Almarai Steady performance - Al Rajhi Capital
Almarai Company
Food-Diversified – Industrial ALMARAI AB: Saudi Arabia 13 April 2016
Rating
NEUTRAL
Target price
SAR55.05 (-4.59% upside)
Current price
SAR57.66
Research Department ARC Research Team, Tel 966 1 211 9370, [email protected] Key themes & implications Almarai reported a positive top-line in Q1 2016, showing resilience of the company’s core business to slowing economic growth and lower disposable income. The Bakery and Dairy & Juices continues to witness double digit growth. However, the poultry segment continues to report losses, which we believe will not be profitable in 2016. Based on our latest estimates we have revised the target price to SAR55.0. Share information Market cap (SAR/US$)
46.13bn / 12.30bn
52-week range
41.57 - 72.44
Daily avg volume (US$)
mn
Shares outstanding
800.0mn
Free float (est)
36%
Performance
1M
3M
12M
Absolute
8.2%
13.3%
-12.4%
Relative to index
8.9%
9.3%
17.2%
Major Shareholder: Savola Al-Azizia United Co
36.5%
Al-Saud Sultan Mohamed
28.6%
Almarai Steady performance Almarai reported stronger than expected top line growth for Q1 2016, posted double digit top line growth (+13.6% y-o-y), led by the Bakery (+28% y-o-y) and Dairy & Fresh juice (+12.2% y-o-y) segments. During the quarter, net margins declined 110bps y-o-y, due to energy & utility price reforms as well as higher feedstock costs. The poultry segment is facing pressure from rising imports and increase in costs. We believe it will be difficult for the segment to turn profitable this year. However, the company has already started raising prices for its premium products to pass some part of the additional cost to the consumers in order to improve their margins. Going forward, the company intends to focus more on operational efficiencies and selectively delay new capacity additions. Based on our revised estimates, we arrive at a target price of SAR55.0 on Almarai and reiterate our Neutral rating on the company. Upward revision in estimates: We have revised upwards our 2016 forecast for Almarai, after the company reported stronger than expected revenue growth in the first quarter. However, the company’s margins are under pressure (in-line with expectations) from the hike in energy and utility prices as well as government’s decision to import water-hungry feedstock like Alfalfa. We expect revenue to grow 11.3% and 9.1% in 2016 and 2017 respectively. Management inputs:
Valuation 12/13A
12/14A
12/15A
P/E (x)
30.7
27.5
24.1
24.0
P/B (x)
4.5
4.2
3.8
3.5
EV/EBITDA (x)
18.3
16.8
15.0
14.3
Dividend Yield
1.3%
1.3%
2.0%
3.1%
Revenue growth was mainly volume driven. Overall volumes were up 16.1% y-o-y, while Saudi volumes grew 13.3% and GCC region volumes rose 14.4%.
Almarai’s cost saving program targets to save approximately SAR130mn of fixed costs over the next 12-18 months, through operational efficiencies.
The company has also revised its capital expenditure approximately to SAR3.5bn-SAR4bn yearly (20%-25% reduction), due to negative economic conditions, and focus on efficiency gains. This is will delay some planned capacity additions in the dairy segment.
The company believes its Egyptian business will continue to grow, but expects negative foreign exchange impact.
Almarai is entering the powdered diary market, which is a third of the overall GCC dairy market. New capacity is being added in the bakery segment.
The management has imposed a cap on leverage as rising debt has become a concern. They do not plan to exceed a net debt/EBITDA ratio of 3.0 and a net debt/equity of 100%.
12/16E
Source: Company data, Al Rajhi Capital
Performance Price Close
Relative to TADAWUL FF (RHS)
RSI10
78.0 73.0 68.0 63.0 58.0 53.0 48.0 43.0 38.0 70 30 -10 04/15
121.0 116.6 112.3 107.9 103.5 99.1 94.8 90.4 86.0
07/15
10/15
01/16
Source: Bloomberg, Company data, Al Rajhi Capital
12/12A
12/13A
12/14A
12/15A
12/16E
Company summary
Period End (SAR) Revenue (mn)
9,883
11,219
12,606
13,795
15,354
Almarai is the largest integrated dairy foods company in the world, with a reputation for quality among the Gulf states in which it operates. Almarai’s network extends across the Arabian Peninsula, leading the agricultural, dairy processing and food distribution industries. Founded in 1976, Almarai started as a pure-play dairy company before it expanded to include cheese, bakery, juice, and poultry in its product portfolio.
