Saudi Catering Company posted a net profit of SAR 131 million for Q2 2017, thus the second-quarter earnings were in line with our estimate. Accordingly, the second-quarter profit fell 7.6% YoY from SAR 142 million in Q2 2016, however the bottom line surged 7.9% from SAR 121 million in Q1 2017. The net profits of the first half hit SAR 142 million compared to SAR 272 million in H1 2016, a decrease of 7.3%.

The company's sales in the second quarter amounted to SAR 551 million compared to SAR 570 million in Q2 2016 plummeting 3.4%. Compared to Q1 2017, the top line edged up 3.2%, thus the catering company reported net revenues
of SAR 1,085 million sliding from SAR 1,130 million in the first half of 2016.

The YoY dip in the second-quarter profits stemmed mainly from non-operating items especially the adjustment of zakat and income tax related to previous years, with a negative impact in the amount of SAR 3.5 million. Despite the 3.4% decline in revenues, the company managed to maintain slight growth of 0.25% in operating profit in Q2 2017, boosted by lower cost of sales.

In terms of first-half profit, the figure was negatively impacted by lower sales of catering to other airlines and foreign airlines, as well as reduced sales of aviation equipment to the General Organization of Saudi Airlines. The decrease was offset in part by the increase in-catering sales to Saudi Airlines as well as the rise in retail sales.

Operating profit for the second quarter remained unchanged at SAR 145 million compared to Q2 2016, while inching up 11.6% over the first quarter. Operating margin for the second quarter increased to 26.3% compared to 25.4% in Q2 2016 and 24.4% in Q1 2017. Over the first half, the operating profit dwindled 3%, thus the operating margin posted 25.5% up from 25% in H1 2016. The Board of Directors recommended a cash dividend of SAR 1.5. The dividend will be paid on September 10, 2017 to shareholders of record on August 21, 2017.

In spite of the dip in revenues in H1 2017, Saudi Catering Company boosted profit margins. The company's profits were in line with our expectations, but we cut our share price from SAR 98 to SAR 94 per share, factoring in a more conservative stance on the company's revenues.

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