Saudi Arabia's Leejam Sports downgraded over COVID-19 lockdown concerns

Al Rajhi Capital said a rise in cases remains a near term risk

  
A Saudi man stands in front of a screen as another inspects stock prices at ANB Bank in Riyadh, Saudi Arabia September 16, 2019. Image for illustrative purposes.

A Saudi man stands in front of a screen as another inspects stock prices at ANB Bank in Riyadh, Saudi Arabia September 16, 2019. Image for illustrative purposes.

REUTERS/Ahmed Yosri

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)

(imogen.lillywhite@refinitiv.com)

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2021


More From Equities