Revenue Growth Gross profit margin EBITDA margin
24.3% 35.5% 27.7%
Net profit margin EPS EPS Growth ROE ROCE Capex/Sales
14.6% 1.80 26.4% 20.2% 10.8% 29.5%
13.5% 35.3% 27.9%
12.4% 36.4% 27.4%
9.4% 38.3% 27.9%
13.4% 13.3% 13.9% 1.88 2.09 2.39 4.3% 11.5% 14.4% 17.0% 15.9% 16.7% 9.4% 10.3% 10.3% 23.9% 21.3% 28.8% Source: Company data, Al Rajhi Capital; Note: EPS adjusted for post bonus shares of 800 mn
11.3% 36.5% 26.9% 12.5% 2.40 0.4% 15.3% 9.8% 22.5%
Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
Almarai Company
Food-Diversified – Industrial 13 April 2016
Valuation: We believe food sector companies are less susceptible to slowing economic growth and lower disposable income. Almarai has shown resilience to the same with double digit top line growth in Q1 2016. The stock is currently trading at 2017 PE of 20.3x. Based on our revised estimates, we arrive at a target price of SAR55.0 on Almarai and have a neutral rating on the stock.
Segmental Analysis Core business drives growth: Almarai’s core dairy and fresh juice segment reported a top line growth of 12.2% y-o-y to SAR2,642mn, supported by Fresh dairy products (+13.8% y-oy) and Long Life dairy (+12.8% y-o-y). However, the segment’s profit was mostly flat (+0.7% y-o-y), due to hike in transport fuel and utility expenses and rising imports of feedstock like Alfalfa. The strong top line growth indicates that the segment is resilient to the economic downturn and lower disposable income. Moreover, the company has also forayed into the powder milk market in Q1 2016, comprising 1/3rd of the milk market in GCC, which we believe is big opportunity for the company. Though margin is likely to remain under pressure, we expect dairy segment to grow at double digit rates in 2016 on the back of improving distribution and rising population. Poultry: The first quarter performance of the poultry segment was not encouraging with revenue growth slowing to only 6.8% y-o-y, under pressure from cheaper imports, primarily from Brazil. The segment reported a net loss of SAR104mn in Q1 2016 compared to a loss of SAR68mn in Q1 2015. The management had earlier stated that the segment is likely to turn profitable in 2016. However, with increase in costs after government reforms and ~25% cheaper imports from Brazil, profitability is unlikely to be achieved this year. On the positive side, the bird mortality rate continues to improve. Bakery: Bakery segment posted a top line growth of 28% y-o-y, as some products were relaunched in the Saudi market (after the fire incident in Q4 2014). The segment growth was primarily driven by volume sales of bread, supported by low commodity prices. Net profit improved by 12.3% y-o-y. We believe the segment will continue to grow strongly over the next couple of years, with increasing capacity (Q3 2016).
Disclosures Please refer to the important disclosures at the back of this report.
