3Q14 review: Earnings miss estimates; Maintain Buy - Amazon Web ...
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Fawaz A. Alhokair & Co (AlHokair Fashion) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 22, 2015
3Q14 review: Earnings miss estimates; Maintain Buy
Rating Summary Recommendation
3Q14 net profit misses SFC/consensus estimates: Alhokair reported 3Q14 headline net
Buy
Target price (SAR)
125.0
Upside/ (downside)
37%
profit of SAR106m (c.-20% yoy, c.-65% qoq) that has missed SFC/consensus estimate by c.24%/27%. While revenue of SAR1,549m (+19% yoy, c.-25% qoq) missed our estimate by
Stock Details
c.9%, operational performance was also weaker than expected with gross profit/EBITDA/
Closing price*
EBIT c.15%/18%/17% lower than our forecasts. Consequently, EBITDA margin compressed to 12.9% (vs. SFC estimate of c.14.4%), the lowest achieved in the previous six quarters. While we await full financials to dissect the miss, management commentary suggests that the
SAR
91.3
SAR mn
19,163
Mn
210
52-Week High
SAR
128.1
52-Week Low
SAR
70.0
%
-19.3
Market capitalization Shares outstanding
miss may have come from seasonality. According to the company, Haj season fell in the
Price chg. (3 months)
second quarter (financial year ends in March) this year (vs. in third quarter last year) which
EPS 2015E
resulted in the replacement of high margin sales with low margin sales and negatively
Ticker (Reuters/ Bloomberg)
SAR
4.29
4240.SE
ALHOKAIR AB
affected 3Q14 results. Alhokair’s mid-term equity story is all about growth; expect solid 2014E/15E-2016E/ 17E earnings CAGR of c.20+%: Despite the quarterly miss, we continue to see Alhokair as
*Price as of January 21, 2015 Key Shareholding (%)
an aggressive growth story. While earnings grew c.35% annually during 2010/11-2013/14
FAS Saudi Holding Co.
49.0
due to management’s aggressive growth strategy coupled with acquisitions at home/abroad,
Alhokair Family
21.0
we expect earnings to grow c.20+% annually between 2014E/15E-2016/17E and floor
Public
30.0
space/revenue/net profit to potentially double in the next 5 years thanks to fast growing KSA
Source: Tadawul
apparel retail market (EIU: c.9% CAGR 2014-18E), captive supply of mall based retail space in KSA and improving profitability in some of the overseas operations. Furthermore, while
Key Ratios 2015E
2016E
SAR1.2bn/year provides the company with enough room to continue organic growth capex,
P/E (x)
20.1
16.7
repay debt, pay dividends and pursue mid-sized acquisitions (in-line with Alhokair’s historical
EV/EBITDA (x)
15.9
13.4
ticket size) should the need arise.
Dividend yield (%)
3.3
3.8
c.82% gearing seems high, net debt/EBITDA ratio of c.1.5x and solid operational cash flow of
Source: Company, Saudi Fransi Capital analysis
Trades at clean 2015E P/E of 22.5x; Maintain Buy: After an impressive c.32% increase in stock price (Tadawul Retail c.33%) since 2014 beginning, Alhokair trades at headline 2015E P/E of 20.1x. However, Alhokair’s net profit has historically included other non-operating
Stock price movement vs. TASI
income (investment gains, dividends, Fx gains/losses etc.) meaning restating from
420
exceptionals, Alhokair’s clean 2015E P/E is 22.5x (KSA Retail 19.4x, EM peers 20.9x, DM
370
peers 18.8x), which seems undemanding considering Alhokair’s growth prospects. All in all, post publication of 3Q14 results, while we do not like the earnings miss, we believe Alhokair’s mid-term equity story remains largely on track and we maintain our Buy rating with an
3Q14E
%diff
Cons*
%dev
2Q14
%qoq
3Q13
%yoy
1,549
1,704
-9%
Na
Na
2,072
-25%
1,297
19%
Gross Profit
363
426
