Saudia Dairy & Foodstuff Company (Sadafco), a leader in the GCC milk market and the No 1 Long Life Milk in Saudi Arabia, registered a top-line of SR482 million ($128.49 million) in the third quarter (Q3) 2020, declining 1.3 per cent year on year (y-o-y) and 4 per cent below analyst’s estimates of SR501 million.

The revenue growth was mainly impacted by 8.1 per cent y-o-y drop in milk segment sales which was impacted by significant discounting by the competitors, according to Al Rajhi Capital Research.

Ice-cream sales grew 18 per cent y-oy while tomato paste grew 4 per cent y-o-y. The gross margins diluted 270bps in Q3 2020 mainly due to discounting induced by competitors. The operating expense reduced by SR11 million mainly due to lower A&P spending.

As a result of lower revenue and gross margins the net profit in Q3 2020/21 dropped 6 per cent y-o-y at SR64.2 million which was 10 per cent below expectations of SR71 million.

In Q3 2020/21, the company posted a net profit after Zakat and tax of SR64.2 million, a decline of 6 per cent YoY, due to lower sales and lower gross margins which were partially offset by decreased expenses.

The company reported a net profit after Zakat and tax of SR205 million for the first nine-month period ended December 31, 2020, a rise of 7 per cent compared to a net profit of SR191.1 million a year earlier, Argaam said in a report.

The increase was driven by higher sales, lower cost of goods sold and lower trade promotion activity. This was partially offset by incremental Covid-19 costs of SR 12.5 million and a donation of SR 8.7 million, it said.

Giving its outlook for the company, Al Rajhi said: “The tripling of VAT has increased the basket cost and has impacted consumption. We revise our forecast for 2022 and expect a rebound in milk segment sales as we believe that companies would adjust the oversupply of milk and discounting would rationalise.”

“We however expect the gross margins to dilute further in FY 2022 due to rising commodity prices globally. As per the recent data, over 257,000 expat workers exited the workforce this indicates a declining expat population and if this trend continues it might impact the overall revenue in near future. We remain “Neutral” on Sadafco with a tp (trading price) of SR177/sh (share) which implies 9 per cent upside from CMP (current market price) of SR163/sh.”

For the ice-cream segment once the company starts production in new factory the revenue should pick up significantly on the back of market share gains.

Construction work on Sadafco’s new ice cream production facility remains on track for completion in the middle of this year. Once operational, the plant will support Sadafco’s strategy to increase market share in a key product segment.

Established in 1976, Sadafco is a leader in dairy and foodstuff manufacturing, importing, distributing and marketing in Saudi Arabia and has established a strong reputation and loyal following in the food and beverage industry across the GCC region.

Last year, the company said it faced ‘minimal’ impact from Covid-19, and that demand for dairy products increased during the early stages of pandemic.