Arabian Centers’ revenue growth in 2Q24 matches Bloomberg consensus and U Capital’s estimate
Arabian Centres’ (Cenomi Centers) top line in 2Q24 edged up 3.8% YoY, matching both the Bloomberg consensus and our estimates. The overall top-line growth was supported by all the revenue streams — net rental revenues (+1.8% YoY), media sales (+16.2% YoY), and utilities & other revenues (+30.7% YoY). Cenomi’s existing malls continued to witness healthy traffic as footfalls increased 1.8% YoY to reach a record high of 34.4mn in 2Q24. The like-for-like occupancy rate improved to 92.5% vs. 91.4% in 2Q23, with the newly opened U Walk Jeddah witnessing strong demand from new foreign and local retailers.
Cost control and net fair value gain on investment properties support net profit growth, ahead of Bloomberg consensus but slightly below U Capital’s estimate
Cenomi’s operating profit outpaced revenue growth, increasing 20.0% YoY, matching our estimate. Despite a higher top line, the company exercised strong cost control as its cost of revenue, G&A, and A&P expenses decreased 5.8% YoY, 16.7% YoY, and 94.2% YoY, respectively. Operating profit was also boosted by a 71.9% surge in net fair value gain on investment properties to SAR 125.3mn (our estimate: SAR 129mn), primarily driven by a growth in Cenomi’s existing portfolio. However, net profit grew at a relatively slower pace (+5% YoY), mainly impacted by a sharp rise of 92.5% YoY in net finance costs. Yet, net profit came in 23.5% ahead of Bloomberg consensus estimates, but below our expectations (-8.9% variance).
Maintain target price
We continue to remain positive on Cenomi considering its strong expansion plans which we believe will aid it in further cementing its leading market position in the Kingdom’s retail space. The company is progressing well with its two flagship malls as Jawharat Jeddah reached 91% completion by Jun’24 while Jawharat Riyadh was 90% complete. Both the malls, which the company expects to open during 2H25, are estimated to collectively attract over 35mn customers annually, and the company expects these to surpass its existing malls in terms of revenue generation, EBITDA, and footfalls. Accordingly, we maintain our SAR 26.00 target price on the stock.
Valuation
At the current market price, the stock is trading at 8.2x P/E and 12.2x EV/EBITDA, based on our FY24 estimates, slightly below its 15-month daily average forward P/E of 9.0x and EV/EBITDA of 12.7x.