Jarir Marketing Company 29 March 2018 PDF
March 29, 2018 Rating 12- Month Target Price
Neutral SAR 166.00
JARIR MARKETING COMPANY (JARIR) 1Q2018 Preview
Some Growth in 1Q Despite Pressures
Expected Total Return Price as on Mar-28, 2018
SAR 182.00
Upside to Target Price
-8.8%
Expected Dividend Yield
4.8%
Expected Total Return
-4.0%
Market Data 193.0/125.0
52 Week H/L (SAR)
SAR 16,452 million
Market Capitalization
90 million
Shares Outstanding
95.7%
Free Float
75,350
12-Month ADTV (000’s)
JARIR AB
Bloomberg Code
1-Year Price Performance 160
We expect Jarir to record a +8% Y/Y growth in topline for 1Q2018 to SAR 1.84 billion. Prior to the government announcement of granting a monthly cost of living allowance, there were expectations of a retail slowdown in 1Q given accelerated spending in 4Q2017 on the back of imposition of VAT from January 1 st. We now expect the impact on 1Q to be muted. Jarir continues to dominate and increase its share in smartphones and other electronics and this is likely to continue this quarter as well. We expect gross margins to be marginally better in 1Q while net income is likely to accrue at SAR 235 million (EPS SAR 2.61). Two new showrooms have come on line within the Kingdom this quarter and this is also likely to boost topline. 2018E P/E of 18.3x is a premium to TASI’s 14.7x. We tweak our target price to SAR 166.00 but maintain a Neutral rating.
Revenue growth of +8% Y/Y We forecast revenues of SAR 1.84 billion for 1Q2018, +8% higher Y/Y. This is better than what we were expecting at the start of the quarter given the accelerated spending by consumers in 4Q2017 as VAT was due from January 1, 2018. However, the cost of living allowance (appox. SAR 1,000 per month) by the government, which was matched by some private sector companies as well, is likely to have muted the impact. Thus, along with two new store openings in the quarter, we believe +8% growth in revenues is reasonable. Further, latest data shows that inflation has come down in February to 2.9%.
Gross margins to be better
150 140
We estimate a gross profit of SAR 269 million in 1Q, +9% higher Y/Y on the back of a slight expansion in gross margins to 14.6% versus 14.5% last year. With sales now skewed towards lower margin smartphone and electronic items, margins will be seasonal; higher when back to school season kicks in.
130 120 110 100 90
80
Two new stores in 1Q
70 60 M
A
M
J
J
A
S
O
N
JARIR
D
J
F
TASI
Source: Bloomberg 6M
1Y
2Y
40%
Jarir is off to a good start in 2018 with 2 new stores already up and running in the first quarter of the year. Both these stores are within the Kingdom (Hafr Al Batin and Tabuk) and take the total strength of the branch network to 52 (43 in KSA). We are targeting 5 new stores in 2018, similar to 2017 and 2016.
Raising target price to SAR 166 We forecast a net income of SAR 236 million (EPS SAR 2.61), +6% higher than SAR 221 million in 1Q2017. We have tweaked our target price to SAR 166.00 from SAR 163.00 earlier as we adjust estimates. However, we maintain a Neutral rating on the stock as it trades above our fair value. 2018E P/E of 18.3x is at a premium to the market’s 14.7x.
