HALWANI BROTHERS
ENTITY OF AUDI SARADAR GROUP CURRENT PRICE
SAR 39.00
FAIR VALUE
SAR 35.87
RATING
HOLD
HIGHLIGHTS Ticker
HB AB
Bloomberg Median TP (SAR)
53.79
Market Cap (SAR mn)
1115.4
Market Cap (USD mn)
297.4 28.6
Av. Monthly Liquidity (SAR mn)
500.5
52 Week High (SAR)
67.25
52 Week Low (SAR)
32.20
YTD Return
72%
Ownership Structure
HALWANI BROTHERS
LOWER FAIR VALUE BY 7% - MAINTAIN HOLD RECOMMENDATION
Stock Data
Number of Shares (mn)
EQUITY EQUITY RESEARCH RESEARCH
COMPANY UPDATE
The company did not increase the selling price of its products inside KSA at the time cost of goods sold is increasing. This was transferred into squeezing margins. Furthermore, Saudi contribution to total revenues dropped to 43.8% during the first 9 months of 2012, from 46.1% during the same period of 2011. We lower 2012e revenues by 9% and NI by 20%. The stock is trading at trailing PE of 14.39 and PB of 1.52, compared to historical average of 14.59 and 2.09, respectively, as it is reporting below average profitability margins. We lower our fair value by 7% to SAR 35.87, but we retain our recommendation to hold the stock.
HIGH EXPECTED COSTS SQUEEZE MARGINS The company received a second transfer from SIDF of SAR 11.51 million as part of total loan of SAR 165 million in order to finance its expansion in Jeddah. The second phase of the project is expected to be completed in Q2 13, helping the company to increase its capacity. However, this expansion will result in high start up cost and financial charges in the near term. This will be coupled with the rise of the input prices expected in 2013.
EGYPT OFFERS STABILIZATION
Stock Performance
On the other hand, Halwani’s presence in Egypt will offer some hedge as it can raise selling prices. Egypt contributed 44.4% of total revenues and 43.6% of consolidated gross profit in the first nine months of 2012, despite that less than 29% of total assets are located there. Devaluation of the Egyptian pound is not a major concern anymore as the economic situation in the country is stabilizing.
SAME DPS AS 2011 We believe that these expected developments will affect the company’s ability to increase cash dividend. Accordingly, we believe that Halwani will pay the same level of dividend of 2011 of SAR 2.0 per share for 2012.
FINANCIAL DATA Bloomberg Consensus
SECTOR COVERAGE Alaa Ghanem, CFA, CVA Senior Equity Analyst [email protected] Youssef Nizam, CFA Head of Equity Research [email protected] November 23, 2012
FINANCIAL DATA
2011
2012e
2013e
2014e
Revenues SAR million
814
884
974
1,100
Gross Profit SAR million
244
265
281
337
EBITDA SAR million
127
135
143
182
NI SAR million
81
77
78
99
EPS SAR
2.82
2.69
2.72
3.46
PE
13.85
14.51
14.33
11.27
DPS SAR
2.00
2.00
2.00
2.75
DVD
5.1%
5.1%
5.1%
7.1%
BVPS SAR
24.12
27.04
30.41
33.06
PB
1.62
1.44
1.28
1.18
ROAA
11.7%
10.5%
9.5%
10.9%
ROAE
15.0%
14.2%
14.0%
17.2% 1
HALWANI BROTHERS
EQUITY RESEARCH
COMPANY UPDATE
VALUATION Table 1: DDM SAR unless otherwise stated
2012e
2013e
2014e
EPS
2.69
2.72
3.46
DPS
2.00
2.00
2.75
PV
2.00
1.74
2.40
PV of TV
28.58
Terminal Growth
5.90%
Discount Rate
14.78%
Price
34.72
Table 4: FCFF Valuation SAR millions unless otherwise stated
2012e
2013e
2014e
NI
77
78
99
NCC
24
29
33
Capex
41
89
62
Changes in WC
14
3
23
After Tax Interest
2
3
6
FCFF
47
18
54
PV
47
16
48
PV of TV
831
Net Debt
(117)
Terminal Growth
3.70%
WACC
12.83%
Company's Value
1,059
Shares million
28.60
Fair Value SAR
37.02
An equal weight was assigned to each method and so a fair value of SAR 35.87 was derived.
