Jarir Marketing Company 09 October 2016 PDF
October 09, 2016 Rating 12- Month Target Price
Neutral SAR 106.00
JARIR MARKETING COMPANY (JARIR) 3Q2016 First Look
Margins Expand
Expected Total Return Price as on Oct-06, 2016
SAR 82.00
Upside to Target Price
29.3%
Expected Dividend Yield
7.9%
Expected Total Return
37.2%
Market Data SAR 188.0/81.0
52 Week H/L
SAR 7,380 mln
Market Capitalization Shares Outstanding
90 mln
Free Float
56.79%
12-Month ADTV
124,210
1-Year Price Performance 110
Jarir announced preliminary 3Q2016 results with an EPS of SAR 2.45, almost flat Y/Y but up +71% Q/Q, missing market consensus of SAR 2.10. We were closer at SAR 2.18 At first look, full impact of back to school season helped margins grow both Q/Q and Y/Y. We believe phone sales have also picked up Q/Q. In addition, Jarir reduced operating and non-operating expenses this quarter. While earnings increased to SAR 220 million (+1% Y/Y), top line shows some stress (-1% Y/Y). We maintain a Neutral recommendation but cut our target price by -10% to SAR 106. 2016E P/E of 10.9x is at a discount to the market’s P/E of 12.1x as investors fear impact of lower consumer spending on Jarir’s earnings. Dividend yield of 7.9% is attractive.
Revenues decline -1% Y/Y Revenues came marginally better than our estimates at SAR 1.52 bln, almost flat Y/Y but +9% higher Q/Q due to seasonal impact of back to school season. As expected, higher sales of school and office supplies have expanded profitability margins during 3Q16 and helped the Company make this a worthwhile quarter. Revenues from computers including laptops and tablets as well as electronics have suffered. However, Jarir stands to benefit from the new iPhone launch and generally better smartphone sales given the pressure on high street shops due to the complete Saudization of the retail telecom sector.
Gross margins at 2-year highs
100
Gross profit of SAR 252 mln was flat Y/Y, but grew substantially by +55% Q/Q. Gross margins came in at 16.6%, highest since 3Q2014. We believe there has been a focus on improving efficiencies and cutting costs to compensate for an expected drop in sales. Operating expenses decreased by -19% Q/Q. Net income at SAR 220 mln is a minor growth of +1% Y/Y but +71% higher Q/Q while net margins have widened to 14.5% in 3Q16 compared to 14.2% in 3Q15, highest since 1Q11.
90 80 70 60
50 40 30 O
N
D
J
F
Jarir
M
A
M
J
J
TASI
A
S
O
TRETL
Stock has almost halved YTD
Source: Bloomberg
6M
1Y
Stock price has been under tremendous pressure at the Tadawul, going down by -48% YTD versus a decline in the retail sector index and TASI index of -40% and -18.5% respectively. We expect Jarir to announce a DPS of SAR 2.00 for 3Q16, a payout ratio of 82%. Full year dividend yield of 7.9% is enticing. Despite topline concerns, we feel Jarir is managing operating and non-operating expenses well, particularly at new stores. We cut our target price by -10% to SAR 106.00 and maintain our Neutral view. Positive trigger for the stock may come from improved macro-economic outlook.