2
Almarai Company
Food-Diversified – Industrial 13 April 2016
Income Statement (SARmn)
12/12A
12/13A
12/14A
12/15A
12/16E
9,883
11,219
12,606
13,795
15,354
(6,372)
(7,256)
(8,013)
(8,511)
(9,748)
3,511
3,963
4,593
5,283
5,606
S.G. & A. Costs
(1,838)
(2,166)
(2,595)
(3,021)
(3,302)
Operating EBIT
1,673
1,797
1,998
2,262
2,304
(7,144)
(8,092)
(9,154)
(9,945)
(11,217)
2,739
3,127
3,452
3,850
4,137
(1,066)
(1,331)
(1,454)
(1,588)
(1,833)
1,673
1,797
1,998
2,262
2,304
Revenue Cost of Goods Sold Gross Profit Government Charges
Cash Operating Costs EBITDA Depreciation and Amortisation Operating Profit Net financing income/(costs)
(182)
(254)
(216)
(267)
(300)
Forex and Related Gains
-
-
-
-
-
Provisions
-
-
-
-
-
Other Income
-
-
-
-
-
Other Expenses
-
-
(27)
1,491
1,542
Net Profit Before Taxes Taxes
Dividends Transfer to Capital Reserve
1,864
(51)
(42)
(71)
(66)
1
2
(10)
117
1,441
1,502
Minority Interests Net profit available to shareholders
1,755
(131)
(518)
(600)
1,674 (600)
1,916 (900)
2,004 (75) (5) 1,924 (1,440)
-
-
-
-
-
12/12A
12/13A
12/14A
12/15A
12/16E
Adjusted Shares Out (mn)
800.0
800.0
800.0
800.0
800.0
CFPS (SAR)
3.132
3.539
3.922
4.233
4.702
EPS (SAR)
1.801
1.878
2.093
2.395
2.405
DPS (SAR)
0.647
0.750
0.750
1.125
1.800
Growth
12/12A
12/13A
12/14A
12/15A
12/16E
Revenue Growth
24.3%
13.5%
12.4%
9.4%
11.3%
Gross Profit Growth
17.2%
12.9%
15.9%
15.0%
6.1%
EBITDA Growth
21.7%
14.2%
10.4%
11.5%
7.5%
Operating Profit Growth
10.2%
7.4%
11.2%
13.2%
1.8%
Net Profit Growth
26.4%
4.3%
11.5%
14.4%
0.4%
EPS Growth
26.4%
4.3%
11.5%
14.4%
0.4%
Margins
12/12A
12/13A
12/14A
12/15A
12/16E
Gross profit margin
35.5%
35.3%
36.4%
38.3%
36.5%
EBITDA margin
27.7%
27.9%
27.4%
27.9%
26.9%
Operating Margin
16.9%
16.0%
15.8%
16.4%
15.0%
Pretax profit margin
15.1%
13.7%
13.9%
13.5%
13.1%
Net profit margin
14.6%
13.4%
13.3%
13.9%
12.5%
12/16E
Other Ratios
12/12A
12/13A
12/14A
12/15A
ROCE
10.8%
9.4%
10.3%
10.3%
9.8%
ROIC
12.8%
10.8%
10.4%
10.9%
10.2%
ROE
20.2%
17.0%
15.9%
16.7%
15.3%
3.4%
2.7%
4.0%
3.5%
3.7%
Capex/Sales
29.5%
23.9%
21.3%
28.8%
22.5%
Dividend Payout Ratio
35.9%
39.9%
35.8%
47.0%
74.8%
Valuation Measures
12/16E
Effective Tax Rate
12/12A
12/13A
12/14A
12/15A
P/E (x)
32.0
30.7
27.5
24.1
24.0
P/CF (x)
18.4
16.3
14.7
13.6
12.3
P/B (x)
6.1
4.5
4.2
3.8
3.5
EV/Sales (x)
5.9
5.1
4.6
4.2
3.8
EV/EBITDA (x)
21.2
18.3
16.8
15.0
14.3
EV/EBIT (x)
34.7
31.8
29.1
25.5
25.6
3.6
3.1
2.9
2.6
2.4
1.1%
1.3%
1.3%
2.0%
3.1%
EV/IC (x) Dividend Yield Source: Company data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report.
