Almarai 29 March 2017 PDF
March 29, 2017 Rating 12- Month Target Price
Neutral SAR 61.00
ALMARAI COMPANY 1Q2017 Preview
Steady Growth Expected Total Return Price as on Mar-28, 2017
SAR 69.25
Upside to Target Price
-11.9%
Expected Dividend Yield
1.3%
Expected Total Return
-10.6%
Market Data SAR 71.00/50.00
52 Week H/L
SAR 55,400 million
Market Capitalization
800 million
Shares Outstanding
36.27%
Free Float
694,161
12-Month ADTV
1-Year Price Performance
Following from a slowdown in growth last year due to a sluggish economy, 1Q is unlikely to be much different. Although we expect topline to rise +6.3% Y/Y to SAR 3.7 billion, this compares unfavorably to a +13.6% Y/Y growth in 1Q2016. Gross margins are likely to expand marginally Y/Y as a consequence of managing costs and improving operational efficiencies. We forecast net income at SAR 351 million (EPS SAR 0.44), +14% growth Y/Y. Losses in the Poultry segment increased in 2016 primarily due to exogenous factors; the situation is similar in 1Q2017. The stock has outperformed TASI with YTD increase of +3.6% versus TASI’s -5%. 2017E P/E of 20.8x is also at a premium to TASI’s 17.0x while dividend yield is below 2%. Trading beyond our SAR 61.00 target, we are Neutral on the stock.
Revenue growth likely above +6% 2016 saw the Bakery segment post the highest sales growth rate at +16.3% Y/Y followed by Poultry and Dairy & Juice (dragged down by Juice). We expect Fresh Dairy to contribute most in nominal terms while Juice would likely remain subdued. Overall revenue growth is expected at +6.3% Y/Y to SAR 3.7 billion. While topline is expected to be lower than SAR 3.8 billion in the preceding quarter, this is a seasonal impact. Saudi Arabia continues to dominate geographical market share accounting for more than 60% of total revenues.
Anticipate cost run-up this year
150
Better efficiencies, cost management and lower input costs are likely to improve gross margins from 35.5% last year to 35.8% in 1Q2017. Impact of higher energy prices was largely mitigated by management last year but with another round due in the middle of 2017, we see a modestly negative effect on margins Y/Y. Gross profit is likely to post a +7% rise Y/Y to SAR 1.3 billion. Selling expenses have grown sequentially throughout 2016 and this is expected to continue but admin expenses have been kept in check.
140 130 120 110 100 90 80
70 M
A
M
J
J A S Almarai
O
N
D J TASI
Poultry segment continues to pain
F
In terms of segments, Fresh Dairy continues to be the mainstay but Long Life Dairy has witnessed some resurgence with the launch of powdered milk coupled with rise in exports. New manufacturing facility at Hail, wider and deeper distribution network and new products in Bakery have provided a strong boost for this category. Fortunes in Poultry have been uncertain since the beginning, now the Company has had to deal with dumping by foreign players.
Source: Bloomberg
6M
1Y
2Y
40% 30% 20%
Valuations not enticing
10%
We anticipate a net income of SAR 351 million for 1Q, a +14% Y/Y growth. Despite a SAR 4.5 billion capital investment, a SAR 0.90 DPS for 2016 was largely viewed positively by investors. Stock price has reacted well, rising +4% YTD. Trading above our SAR 61.00 target and at a 2017E P/E of 20.8x, we do not recommend any fresh exposures at this point.
