Saudi Electricity missed net profit estimates in 2018: Falcom

Saudi Electricity Co. reported a 74.2 percent year-on-year (YoY) drop in net profit to SAR 1.8 billion for fiscal year 2018, missing consensus estimates, Falcom Financial Services said in an earnings review.

“Net income declined YoY as a result of higher finance charges, lower other income, application of IFRS 15; and other one-off items. Net margin for the year fell to 2.8 percent from 13.6 percent in 2017,” the report said.

Revenues grew 26.4 percent YoY to SAR 64.1 billion on higher electricity sales as a result of a tariff increase and higher consumption by government and industrial bodies.

Electricity connection fees, however, declined 37.9 percent YoY to SAR 1.6 billion following the adoption of IFRS 15.

Cost of sales rose 32.2 percent YoY to SAR 58.2 billion following the inclusion of government fees, offsetting the benefits from higher tariffs.

Gross profit declined 11.7 percent YoY to SAR 5.9 billion and gross margin narrowed to 9.2 percent for the year from 13.2 percent in 2017.

Operating income dropped by 39.6 percent YoY to SAR 6 billion, while operating margins fell to 9.4 percent in FY18 versus 19.7 percent a year earlier.

“Operating income and margin dropped despite an improvement in operational efficiency reflected in SG&A costs declining to SAR 889 million in FY18 from SAR 1 billion a year earlier,” Falcom added.

The research firm maintained a “Neutral” rating on the stock, but revised the target price upwards to SAR 17.7 per share “in the light of increased sales from completed projects and improving operational efficiencies.”