Jarir Marketing Company 10 April 2016 PDF
Jarir Marketing Company 1Q2016 – First Look
Buy
EPS Declines -30% Y/Y
April 10, 2016 Expected Total Return Price as of Apr-07, 2016
SAR 115.0
Upside to Target Price
64.3%
Expected Dividend Yield
7.3%
Expected Total Return
71.7% %
Market Data 52 Week H/L
SAR 241.00/110.00
Market Capitalization
SAR 10,350 mln
Enterprise Value
SAR 10,265 mln
Shares Outstanding
90 mln
Free Float
57.0%
12-Month ADTV (000’s)
97.5
TASI Weight
0.72%
Reuters Code
4190.SE
Bloomberg Symbol
JARIR AB
1-Year Price Performance 120
110 100 80 70 60 50
J
J
A
S O N D
JARIR
J
TASI
F M TRETL
Source: Bloomberg
Apr-07-2016
Jarir reported 1Q2016 results missing our estimates and market consensus. Although sales decline was not as severe, shrinking profitability points to cost pressures. Net income registered a -30% Y/Y decline in the first quarter to SAR 174 million (EPS SAR 1.93) as compared to market consensus of SAR 211 million. Top line dipped -26% Y/Y and -7% Q/Q to SAR 1.4 billion. This compares favorably to the management’s own earlier estimates of a -30% Y/Y drop and our forecast of -28% Y/Y. The stock has recently been out of favor with investors. However, given no let-up on expansion plans by the Company and the core resilient school and office supplies business, we maintain our SAR 189 target price and Buy recommendation. -26% Y/Y fall in topline The -26% Y/Y revenue decline is better than -30% initial management estimates and our forecast of -28%. However, total sales of SAR 1.4 billion point to discretionary spending slowdown in the economy particularly on non-essential items such as electronics. Sales of smart phones as well as computers & its supplies continue to suffer. Y/Y sales should be taken in context as 1Q2015 benefitted from the two salary bonus announced by the government which led to record sales at Jarir exceeding SAR 1.9 billion. Pricing challenges in electronics and computing equipment further creates unfavorably dynamics. Sales per store have fallen to SAR 34.6 million from SAR 35.4 million in the preceding quarter. Gross margins higher but net margins lower Y/Y Change in sales mix to higher proportion of school and office supplies products has resulted in gross margins of 15.1% as compared to 14.8% last year. However, cost pressures have come in due to higher Saudization rate and increased energy prices leading to a decline in both operating (120 bps) and net margins (60 bps) Y/Y. One new opening in the quarter Similar to 4Q, Jarir managed to squeeze in a new store opening at quarter-end taking total stores strength to 41, 35 in the Kingdom and the remaining 6 within the GCC. Store additions are a key element of sales growth. Management has reiterated that they will target 6-7 stores in 2016, historical track record on this front does not give a lot of confidence.
90
A M
Jarir
TASI
TRETL
115.00
6,258
9,703
Good opportunity to get in Net income at SAR 174 million was -30% lower Y/Y and missed our SAR 185 million estimates. Part of the second school term season fell in 4Q2015 versus falling fully in 1Q of last year. While investors are understandably cautious, conviction on store expansion and reasonably stable non-electronics business gives us confidence to continue our Buy stance on Jarir.
Total Change 6-months 1-Year 2-Year
Key Financials
-38%
-17%
-31%
-50%
-28%
-41%
FY December 31 (SAR mln)
-35%
Revenue
-30%
Year-end Target Price SAR 189
-34%
Gross Profit EBITDA Margin
1Q2016 (SAR mln)
Actual
RC Forecast
Revenues
1,417
1,375
Gross Margin
15.1%
16.0%
EBIT
164
180
Net Income
174
185
Net Margin
12.3%
13.4%
2014A
2015A
2016E
2017E
5,699
6,376
7,290
8,008
887
972
1,130
1,241
13.3%
13.2%
13.1%
13.1%
8.23
9.21
10.45
11.43
13.0%
12.9%
12.8%
EPS (SAR) Net Margin
13.0%
DPS (SAR)
6.65
7.71
8.40
9.10
Payout Ratio
81%
83%
80%
80%
ROAE
59%
58%
59%
57%
ROAA
32%
34%
35%
34%
EV / EBITDA
13.6x
12.2x
10.7x
9.8x
P/E
13.9x
12.5x
11.0x
10.1x
P / CFPS
12.8x
11.4x
12.7x
10.9x
1.8x
1.6x
1.4x
1.3x
P/S
3xx
Muhammad Faisal Potrik Noura F. Al-Khalifah [email protected] [email protected] +966-11-203-6841 +966-11-203-6807
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
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 (“KSA”). Website: www.riyadcapital.com