0% -10% -20% -30%
Almarai
TASI
Key Financial Figures 1Q2017E
SAR mln
Revenue
3,667
Gross Margin
35.8%
Operating Income
448
Net Income
351
EPS (SAR)
0.44
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2016A 14,699 4,441 2,081 2.60 0.90
Key Financial Ratios 2017E 15,650 4,242 2,120 2.65 1.00
Muhammad Faisal Potrik
Abdullah Abdulaziz Alrayes
[email protected] +966-11-203-6807
[email protected] +966-11-203-6814
2018E 16,793 4,424 2,097 2.62 1.00
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2016A 16.29 16.6% 7.4% 14.7x 26.5x
2017E 18.03 15.4% 6.4% 15.3x 26.0x
2018E 19.64 13.9% 5.6% 14.7x 26.3x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
ALMARAI COMPANY 1Q2017 Preview
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi closed joint stock company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Page 2 of 4 Arabia (“KSA”). Website: www.riyadcapital.com
Neutral SAR 61.00
ALMARAI COMPANY 1Q2017 Preview
Steady Growth Expected Total Return Price as on Mar-28, 2017
SAR 69.25
Upside to Target Price
-11.9%
Expected Dividend Yield
1.3%
Expected Total Return
-10.6%
Market Data SAR 71.00/50.00
52 Week H/L
SAR 55,400 million
Market Capitalization
800 million
Shares Outstanding
36.27%
Free Float
694,161
12-Month ADTV
1-Year Price Performance
Following from a slowdown in growth last year due to a sluggish economy, 1Q is unlikely to be much different. Although we expect topline to rise +6.3% Y/Y to SAR 3.7 billion, this compares unfavorably to a +13.6% Y/Y growth in 1Q2016. Gross margins are likely to expand marginally Y/Y as a consequence of managing costs and improving operational efficiencies. We forecast net income at SAR 351 million (EPS SAR 0.44), +14% growth Y/Y. Losses in the Poultry segment increased in 2016 primarily due to exogenous factors; the situation is similar in 1Q2017. The stock has outperformed TASI with YTD increase of +3.6% versus TASI’s -5%. 2017E P/E of 20.8x is also at a premium to TASI’s 17.0x while dividend yield is below 2%. Trading beyond our SAR 61.00 target, we are Neutral on the stock.
Revenue growth likely above +6% 2016 saw the Bakery segment post the highest sales growth rate at +16.3% Y/Y followed by Poultry and Dairy & Juice (dragged down by Juice). We expect Fresh Dairy to contribute most in nominal terms while Juice would likely remain subdued. Overall revenue growth is expected at +6.3% Y/Y to SAR 3.7 billion. While topline is expected to be lower than SAR 3.8 billion in the preceding quarter, this is a seasonal impact. Saudi Arabia continues to dominate geographical market share accounting for more than 60% of total revenues.
Anticipate cost run-up this year
150
Better efficiencies, cost management and lower input costs are likely to improve gross margins from 35.5% last year to 35.8% in 1Q2017. Impact of higher energy prices was largely mitigated by management last year but with another round due in the middle of 2017, we see a modestly negative effect on margins Y/Y. Gross profit is likely to post a +7% rise Y/Y to SAR 1.3 billion. Selling expenses have grown sequentially throughout 2016 and this is expected to continue but admin expenses have been kept in check.
140 130 120 110 100 90 80
70 M
A
M
J
J A S Almarai
O
N
D J TASI
Poultry segment continues to pain
F
In terms of segments, Fresh Dairy continues to be the mainstay but Long Life Dairy has witnessed some resurgence with the launch of powdered milk coupled with rise in exports. New manufacturing facility at Hail, wider and deeper distribution network and new products in Bakery have provided a strong boost for this category. Fortunes in Poultry have been uncertain since the beginning, now the Company has had to deal with dumping by foreign players.
Source: Bloomberg
6M
1Y
2Y
40% 30% 20%
Valuations not enticing
10%
We anticipate a net income of SAR 351 million for 1Q, a +14% Y/Y growth. Despite a SAR 4.5 billion capital investment, a SAR 0.90 DPS for 2016 was largely viewed positively by investors. Stock price has reacted well, rising +4% YTD. Trading above our SAR 61.00 target and at a 2017E P/E of 20.8x, we do not recommend any fresh exposures at this point.
0% -10% -20% -30%
Almarai
TASI
Key Financial Figures 1Q2017E
SAR mln
Revenue
3,667
Gross Margin
35.8%
Operating Income
448
Net Income
351
EPS (SAR)
0.44
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2016A 14,699 4,441 2,081 2.60 0.90
Key Financial Ratios 2017E 15,650 4,242 2,120 2.65 1.00
Muhammad Faisal Potrik
Abdullah Abdulaziz Alrayes
[email protected] +966-11-203-6807
[email protected] +966-11-203-6814
2018E 16,793 4,424 2,097 2.62 1.00
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2016A 16.29 16.6% 7.4% 14.7x 26.5x
2017E 18.03 15.4% 6.4% 15.3x 26.0x
2018E 19.64 13.9% 5.6% 14.7x 26.3x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
ALMARAI COMPANY 1Q2017 Preview
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi closed joint stock company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Page 2 of 4 Arabia (“KSA”). Website: www.riyadcapital.com