2Y
0% -10% -20%
-30% -40% -50% -60% -70%
Jarir
TASI
TRETL
Key Financial Ratios
Key Financial Figures Fig in SAR mln MlnMMln Sales
Gross Profit
RC Est. Estimates 1,505
Actuals
226
253
1,520
Net Income
196
220
EPS (SAR)
2.18
2.43
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2015A 6,375 844 829 9.21 7.21
2016E 5,848 699 692 7.68 6.50
Muhammad Faisal Potrik
Khalid Almadhyan
[email protected] +966-11-203-6807
[email protected] +966-11-203-6813
2017E 5,985 724 713 7.92 6.50
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2015A 16.71 58.0% 34.0% 8.9x 9.1x
2016E 18.29 43.9% 27.1% 10.7x 10.9x
2017E 19.91 41.5% 25.7% 10.3x 11.0x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
JARIR MARKETING COMPANY (JARIR) 3Q2016 First Look
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 limited liability 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 Arabia Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
Neutral SAR 106.00
JARIR MARKETING COMPANY (JARIR) 3Q2016 First Look
Margins Expand
Expected Total Return Price as on Oct-06, 2016
SAR 82.00
Upside to Target Price
29.3%
Expected Dividend Yield
7.9%
Expected Total Return
37.2%
Market Data SAR 188.0/81.0
52 Week H/L
SAR 7,380 mln
Market Capitalization Shares Outstanding
90 mln
Free Float
56.79%
12-Month ADTV
124,210
1-Year Price Performance 110
Jarir announced preliminary 3Q2016 results with an EPS of SAR 2.45, almost flat Y/Y but up +71% Q/Q, missing market consensus of SAR 2.10. We were closer at SAR 2.18 At first look, full impact of back to school season helped margins grow both Q/Q and Y/Y. We believe phone sales have also picked up Q/Q. In addition, Jarir reduced operating and non-operating expenses this quarter. While earnings increased to SAR 220 million (+1% Y/Y), top line shows some stress (-1% Y/Y). We maintain a Neutral recommendation but cut our target price by -10% to SAR 106. 2016E P/E of 10.9x is at a discount to the market’s P/E of 12.1x as investors fear impact of lower consumer spending on Jarir’s earnings. Dividend yield of 7.9% is attractive.
Revenues decline -1% Y/Y Revenues came marginally better than our estimates at SAR 1.52 bln, almost flat Y/Y but +9% higher Q/Q due to seasonal impact of back to school season. As expected, higher sales of school and office supplies have expanded profitability margins during 3Q16 and helped the Company make this a worthwhile quarter. Revenues from computers including laptops and tablets as well as electronics have suffered. However, Jarir stands to benefit from the new iPhone launch and generally better smartphone sales given the pressure on high street shops due to the complete Saudization of the retail telecom sector.
Gross margins at 2-year highs
100
Gross profit of SAR 252 mln was flat Y/Y, but grew substantially by +55% Q/Q. Gross margins came in at 16.6%, highest since 3Q2014. We believe there has been a focus on improving efficiencies and cutting costs to compensate for an expected drop in sales. Operating expenses decreased by -19% Q/Q. Net income at SAR 220 mln is a minor growth of +1% Y/Y but +71% higher Q/Q while net margins have widened to 14.5% in 3Q16 compared to 14.2% in 3Q15, highest since 1Q11.
90 80 70 60
50 40 30 O
N
D
J
F
Jarir
M
A
M
J
J
TASI
A
S
O
TRETL
Stock has almost halved YTD
Source: Bloomberg
6M
1Y
Stock price has been under tremendous pressure at the Tadawul, going down by -48% YTD versus a decline in the retail sector index and TASI index of -40% and -18.5% respectively. We expect Jarir to announce a DPS of SAR 2.00 for 3Q16, a payout ratio of 82%. Full year dividend yield of 7.9% is enticing. Despite topline concerns, we feel Jarir is managing operating and non-operating expenses well, particularly at new stores. We cut our target price by -10% to SAR 106.00 and maintain our Neutral view. Positive trigger for the stock may come from improved macro-economic outlook.
2Y
0% -10% -20%
-30% -40% -50% -60% -70%
Jarir
TASI
TRETL
Key Financial Ratios
Key Financial Figures Fig in SAR mln MlnMMln Sales
Gross Profit
RC Est. Estimates 1,505
Actuals
226
253
1,520
Net Income
196
220
EPS (SAR)
2.18
2.43
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2015A 6,375 844 829 9.21 7.21
2016E 5,848 699 692 7.68 6.50
Muhammad Faisal Potrik
Khalid Almadhyan
[email protected] +966-11-203-6807
[email protected] +966-11-203-6813
2017E 5,985 724 713 7.92 6.50
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2015A 16.71 58.0% 34.0% 8.9x 9.1x
2016E 18.29 43.9% 27.1% 10.7x 10.9x
2017E 19.91 41.5% 25.7% 10.3x 11.0x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
JARIR MARKETING COMPANY (JARIR) 3Q2016 First Look
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 limited liability 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 Arabia Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