3
Almarai Company
Food-Diversified – Industrial 13 April 2016
Balance Sheet (SARmn)
12/12A
12/13A
12/14A
12/15A
12/16E
Cash and Cash Equivalents
417
1,811
797
2,039
964
Current Receivables
827
992
1,346
1,281
1,585
2,317
2,545
2,769
2,836
3,455
35
14
1
3
3
3,561
5,348
4,912
6,155
6,004
14,317
16,020
17,246
19,924
21,545
244
479
325
198
198
1,335
1,310
1,350
1,009
1,009 11
Inventories Other current assets Total Current Assets Fixed Assets Investments Goodwill Other Intangible Assets
12
2
11
61
110
114
74
74
Total Non-current Assets
15,958
17,932
19,037
21,216
22,838
Total Assets
19,519
23,280
23,949
27,371
28,841
1,400
1,683
1,821
2,039
2,039
-
-
-
-
-
Total Current Liabilities
3,679
3,720
4,043
4,807
4,748
Long-Term Debt
7,255
8,289
7,737
9,343
9,843
Other LT Payables
-
-
-
-
-
Provisions
414
506
538
603
603
7,668
8,795
8,275
9,946
10,446
622
622
744
560
565
Paid-up share capital
4,000
6,000
6,000
6,000
6,000
Total Reserves
3,549
4,142
4,887
6,058
7,082
Total Shareholders' Equity
7,549
10,142
10,887
12,058
13,082
Total Other Assets
Short Term Debt
-
Trade Payables Dividends Payable Other Current Liabilities
Total Non-current Liabilities Minority interests
Total Equity
8,171
10,764
11,631
12,618
13,647
Total Liabilities & Shareholders' Equity
19,519
23,280
23,949
27,371
28,841
Ratios
12/12A
12/13A
12/14A
12/15A
12/16E
8,202
8,147
8,760
9,340
10,915
Net Debt (SARmn) Net Debt/EBITDA (x) Net Debt to Equity
3.00 100.4%
2.61
2.54
2.43
2.64
75.7%
75.3%
74.0%
80.0%
EBITDA Interest Cover (x)
15.0
12.3
16.0
14.4
13.8
BVPS (SAR)
9.44
12.68
13.61
15.07
16.35
Cashflow Statement (SARmn)
12/12A
12/13A
12/14A
12/15A
12/16E
Net Income before Tax & Minority Interest
1,491
1,542
1,755
1,864
2,004
Depreciation & Amortisation
1,066
1,331
1,454
1,588
1,833
Decrease in Working Capital
29
(603)
(294)
(10)
356
365
413
2,576
2,626
3,279
4,881
2,780
(2,690)
(3,968)
(3,455)
Other Operating Cashflow Cashflow from Operations Capital Expenditure
1,016
(982) (75)
(2,912)
(2,677)
New Investments
(21)
(235)
55
(18)
Others
-
(391)
(479)
(423)
(2,933)
(3,302)
(3,115)
(4,409)
Net Operating Cashflow
(357)
(676)
165
472
(674)
Dividends paid to ordinary shareholders
(513)
(499)
(598)
(599)
(900)
Cashflow from investing activities
Proceeds from issue of shares Increase in Loans Effects of Exchange Rates on Cash
-
-
1,481
1,329
1,837
500
(16)
(13)
1,245
(179)
(507)
Cashflow from financing activities
503
2,070
(1,098)
719
(400)
Total cash generated
145
1,393
(933)
1,191
(1,074)
Cash at beginning of period
272
417
1,811
797
2,039
Implied cash at end of year
417
1,811
877
1,987
964
Ratios Capex/Sales Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
(5)
(305)
-
(3,455)
(465)
Other Financing Cashflow
-
-
-
-
12/12A
12/13A
12/14A
12/15A
12/16E
29.5%
23.9%
21.3%
28.8%
22.5%
4
Almarai Company
Food-Diversified – Industrial 13 April 2016
IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 20 Broad Street 26th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Al Rajhi. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.
Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication.
Compensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months.
Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither Al Rajhi nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report. Al Rajhi may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of Al Rajhi. Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States. The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments. Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by Al Rajhi with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior consent of Al Rajhi and Al Rajhi accepts no liability whatsoever for the actions of third parties in this respect. This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Disclosures Please refer to the important disclosures at the back of this report.
5
Almarai Company
Food-Diversified – Industrial 13 April 2016
Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Explanation of Al Rajhi Capital’s rating system Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 12 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Target price": We estimate target value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations.
