Herfy Co. disclosed its Q2 2017 interim results revealing a bottom line of SAR 43.4 million compared to SAR 49.5 million in Q2 2016 and SAR 52.7 million in Q4 2016 falling 12.3% YoY and 17.7% QoQ. Moreover, the semiannual bottom line hit SAR 96 million down 7% from SAR 103 million in H1 2016.

The YoY and QoQ downturn in net profit during Q2 2017 was attributed to the decrease in sales resulting from Ramadan which coincided with the second quarter of this year in full, in addition to the increase of selling, marketing expenses, and financing costs.

Sales fell 2% to SAR 272.1 million compared with SAR 277.7 million in Q2 2016 and dropped 1.1% from SAR 275 million in Q1 2017. Therefore, H1 2017 sales amounted to SAR 547.1 million compared with SAR 561.3 million displaying a decrease of 2.5%.

Gross profit in Q2 2017 concluded the quarter at SAR 75 million compared to SAR 76.7 million in Q2 2016, sliding 2% YoY and falling 13.2% from SAR 87 million in Q1 2017. Operating income (EBIT) hit SAR 46.7 million in Q2 2017 compared to SAR 51.7 million in Q2 2016, falling 10% and 17% from SAR 56.2 million in Q1 2017. Furthermore, the operating profit margin in Q2 2017 slid to 17.1% versus 18.6% in Q2 2016 and 20.4% in Q1 2017.

On the other side, restaurants sector sales fell by 2% in H1 2017, while the bakery segment also slid by 5%. On the contrary, net revenues from the meat segment jumped by 9%. The restaurants segment grabbed 85.7% of total sales
versus 11.7% and 2.6% for the bakery and meat segments, respectively.

The earnings figure for Q2 2017 missed our estimate of SAR 48 million and analysts’ consensus of SAR 49.9 million. As part of its expansion plans, for the current year, the fast food chain opened 13 new branches during Q2 2017 out of
25 branches to be opened in 2017 which will be reflected in H2 2017 results. Furthermore, we expect the company will be positively affected with reinstatement of the allowances which improved the purchasing power of the consumers.

In light of the above, we have revised our forecasts for the company's revenues and profitability margins. Accordingly, our valuation of the company's shares at SAR 57 per share.


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