20% 0% -20% -40% JARIR
TASI
Key Financial Ratios
Key Financial Figures 1Q2018E
SAR mln
Revenue
1,841
Gross Margin
14.6%
Operating income
229
Net Income
235
EPS (SAR)
2.61
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2017A 6,915 876 868 9.64 8.70
2018E 7,399 940 916 10.18 9.00
Muhammad Faisal Potrik
Shaykhah A. AlDosari
[email protected] +966-11-203-6807
[email protected] +966-11-203-6812
2019E 7,917 1,018 995 11.06 9.90
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2017A 18.60 53.2% 31.7% 19.1x 19.3x
2018E 19.98 52.8% 31.5% 17.8x 18.3x
2019E 21.53 53.3% 32.0% 16.4x 16.9x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
JARIR MARKETING COMPANY (JARIR) 1Q2018 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 166.00
JARIR MARKETING COMPANY (JARIR) 1Q2018 Preview
Some Growth in 1Q Despite Pressures
Expected Total Return Price as on Mar-28, 2018
SAR 182.00
Upside to Target Price
-8.8%
Expected Dividend Yield
4.8%
Expected Total Return
-4.0%
Market Data 193.0/125.0
52 Week H/L (SAR)
SAR 16,452 million
Market Capitalization
90 million
Shares Outstanding
95.7%
Free Float
75,350
12-Month ADTV (000’s)
JARIR AB
Bloomberg Code
1-Year Price Performance 160
We expect Jarir to record a +8% Y/Y growth in topline for 1Q2018 to SAR 1.84 billion. Prior to the government announcement of granting a monthly cost of living allowance, there were expectations of a retail slowdown in 1Q given accelerated spending in 4Q2017 on the back of imposition of VAT from January 1 st. We now expect the impact on 1Q to be muted. Jarir continues to dominate and increase its share in smartphones and other electronics and this is likely to continue this quarter as well. We expect gross margins to be marginally better in 1Q while net income is likely to accrue at SAR 235 million (EPS SAR 2.61). Two new showrooms have come on line within the Kingdom this quarter and this is also likely to boost topline. 2018E P/E of 18.3x is a premium to TASI’s 14.7x. We tweak our target price to SAR 166.00 but maintain a Neutral rating.
Revenue growth of +8% Y/Y We forecast revenues of SAR 1.84 billion for 1Q2018, +8% higher Y/Y. This is better than what we were expecting at the start of the quarter given the accelerated spending by consumers in 4Q2017 as VAT was due from January 1, 2018. However, the cost of living allowance (appox. SAR 1,000 per month) by the government, which was matched by some private sector companies as well, is likely to have muted the impact. Thus, along with two new store openings in the quarter, we believe +8% growth in revenues is reasonable. Further, latest data shows that inflation has come down in February to 2.9%.
Gross margins to be better
150 140
We estimate a gross profit of SAR 269 million in 1Q, +9% higher Y/Y on the back of a slight expansion in gross margins to 14.6% versus 14.5% last year. With sales now skewed towards lower margin smartphone and electronic items, margins will be seasonal; higher when back to school season kicks in.
130 120 110 100 90
80
Two new stores in 1Q
70 60 M
A
M
J
J
A
S
O
N
JARIR
D
J
F
TASI
Source: Bloomberg 6M
1Y
2Y
40%
Jarir is off to a good start in 2018 with 2 new stores already up and running in the first quarter of the year. Both these stores are within the Kingdom (Hafr Al Batin and Tabuk) and take the total strength of the branch network to 52 (43 in KSA). We are targeting 5 new stores in 2018, similar to 2017 and 2016.
Raising target price to SAR 166 We forecast a net income of SAR 236 million (EPS SAR 2.61), +6% higher than SAR 221 million in 1Q2017. We have tweaked our target price to SAR 166.00 from SAR 163.00 earlier as we adjust estimates. However, we maintain a Neutral rating on the stock as it trades above our fair value. 2018E P/E of 18.3x is at a premium to the market’s 14.7x.
20% 0% -20% -40% JARIR
TASI
Key Financial Ratios
Key Financial Figures 1Q2018E
SAR mln
Revenue
1,841
Gross Margin
14.6%
Operating income
229
Net Income
235
EPS (SAR)
2.61
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS (SAR) DPS (SAR)
2017A 6,915 876 868 9.64 8.70
2018E 7,399 940 916 10.18 9.00
Muhammad Faisal Potrik
Shaykhah A. AlDosari
[email protected] +966-11-203-6807
[email protected] +966-11-203-6812
2019E 7,917 1,018 995 11.06 9.90
FY Dec31 BVPS (SAR) ROAE ROAA EV/EBITDA P/E
2017A 18.60 53.2% 31.7% 19.1x 19.3x
2018E 19.98 52.8% 31.5% 17.8x 18.3x
2019E 21.53 53.3% 32.0% 16.4x 16.9x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
JARIR MARKETING COMPANY (JARIR) 1Q2018 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