Contact us Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh 11432 Kingdom of Saudi Arabia Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
6
Food-Diversified – Industrial ALMARAI AB: Saudi Arabia 13 April 2016
Rating
NEUTRAL
Target price
SAR55.05 (-4.59% upside)
Current price
SAR57.66
Research Department ARC Research Team, Tel 966 1 211 9370, [email protected] Key themes & implications Almarai reported a positive top-line in Q1 2016, showing resilience of the company’s core business to slowing economic growth and lower disposable income. The Bakery and Dairy & Juices continues to witness double digit growth. However, the poultry segment continues to report losses, which we believe will not be profitable in 2016. Based on our latest estimates we have revised the target price to SAR55.0. Share information Market cap (SAR/US$)
46.13bn / 12.30bn
52-week range
41.57 - 72.44
Daily avg volume (US$)
mn
Shares outstanding
800.0mn
Free float (est)
36%
Performance
1M
3M
12M
Absolute
8.2%
13.3%
-12.4%
Relative to index
8.9%
9.3%
17.2%
Major Shareholder: Savola Al-Azizia United Co
36.5%
Al-Saud Sultan Mohamed
28.6%
Almarai Steady performance Almarai reported stronger than expected top line growth for Q1 2016, posted double digit top line growth (+13.6% y-o-y), led by the Bakery (+28% y-o-y) and Dairy & Fresh juice (+12.2% y-o-y) segments. During the quarter, net margins declined 110bps y-o-y, due to energy & utility price reforms as well as higher feedstock costs. The poultry segment is facing pressure from rising imports and increase in costs. We believe it will be difficult for the segment to turn profitable this year. However, the company has already started raising prices for its premium products to pass some part of the additional cost to the consumers in order to improve their margins. Going forward, the company intends to focus more on operational efficiencies and selectively delay new capacity additions. Based on our revised estimates, we arrive at a target price of SAR55.0 on Almarai and reiterate our Neutral rating on the company. Upward revision in estimates: We have revised upwards our 2016 forecast for Almarai, after the company reported stronger than expected revenue growth in the first quarter. However, the company’s margins are under pressure (in-line with expectations) from the hike in energy and utility prices as well as government’s decision to import water-hungry feedstock like Alfalfa. We expect revenue to grow 11.3% and 9.1% in 2016 and 2017 respectively. Management inputs:
Valuation 12/13A
12/14A
12/15A
P/E (x)
30.7
27.5
24.1
24.0
P/B (x)
4.5
4.2
3.8
3.5
EV/EBITDA (x)
18.3
16.8
15.0
14.3
Dividend Yield
1.3%
1.3%
2.0%
3.1%
Revenue growth was mainly volume driven. Overall volumes were up 16.1% y-o-y, while Saudi volumes grew 13.3% and GCC region volumes rose 14.4%.
Almarai’s cost saving program targets to save approximately SAR130mn of fixed costs over the next 12-18 months, through operational efficiencies.
The company has also revised its capital expenditure approximately to SAR3.5bn-SAR4bn yearly (20%-25% reduction), due to negative economic conditions, and focus on efficiency gains. This is will delay some planned capacity additions in the dairy segment.
The company believes its Egyptian business will continue to grow, but expects negative foreign exchange impact.
Almarai is entering the powdered diary market, which is a third of the overall GCC dairy market. New capacity is being added in the bakery segment.
The management has imposed a cap on leverage as rising debt has become a concern. They do not plan to exceed a net debt/EBITDA ratio of 3.0 and a net debt/equity of 100%.
12/16E
Source: Company data, Al Rajhi Capital
Performance Price Close
Relative to TADAWUL FF (RHS)
RSI10
78.0 73.0 68.0 63.0 58.0 53.0 48.0 43.0 38.0 70 30 -10 04/15
121.0 116.6 112.3 107.9 103.5 99.1 94.8 90.4 86.0
07/15
10/15
01/16
Source: Bloomberg, Company data, Al Rajhi Capital
12/12A
12/13A
12/14A
12/15A
12/16E
Company summary
Period End (SAR) Revenue (mn)
9,883
11,219
12,606
13,795
15,354
Almarai is the largest integrated dairy foods company in the world, with a reputation for quality among the Gulf states in which it operates. Almarai’s network extends across the Arabian Peninsula, leading the agricultural, dairy processing and food distribution industries. Founded in 1976, Almarai started as a pure-play dairy company before it expanded to include cheese, bakery, juice, and poultry in its product portfolio.