-15%
Na
Na
574
-37%
323
12%
EBITDA (est)
200
245
-18%
Na
Na
364
-45%
202
-1%
12.9%
14.4%
EBIT
126
153
-17%
Na
Na
290
-57%
143
-12%
Net Profit
106
141
-24%
145
-27%
304
-65%
133
-20%
EBITDA margin
220 170 120 Jan-13 Jan-13 Mar-13 Apr-13 May-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
**3Q14A
Revenues
270
70
unchanged SAR125/share target price. SAR mn
320
17.5%
15.5%
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus, ** Alhokair’s financial years ends in March
Refer to important terms of use, disclaimers and disclosures on back page
Alhokair
Tadawul
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Fawaz A. Alhokair & Co (AlHokair Fashion) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 22, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Fawaz A. Alhokair & Co (AlHokair Fashion) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 22, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Fawaz A. Alhokair & Co (AlHokair Fashion) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 22, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the company that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Fawaz A. Alhokair & Co (AlHokair Fashion) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 22, 2015
3Q14 review: Earnings miss estimates; Maintain Buy
Rating Summary Recommendation
3Q14 net profit misses SFC/consensus estimates: Alhokair reported 3Q14 headline net
Buy
Target price (SAR)
125.0
Upside/ (downside)
37%
profit of SAR106m (c.-20% yoy, c.-65% qoq) that has missed SFC/consensus estimate by c.24%/27%. While revenue of SAR1,549m (+19% yoy, c.-25% qoq) missed our estimate by
Stock Details
c.9%, operational performance was also weaker than expected with gross profit/EBITDA/
Closing price*
EBIT c.15%/18%/17% lower than our forecasts. Consequently, EBITDA margin compressed to 12.9% (vs. SFC estimate of c.14.4%), the lowest achieved in the previous six quarters. While we await full financials to dissect the miss, management commentary suggests that the
SAR
91.3
SAR mn
19,163
Mn
210
52-Week High
SAR
128.1
52-Week Low
SAR
70.0
%
-19.3
Market capitalization Shares outstanding
miss may have come from seasonality. According to the company, Haj season fell in the
Price chg. (3 months)
second quarter (financial year ends in March) this year (vs. in third quarter last year) which
EPS 2015E
resulted in the replacement of high margin sales with low margin sales and negatively
Ticker (Reuters/ Bloomberg)
SAR
4.29
4240.SE
ALHOKAIR AB
affected 3Q14 results. Alhokair’s mid-term equity story is all about growth; expect solid 2014E/15E-2016E/ 17E earnings CAGR of c.20+%: Despite the quarterly miss, we continue to see Alhokair as
*Price as of January 21, 2015 Key Shareholding (%)
an aggressive growth story. While earnings grew c.35% annually during 2010/11-2013/14
FAS Saudi Holding Co.
49.0
due to management’s aggressive growth strategy coupled with acquisitions at home/abroad,
Alhokair Family
21.0
we expect earnings to grow c.20+% annually between 2014E/15E-2016/17E and floor
Public
30.0
space/revenue/net profit to potentially double in the next 5 years thanks to fast growing KSA
Source: Tadawul
apparel retail market (EIU: c.9% CAGR 2014-18E), captive supply of mall based retail space in KSA and improving profitability in some of the overseas operations. Furthermore, while
Key Ratios 2015E
2016E
SAR1.2bn/year provides the company with enough room to continue organic growth capex,
P/E (x)
20.1
16.7
repay debt, pay dividends and pursue mid-sized acquisitions (in-line with Alhokair’s historical
EV/EBITDA (x)
15.9
13.4
ticket size) should the need arise.