Buy
EPS Declines -30% Y/Y
April 10, 2016 Expected Total Return Price as of Apr-07, 2016
SAR 115.0
Upside to Target Price
64.3%
Expected Dividend Yield
7.3%
Expected Total Return
71.7% %
Market Data 52 Week H/L
SAR 241.00/110.00
Market Capitalization
SAR 10,350 mln
Enterprise Value
SAR 10,265 mln
Shares Outstanding
90 mln
Free Float
57.0%
12-Month ADTV (000’s)
97.5
TASI Weight
0.72%
Reuters Code
4190.SE
Bloomberg Symbol
JARIR AB
1-Year Price Performance 120
110 100 80 70 60 50
J
J
A
S O N D
JARIR
J
TASI
F M TRETL
Source: Bloomberg
Apr-07-2016
Jarir reported 1Q2016 results missing our estimates and market consensus. Although sales decline was not as severe, shrinking profitability points to cost pressures. Net income registered a -30% Y/Y decline in the first quarter to SAR 174 million (EPS SAR 1.93) as compared to market consensus of SAR 211 million. Top line dipped -26% Y/Y and -7% Q/Q to SAR 1.4 billion. This compares favorably to the management’s own earlier estimates of a -30% Y/Y drop and our forecast of -28% Y/Y. The stock has recently been out of favor with investors. However, given no let-up on expansion plans by the Company and the core resilient school and office supplies business, we maintain our SAR 189 target price and Buy recommendation. -26% Y/Y fall in topline The -26% Y/Y revenue decline is better than -30% initial management estimates and our forecast of -28%. However, total sales of SAR 1.4 billion point to discretionary spending slowdown in the economy particularly on non-essential items such as electronics. Sales of smart phones as well as computers & its supplies continue to suffer. Y/Y sales should be taken in context as 1Q2015 benefitted from the two salary bonus announced by the government which led to record sales at Jarir exceeding SAR 1.9 billion. Pricing challenges in electronics and computing equipment further creates unfavorably dynamics. Sales per store have fallen to SAR 34.6 million from SAR 35.4 million in the preceding quarter. Gross margins higher but net margins lower Y/Y Change in sales mix to higher proportion of school and office supplies products has resulted in gross margins of 15.1% as compared to 14.8% last year. However, cost pressures have come in due to higher Saudization rate and increased energy prices leading to a decline in both operating (120 bps) and net margins (60 bps) Y/Y. One new opening in the quarter Similar to 4Q, Jarir managed to squeeze in a new store opening at quarter-end taking total stores strength to 41, 35 in the Kingdom and the remaining 6 within the GCC. Store additions are a key element of sales growth. Management has reiterated that they will target 6-7 stores in 2016, historical track record on this front does not give a lot of confidence.
90
A M
Jarir
TASI
TRETL
115.00
6,258
9,703
Good opportunity to get in Net income at SAR 174 million was -30% lower Y/Y and missed our SAR 185 million estimates. Part of the second school term season fell in 4Q2015 versus falling fully in 1Q of last year. While investors are understandably cautious, conviction on store expansion and reasonably stable non-electronics business gives us confidence to continue our Buy stance on Jarir.
Total Change 6-months 1-Year 2-Year
Key Financials
-38%
-17%
-31%
-50%
-28%
-41%
FY December 31 (SAR mln)
-35%
Revenue
-30%
Year-end Target Price SAR 189
-34%
Gross Profit EBITDA Margin
1Q2016 (SAR mln)
Actual
RC Forecast
Revenues
1,417
1,375
Gross Margin
15.1%
16.0%
EBIT
164
180
Net Income
174
185
Net Margin
12.3%
13.4%
2014A
2015A
2016E
2017E
5,699
6,376
7,290
8,008
887
972
1,130
1,241
13.3%
13.2%
13.1%
13.1%
8.23
9.21
10.45
11.43
13.0%
12.9%
12.8%
EPS (SAR) Net Margin
13.0%
DPS (SAR)
6.65
7.71
8.40
9.10
Payout Ratio
81%
83%
80%
80%
ROAE
59%
58%
59%
57%
ROAA
32%
34%
35%
34%
EV / EBITDA
13.6x
12.2x
10.7x
9.8x
P/E
13.9x
12.5x
11.0x
10.1x
P / CFPS
12.8x
11.4x
12.7x
10.9x
1.8x
1.6x
1.4x
1.3x
P/S
3xx
Muhammad Faisal Potrik Noura F. Al-Khalifah [email protected] [email protected] +966-11-203-6841 +966-11-203-6807
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
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 (“KSA”). Website: www.riyadcapital.com