Revenue Growth Gross profit margin EBITDA margin
24.3% 35.5% 27.7%
Net profit margin EPS EPS Growth ROE ROCE Capex/Sales
14.6% 1.80 26.4% 20.2% 10.8% 29.5%
13.5% 35.3% 27.9%
12.4% 36.4% 27.4%
9.4% 38.3% 27.9%
13.4% 13.3% 13.9% 1.88 2.09 2.39 4.3% 11.5% 14.4% 17.0% 15.9% 16.7% 9.4% 10.3% 10.3% 23.9% 21.3% 28.8% Source: Company data, Al Rajhi Capital; Note: EPS adjusted for post bonus shares of 800 mn
11.3% 36.5% 26.9% 12.5% 2.40 0.4% 15.3% 9.8% 22.5%
Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
Almarai Company
Food-Diversified – Industrial 13 April 2016
Valuation: We believe food sector companies are less susceptible to slowing economic growth and lower disposable income. Almarai has shown resilience to the same with double digit top line growth in Q1 2016. The stock is currently trading at 2017 PE of 20.3x. Based on our revised estimates, we arrive at a target price of SAR55.0 on Almarai and have a neutral rating on the stock.
Segmental Analysis Core business drives growth: Almarai’s core dairy and fresh juice segment reported a top line growth of 12.2% y-o-y to SAR2,642mn, supported by Fresh dairy products (+13.8% y-oy) and Long Life dairy (+12.8% y-o-y). However, the segment’s profit was mostly flat (+0.7% y-o-y), due to hike in transport fuel and utility expenses and rising imports of feedstock like Alfalfa. The strong top line growth indicates that the segment is resilient to the economic downturn and lower disposable income. Moreover, the company has also forayed into the powder milk market in Q1 2016, comprising 1/3rd of the milk market in GCC, which we believe is big opportunity for the company. Though margin is likely to remain under pressure, we expect dairy segment to grow at double digit rates in 2016 on the back of improving distribution and rising population. Poultry: The first quarter performance of the poultry segment was not encouraging with revenue growth slowing to only 6.8% y-o-y, under pressure from cheaper imports, primarily from Brazil. The segment reported a net loss of SAR104mn in Q1 2016 compared to a loss of SAR68mn in Q1 2015. The management had earlier stated that the segment is likely to turn profitable in 2016. However, with increase in costs after government reforms and ~25% cheaper imports from Brazil, profitability is unlikely to be achieved this year. On the positive side, the bird mortality rate continues to improve. Bakery: Bakery segment posted a top line growth of 28% y-o-y, as some products were relaunched in the Saudi market (after the fire incident in Q4 2014). The segment growth was primarily driven by volume sales of bread, supported by low commodity prices. Net profit improved by 12.3% y-o-y. We believe the segment will continue to grow strongly over the next couple of years, with increasing capacity (Q3 2016).
Disclosures Please refer to the important disclosures at the back of this report.
