in KSA) and large working capital risks, given high inventory levels and long receivable collection periods.

Hatem Alaa, CFA, Nada Amin

Shaker: SAR9.96 as of 2 Aug. 2018, Rating: Sell, TP: SAR8.70/share, MCap: USD167mn, SHAKER AB/1214.SE