Revenue and EBITDA more than doubles sequentially
Dar Al Arkan (DARALA) reported full 3Q17 financials demonstrating strong
performance across P&L, B/S and cash flow. Sequentially, 3Q17 revenues
grew ~225% QoQ (140% YoY) to ~USD395m, highest in the last 32 quarters
(since 3Q09) and best since we initiated coverage on them. This drove 9M17
revenues up by almost 57% and more than compensated for a relatively softer
start to the year. This was boosted by higher land sales (+61% YoY),
presumably emanating from off plan sales and/or large block sale. Moving on
to operating performance, 3Q17 EBITDA grew 151% QoQ (+45% YoY) to
~USD90m. EBITDA margin however dropped to ~23% (vs. 29% in 2Q17 and
37% in 3Q16) due to higher COGS and SG&A. Recurring revenues grew
steadily by 3% YoY, although still formed only 5.5% of overall sales. 3Q17 net
profitability also grew by a healthy 86% YoY to USD56m. Overall, we believe
that this strong top line and EBITDA growth in 3Q17 is commendable, however
it has also raised the bar for future expectation and sustaining this pace of
acceleration could be challenging in the near future. Nevertheless, it is not
entirely surprising as we recall that in August, DARALA’s management guided
for better sales activity in 2H17 and beyond, underpinned by: (i) new
‘Entertainment city’ near Riyadh, (ii) launch of 66,723 housing products by
MoH; (iii) off plan sales at Shams Al Riyadh and ‘for sale’ units at ‘Parisiana
South’ and ‘Parisiana Living’; (iv) new tourist project in western part of the
country and (iv) potential bottoming out of real estate prices in Makkah and
Jeddah (these two makes up 87% of DARALA’s land bank).