2
Almarai Company
Food-Diversified – Industrial 13 April 2016
Income Statement (SARmn)
12/12A
12/13A
12/14A
12/15A
12/16E
9,883
11,219
12,606
13,795
15,354
(6,372)
(7,256)
(8,013)
(8,511)
(9,748)
3,511
3,963
4,593
5,283
5,606
S.G. & A. Costs
(1,838)
(2,166)
(2,595)
(3,021)
(3,302)
Operating EBIT
1,673
1,797
1,998
2,262
2,304
(7,144)
(8,092)
(9,154)
(9,945)
(11,217)
2,739
3,127
3,452
3,850
4,137
(1,066)
(1,331)
(1,454)
(1,588)
(1,833)
1,673
1,797
1,998
2,262
2,304
Revenue Cost of Goods Sold Gross Profit Government Charges
Cash Operating Costs EBITDA Depreciation and Amortisation Operating Profit Net financing income/(costs)
(182)
(254)
(216)
(267)
(300)
Forex and Related Gains
-
-
-
-
-
Provisions
-
-
-
-
-
Other Income
-
-
-
-
-
Other Expenses
-
-
(27)
1,491
1,542
Net Profit Before Taxes Taxes
Dividends Transfer to Capital Reserve
1,864
(51)
(42)
(71)
(66)
1
2
(10)
117
1,441
1,502
Minority Interests Net profit available to shareholders
1,755
(131)
(518)
(600)
1,674 (600)
1,916 (900)
2,004 (75) (5) 1,924 (1,440)
-
-
-
-
-
12/12A
12/13A
12/14A
12/15A
12/16E
Adjusted Shares Out (mn)
800.0
800.0
800.0
800.0
800.0
CFPS (SAR)
3.132
3.539
3.922
4.233
4.702
EPS (SAR)
1.801
1.878
2.093
2.395
2.405
DPS (SAR)
0.647
0.750
0.750
1.125
1.800
Growth
12/12A
12/13A
12/14A
12/15A
12/16E
Revenue Growth
24.3%
13.5%
12.4%
9.4%
11.3%
Gross Profit Growth
17.2%
12.9%
15.9%
15.0%
6.1%
EBITDA Growth
21.7%
14.2%
10.4%
11.5%
7.5%
Operating Profit Growth
10.2%
7.4%
11.2%
13.2%
1.8%
Net Profit Growth
26.4%
4.3%
11.5%
14.4%
0.4%
EPS Growth
26.4%
4.3%
11.5%
14.4%
0.4%
Margins
12/12A
12/13A
12/14A
12/15A
12/16E
Gross profit margin
35.5%
35.3%
36.4%
38.3%
36.5%
EBITDA margin
27.7%
27.9%
27.4%
27.9%
26.9%
Operating Margin
16.9%
16.0%
15.8%
16.4%
15.0%
Pretax profit margin
15.1%
13.7%
13.9%
13.5%
13.1%
Net profit margin
14.6%
13.4%
13.3%
13.9%
12.5%
12/16E
Other Ratios
12/12A
12/13A
12/14A
12/15A
ROCE
10.8%
9.4%
10.3%
10.3%
9.8%
ROIC
12.8%
10.8%
10.4%
10.9%
10.2%
ROE
20.2%
17.0%
15.9%
16.7%
15.3%
3.4%
2.7%
4.0%
3.5%
3.7%
Capex/Sales
29.5%
23.9%
21.3%
28.8%
22.5%
Dividend Payout Ratio
35.9%
39.9%
35.8%
47.0%
74.8%
Valuation Measures
12/16E
Effective Tax Rate
12/12A
12/13A
12/14A
12/15A
P/E (x)
32.0
30.7
27.5
24.1
24.0
P/CF (x)
18.4
16.3
14.7
13.6
12.3
P/B (x)
6.1
4.5
4.2
3.8
3.5
EV/Sales (x)
5.9
5.1
4.6
4.2
3.8
EV/EBITDA (x)
21.2
18.3
16.8
15.0
14.3
EV/EBIT (x)
34.7
31.8
29.1
25.5
25.6
3.6
3.1
2.9
2.6
2.4
1.1%
1.3%
1.3%
2.0%
3.1%
EV/IC (x) Dividend Yield Source: Company data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report.