November 23, 2012
2
HALWANI BROTHERS
EQUITY RESEARCH
COMPANY UPDATE
FINANCIALS SAR millions unless otherwise stated Sales
2011
2012e
2013e
2014e
2012e
2013e
2014e
813.6
883.8
974.1
1,099.8
-9%
-16%
-19%
Sales Growth
11.2%
8.6%
10.2%
12.9%
COGS
(570.1)
(619.1)
(692.6)
(762.5)
-7%
-11%
-17%
Gross Profit
243.5
264.7
281.5
337.3
-13%
-25%
-24%
Gross Margin
29.9%
29.9%
28.9%
30.7%
Selling & Distribution Expenses
(96.9)
(105.8)
(114.9)
(129.8)
-9%
-19%
-23%
G&A Expenses
(38.0)
(46.6)
(49.7)
(56.1)
-4%
-17%
-19%
Net Finance Charges
1.3
(2.4)
(4.2)
(9.1)
NM
NM
NM
Others
(0.9)
(1.5)
(3.0)
(3.0)
NM
NM
NM
EBITDA
126.9
134.9
142.9
181.9
-12%
-27%
-22%
EBITDA Margin
15.6%
15.3%
14.7%
16.5%
EBIT
107.7
110.8
113.8
148.5
-16%
-31%
-26%
EBIT Margin
13.2%
12.5%
11.7%
13.5%
Zakat
(8.7)
(9.5)
(9.9)
(12.5)
-15%
-32%
-28%
Income Tax
(19.8)
(22.0)
(21.9)
(27.9)
-13%
-32%
-28%
-20%
-32%
-28%
Net Income
80.5
76.9
77.8
99.0
Net Margin
9.9%
8.7%
8.0%
9.0%
SAR millions unless otherwise stated
November 23, 2012
Changes to Our Forecasts
Changes to Our Forecasts
2011
2012e
2013e
2014e
2012e
2013e
2014e
Cash & Equivalents
120
128
126
109
4%
28%
20%
Account receivable
108
124
117
132
-9%
-16%
-19%
Inventories
176
198
218
236
-7%
-10%
-17%
Others
19
21
22
25
0%
0%
0%
Total Current Assets
424
471
483
502
-5%
-4%
-11%
PPE
266
302
386
444
-4%
-15%
-2%
Total Assets
690
773
870
946
-4%
-9%
-7%
Current Portion of Term Loan
3
2
7
17
-44%
-55%
0%
Account Payable
59
74
83
91
-7%
-11%
-17%
Others
50
87
82
67
0%
32%
0%
Total Current Liabilities
112
164
172
175
-5%
0%
-10%
Term Loan
10
33
98
149
-17%
-34%
0%
Others
30
31
33
35
0%
0%
0%
Total Non Current Liabilities
40
64
131
184
-9%
-28%
0%
Total Liabilities
152
227
303
359
-6%
-14%
-5%
Shareholders Equity
538
546
567
587
-4%
-6%
-8%
3
HALWANI BROTHERS
EQUITY RESEARCH
COMPANY UPDATE
FAIR VALUE DEFINITION
RATING GUIDE
It is an unbiased estimate of the 12-month potential market price of the stock
SELL Downside
REDUCE -30%
HOLD -10%
ACCUMULATE +10%
+30%
BUY Upside
BUY: Upside potential in share price is more than 30% ACCUMULATE: Upside potential in share price is between 10 and 30% HOLD: Upside or downside potential in share price less than 10% REDUCE: Downside potential in share price is between 10 and 30% SELL: Downside potential in share price is more than 30%
ISSUER
Audi Saradar Investment Bank Audi Saradar Investment Bank SAL • Lebanese joint stock company with a registered capital of 10,000,000,000 Lebanese Pounds • Commercial Registrar in Beirut: 30812 • Holding number 33 on the Central Bank’s Banks List. Bank Audi Plaza • Bab Idriss • Beirut 2021 8102 Lebanon • P.O. Box 11-2560 • Beirut 1107 2808 • Lebanon. Phone: +961 1 964072 • Fax: +961 1 970403 • Email: [email protected]
November 23, 2012
4
HALWANI BROTHERS
COMPANY UPDATE
DISCLAIMER
EQUITY RESEARCH
“All rights reserved. This research document (the “Document”) is prepared by Audi Saradar Investment Bank SAL (“ASIB”), being an entity of Audi Saradar Group, for the use of the clients of ASIB and/or the clients of any entity within the Audi Saradar Group. This Document is disclosed to you on a confidential basis. Receipt and/or review of this Document constitute your agreement not to copy, modify, redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this Document prior to public disclosure of the same by ASIB or the Audi Saradar Group or without the express prior written consent of ASIB. This Document is not intended for dissemination, distribution to, or use by, any person or entity in any country or jurisdiction which would subject ASIB or any entity within the Audi Saradar Group, to any registration or licensing requirements within these jurisdictions or where it might be considered as unlawful. Accordingly, this Document is for distribution solely in jurisdictions where permitted and to persons who may receive it without breaching any applicable legal or regulatory requirements. In any case, this Document shall not be distributed in the Republic of Egypt. Your attention is drawn to the fact that you should not access this Document if the regulations of your country of citizenship and/or residency or any applicable regulations prohibit it. In any case, persons who are subject to any restrictions in any country, such as US persons are not permitted to access information contained herein. Neither the information, nor any opinion expressed herein constitutes an offer or an invitation or a recommendation to make an offer, to buy or sell any security or other investment product related to such security or investment. This Document provides general information only, is not intended to provide personal investment advice or recommendation and does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive it. You should seek financial, legal or tax advice regarding the appropriateness and suitability in investing in any security, other investment or investment strategy discussed or