Dividend yield (%)
3.3
3.8
c.82% gearing seems high, net debt/EBITDA ratio of c.1.5x and solid operational cash flow of
Source: Company, Saudi Fransi Capital analysis
Trades at clean 2015E P/E of 22.5x; Maintain Buy: After an impressive c.32% increase in stock price (Tadawul Retail c.33%) since 2014 beginning, Alhokair trades at headline 2015E P/E of 20.1x. However, Alhokair’s net profit has historically included other non-operating
Stock price movement vs. TASI
income (investment gains, dividends, Fx gains/losses etc.) meaning restating from
420
exceptionals, Alhokair’s clean 2015E P/E is 22.5x (KSA Retail 19.4x, EM peers 20.9x, DM
370
peers 18.8x), which seems undemanding considering Alhokair’s growth prospects. All in all, post publication of 3Q14 results, while we do not like the earnings miss, we believe Alhokair’s mid-term equity story remains largely on track and we maintain our Buy rating with an
3Q14E
%diff
Cons*
%dev
2Q14
%qoq
3Q13
%yoy
1,549
1,704
-9%
Na
Na
2,072
-25%
1,297
19%
Gross Profit
363
426
-15%
Na
Na
574
-37%
323
12%
EBITDA (est)
200
245
-18%
Na
Na
364
-45%
202
-1%
12.9%
14.4%
EBIT
126
153
-17%
Na
Na
290
-57%
143
-12%
Net Profit
106
141
-24%
145
-27%
304
-65%
133
-20%
EBITDA margin
220 170 120 Jan-13 Jan-13 Mar-13 Apr-13 May-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
**3Q14A
Revenues
270
70
unchanged SAR125/share target price. SAR mn
320
17.5%
15.5%
Source: Company, Saudi Fransi Capital analysis, * Bloomberg consensus, ** Alhokair’s financial years ends in March
Refer to important terms of use, disclaimers and disclosures on back page
Alhokair
Tadawul
Source: Tadawul
Sector Coverage Dipanjan Ray [email protected] +966-11-2826861 AbdulAziz Jawdat [email protected] +966-11-2826856
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Fawaz A. Alhokair & Co (AlHokair Fashion) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 22, 2015
Recommendation Framework BUY: The analyst recommends a BUY when our fair value estimate is at least 10% higher than the current share price. HOLD: The analyst recommends a HOLD when our fair value estimate ranges within ±10% of the current share price. SELL: The analyst recommends a SELL when our fair value estimate is lower by more than 10% from the current share price.
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Fawaz A. Alhokair & Co (AlHokair Fashion) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 22, 2015
Contacts RESEARCH & ADVISORY DEPARTMENT [email protected]
SAUDI FRANSI CAPITAL Call Centre 800-125-9999 Website www.sfc.sa
SAUDI FRANSI CAPITAL LLC C.R. 1010231217, PO Box 23454, Riyadh 11426, Saudi Arabia, Head Office Riyadh
Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Fawaz A. Alhokair & Co (AlHokair Fashion) KSA Consumer Sector | 4Q 2014 Preliminary Results | January 22, 2015
Disclaimer This report is prepared by Saudi Fransi Capital (“SFC”), a fully-fledged investment firm providing investment banking, asset management, securities brokerage, research, and custody services. SFC, and its affiliate, might conduct business relationships with the company that is subject of this report and/ or own its security. This report is based on current public information that we consider reliable, but we do not represent it is accurate or compl ete, and it should not be relied on as such. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. This report is intended for general information purposes only, and may not be reproduced or redistributed to any other person. This report is not intended as an offer or solicitation with respect to the purchase or sale of any security. This report is not intended to take into account any investment suitability needs of the recipient. In particular, this report is not customized to the specific investment objectives, financial situation, risk appetite or other needs of any person who may receive this report. SFC strongly advises every potential investor to seek professional legal, accounting and financial guidance when determining whether an investment in a security is appropriate to his or her needs. Any investment recommendations contained in this report take into account both risk and expected return. To the maximum extent permitted by applicable law and regulation, SFC shall not be liable for any loss that may arise from the use of this report or its contents or otherwise arising in connection therewith. Any financial projections, fair value estimates and statements regarding future prospects contained in this report may not be realized. All opinions and estimates included in this report constitute SFC’s judgment as of the date of production of this report, and are subject to change without notice. Past performance of any investment is not indicative of future results. The value of securities, the income from them, the prices and currencies of securities, can go down as well as up. An investor may get back less than what he or she originally invested. Additionally, fees may apply on investments in securities. Changes in currency rates may have an adverse effect on the value, price or income of a security. No part of this report may be reproduced without the written permission of SFC. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the Kingdom of Saudi Arabia where its distribution may be restricted by law. Persons who receive this report should make themselves aware of, and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
Saudi Fransi Capital LLC; C.R. 1010231217, P.O Box 23454, Riyadh 11426, Saudi Arabia, Head Office – Riyadh. Authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
Refer to important terms of use, disclaimers and disclosures on back page
Saudi Fransi Capital is authorized and regulated by the Capital Market Authority (CMA) License No. (11153-37)