3
Almarai Company
Food-Diversified – Industrial 13 April 2016
Balance Sheet (SARmn)
12/12A
12/13A
12/14A
12/15A
12/16E
Cash and Cash Equivalents
417
1,811
797
2,039
964
Current Receivables
827
992
1,346
1,281
1,585
2,317
2,545
2,769
2,836
3,455
35
14
1
3
3
3,561
5,348
4,912
6,155
6,004
14,317
16,020
17,246
19,924
21,545
244
479
325
198
198
1,335
1,310
1,350
1,009
1,009 11
Inventories Other current assets Total Current Assets Fixed Assets Investments Goodwill Other Intangible Assets
12
2
11
61
110
114
74
74
Total Non-current Assets
15,958
17,932
19,037
21,216
22,838
Total Assets
19,519
23,280
23,949
27,371
28,841
1,400
1,683
1,821
2,039
2,039
-
-
-
-
-
Total Current Liabilities
3,679
3,720
4,043
4,807
4,748
Long-Term Debt
7,255
8,289
7,737
9,343
9,843
Other LT Payables
-
-
-
-
-
Provisions
414
506
538
603
603
7,668
8,795
8,275
9,946
10,446
622
622
744
560
565
Paid-up share capital
4,000
6,000
6,000
6,000
6,000
Total Reserves
3,549
4,142
4,887
6,058
7,082
Total Shareholders' Equity
7,549
10,142
10,887
12,058
13,082
Total Other Assets
Short Term Debt
-
Trade Payables Dividends Payable Other Current Liabilities
Total Non-current Liabilities Minority interests
Total Equity
8,171
10,764
11,631
12,618
13,647
Total Liabilities & Shareholders' Equity
19,519
23,280
23,949
27,371
28,841
Ratios
12/12A
12/13A
12/14A
12/15A
12/16E
8,202
8,147
8,760
9,340
10,915
Net Debt (SARmn) Net Debt/EBITDA (x) Net Debt to Equity
3.00 100.4%
2.61
2.54
2.43
2.64
75.7%
75.3%
74.0%
80.0%
EBITDA Interest Cover (x)
15.0
12.3
16.0
14.4
13.8
BVPS (SAR)
9.44
12.68
13.61
15.07
16.35
Cashflow Statement (SARmn)
12/12A
12/13A
12/14A
12/15A
12/16E
Net Income before Tax & Minority Interest
1,491
1,542
1,755
1,864
2,004
Depreciation & Amortisation
1,066
1,331
1,454
1,588
1,833
Decrease in Working Capital
29
(603)
(294)
(10)
356
365
413
2,576
2,626
3,279
4,881
2,780
(2,690)
(3,968)
(3,455)
Other Operating Cashflow Cashflow from Operations Capital Expenditure
1,016
(982) (75)
(2,912)
(2,677)
New Investments
(21)
(235)
55
(18)
Others
-
(391)
(479)
(423)
(2,933)
(3,302)
(3,115)
(4,409)
Net Operating Cashflow
(357)
(676)
165
472
(674)
Dividends paid to ordinary shareholders
(513)
(499)
(598)
(599)
(900)
Cashflow from investing activities
Proceeds from issue of shares Increase in Loans Effects of Exchange Rates on Cash
-
-
1,481
1,329
1,837
500
(16)
(13)
1,245
(179)
(507)
Cashflow from financing activities
503
2,070
(1,098)
719
(400)
Total cash generated
145
1,393
(933)
1,191
(1,074)
Cash at beginning of period
272
417
1,811
797
2,039
Implied cash at end of year
417
1,811
877
1,987
964
Ratios Capex/Sales Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
(5)
(305)
-
(3,455)
(465)
Other Financing Cashflow
-
-
-
-
12/12A
12/13A
12/14A
12/15A
12/16E
29.5%
23.9%
21.3%
28.8%
22.5%
4
Almarai Company
Food-Diversified – Industrial 13 April 2016
IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 20 Broad Street 26th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Al Rajhi. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.
Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication.
Compensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months.
Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither Al Rajhi nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report. Al Rajhi may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of Al Rajhi. Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States. The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments. Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by Al Rajhi with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior consent of Al Rajhi and Al Rajhi accepts no liability whatsoever for the actions of third parties in this respect. This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Disclosures Please refer to the important disclosures at the back of this report.
5
Almarai Company
Food-Diversified – Industrial 13 April 2016
Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
Explanation of Al Rajhi Capital’s rating system Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 12 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Target price": We estimate target value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations.
Contact us Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh 11432 Kingdom of Saudi Arabia Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
6