forecasted in this Document. You should carefully read the definitions of the Rating Guide provided in this Document. In addition you should read this Document in its entirety and not conclude its contents from the ratings solely. The information herein was obtained from various public sources believed in good faith to be reliable. Neither ASIB nor any entity within the Audi Saradar Group represents that the information contained in this Document is complete, accurate or free from any error and makes no representations or warranties whatsoever as to the data, information and opinions provided herein. This Document and any information, opinion and prospect contained herein reflect a judgment at its original date of publication by ASIB and are subject to change without notice. ASIB and/or any entity within the Audi Saradar Group may have issued, and may in the future issue, other research documents that are inconsistent with, and reach different conclusions from, the information, opinions and prospects presented in this Document. This Document reflects the different assumptions, views and analytical methods of the analysts who prepared them; ASIB, and the Audi Saradar Group are under no obligation to ensure that such other research documents are brought to the attention of any recipient of this Document. ASIB, any entity within the Audi Saradar Group, one or more of their affiliates and/or their officers (including but not limited to their strategists, analysts and sales staff ) may have a financial interest in securities of the issuer(s) or related investments, may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this Document and may take a view that is inconsistent with that taken herein. The price, value of and income from any of the securities or financial instruments mentioned in this Document can fall as well as rise. The value of securities and financial instruments is subject to market conditions, volatility, exchange rate fluctuation and credit quality of any issuer that may have a positive or adverse effect on the price or income of such securities or financial instruments. Any forecasts on the economy, stock market, bond market or the economic trends of the markets are not necessarily a guide to future returns. You should understand that statements regarding future prospects may not be realized. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future returns. As a result of the preceding, you may lose, as the case may be, the amount originally invested. None of ASIB, any entity within the Audi Saradar Group, any of their affiliates and/or their officers (including but not limited to their strategists, analysts and sales staff ) shall be held liable for any loss or damage that may arise, directly or indirectly, from any use of the information contained in this Document nor for any decision or investment made on the basis of information contained herein.”
November 23, 2012
5
SAR 39.00
FAIR VALUE
SAR 35.87
RATING
HOLD
HIGHLIGHTS Ticker
HB AB
Bloomberg Median TP (SAR)
53.79
Market Cap (SAR mn)
1115.4
Market Cap (USD mn)
297.4 28.6
Av. Monthly Liquidity (SAR mn)
500.5
52 Week High (SAR)
67.25
52 Week Low (SAR)
32.20
YTD Return
72%
Ownership Structure
HALWANI BROTHERS
LOWER FAIR VALUE BY 7% - MAINTAIN HOLD RECOMMENDATION
Stock Data
Number of Shares (mn)
EQUITY EQUITY RESEARCH RESEARCH
COMPANY UPDATE
The company did not increase the selling price of its products inside KSA at the time cost of goods sold is increasing. This was transferred into squeezing margins. Furthermore, Saudi contribution to total revenues dropped to 43.8% during the first 9 months of 2012, from 46.1% during the same period of 2011. We lower 2012e revenues by 9% and NI by 20%. The stock is trading at trailing PE of 14.39 and PB of 1.52, compared to historical average of 14.59 and 2.09, respectively, as it is reporting below average profitability margins. We lower our fair value by 7% to SAR 35.87, but we retain our recommendation to hold the stock.
HIGH EXPECTED COSTS SQUEEZE MARGINS The company received a second transfer from SIDF of SAR 11.51 million as part of total loan of SAR 165 million in order to finance its expansion in Jeddah. The second phase of the project is expected to be completed in Q2 13, helping the company to increase its capacity. However, this expansion will result in high start up cost and financial charges in the near term. This will be coupled with the rise of the input prices expected in 2013.
EGYPT OFFERS STABILIZATION
Stock Performance
On the other hand, Halwani’s presence in Egypt will offer some hedge as it can raise selling prices. Egypt contributed 44.4% of total revenues and 43.6% of consolidated gross profit in the first nine months of 2012, despite that less than 29% of total assets are located there. Devaluation of the Egyptian pound is not a major concern anymore as the economic situation in the country is stabilizing.
