Saudi Arabian sports and fitness business Leejam Sports has been downgraded to neutral by Al Rajhi Capital due to a downside risk of further lockdowns impacting revenue.
The financial services company said although the first quarter results for the fitness company, which operates in Saudi Arabia and the UAE, were slightly better than forecast, there was still an impact from the shutdown of gyms in the kingdom from February 5 to March 6.
Al Rajhi also cited rising competition from other providers, including Abdulmohsen Alhokair Group, which has announced plans to open gyms in the kingdom, as a further downside risk.
In a note published the same day as Leejam’s first quarter results, Al Rajhi said there was an expectation that the fitness industry will consolidate, and market leaders will gain significant market share by opening new clubs in the medium term.
However, the temporary spike in COVID-19 cases could lead to a reduction in new subscriptions for Leejam, which was previously rated ‘overweight’ by Al Rajhi.
“We remain optimistic on the long-term story of Leejam, specially the express gym format expansion, which being a margin accretive segment would improve Leejam’s return on incremental capital employed,” the note said.
Leejam’s revenue declined 25 percent year-on-year in the first quarter of 2021 to SAR 149 million ($39.7 million), and made a net loss of SAR 7 million in the first quarter, compared to a profit of SAR 6 million in the same period in 2020.
Leejam, listed on the Saudi Stock Exchange, Tadawul, went public in 2018, hoping to capitalise on the women’s fitness market, after the Saudi government approved the granting of licenses to women’s fitness centres in 2017.
(Writing by Imogen Lillywhite; editing by Daniel Luiz)
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