SAME DPS AS 2011 We believe that these expected developments will affect the company’s ability to increase cash dividend. Accordingly, we believe that Halwani will pay the same level of dividend of 2011 of SAR 2.0 per share for 2012.
FINANCIAL DATA Bloomberg Consensus
SECTOR COVERAGE Alaa Ghanem, CFA, CVA Senior Equity Analyst [email protected] Youssef Nizam, CFA Head of Equity Research [email protected] November 23, 2012
FINANCIAL DATA
2011
2012e
2013e
2014e
Revenues SAR million
814
884
974
1,100
Gross Profit SAR million
244
265
281
337
EBITDA SAR million
127
135
143
182
NI SAR million
81
77
78
99
EPS SAR
2.82
2.69
2.72
3.46
PE
13.85
14.51
14.33
11.27
DPS SAR
2.00
2.00
2.00
2.75
DVD
5.1%
5.1%
5.1%
7.1%
BVPS SAR
24.12
27.04
30.41
33.06
PB
1.62
1.44
1.28
1.18
ROAA
11.7%
10.5%
9.5%
10.9%
ROAE
15.0%
14.2%
14.0%
17.2% 1
HALWANI BROTHERS
EQUITY RESEARCH
COMPANY UPDATE
VALUATION Table 1: DDM SAR unless otherwise stated
2012e
2013e
2014e
EPS
2.69
2.72
3.46
DPS
2.00
2.00
2.75
PV
2.00
1.74
2.40
PV of TV
28.58
Terminal Growth
5.90%
Discount Rate
14.78%
Price
34.72
Table 4: FCFF Valuation SAR millions unless otherwise stated
2012e
2013e
2014e
NI
77
78
99
NCC
24
29
33
Capex
41
89
62
Changes in WC
14
3
23
After Tax Interest
2
3
6
FCFF
47
18
54
PV
47
16
48
PV of TV
831
Net Debt
(117)
Terminal Growth
3.70%
WACC
12.83%
Company's Value
1,059
Shares million
28.60
Fair Value SAR
37.02
An equal weight was assigned to each method and so a fair value of SAR 35.87 was derived.
November 23, 2012
2
HALWANI BROTHERS
EQUITY RESEARCH
COMPANY UPDATE
FINANCIALS SAR millions unless otherwise stated Sales
2011
2012e
2013e
2014e
2012e
2013e
2014e
813.6
883.8
974.1
1,099.8
-9%
-16%
-19%
Sales Growth
11.2%
8.6%
10.2%
12.9%
COGS
(570.1)
(619.1)
(692.6)
(762.5)
-7%
-11%
-17%
Gross Profit
243.5
264.7
281.5
337.3
-13%
-25%
-24%
Gross Margin
29.9%
29.9%
28.9%
30.7%
Selling & Distribution Expenses
(96.9)
(105.8)
(114.9)
(129.8)
-9%
-19%
-23%
G&A Expenses
(38.0)
(46.6)
(49.7)
(56.1)
-4%
-17%
-19%
Net Finance Charges
1.3
(2.4)
(4.2)
(9.1)
NM
NM
NM
Others
(0.9)
(1.5)
(3.0)
(3.0)
NM
NM
NM
EBITDA
126.9
134.9
142.9
181.9
-12%
-27%
-22%
EBITDA Margin
15.6%
15.3%
14.7%
16.5%
EBIT
107.7
110.8
113.8
148.5
-16%
-31%
-26%
EBIT Margin
13.2%
12.5%
11.7%
13.5%
Zakat
(8.7)
(9.5)
(9.9)
(12.5)
-15%
-32%
-28%
Income Tax
(19.8)
(22.0)
(21.9)
(27.9)
-13%
-32%
-28%
-20%
-32%
-28%
Net Income
80.5
76.9
77.8
99.0
Net Margin
9.9%
8.7%
8.0%
9.0%
SAR millions unless otherwise stated
November 23, 2012
Changes to Our Forecasts
Changes to Our Forecasts
2011
2012e
2013e
2014e
2012e
2013e
2014e
Cash & Equivalents
120
128
126
109
4%
28%
20%
Account receivable
108
124
117
132
-9%
-16%
-19%
Inventories
176
198
218
236
-7%
-10%
-17%
Others
19
21
22
25
0%
0%
0%
Total Current Assets
424
471
483
502
-5%
-4%
-11%
PPE
266
302
386
444
-4%
-15%
-2%
Total Assets
690
773
870
946
-4%
-9%
-7%
Current Portion of Term Loan
3
2
7
17
-44%
-55%
0%
Account Payable
59
74
83
91
-7%
-11%
-17%
Others
50
87
82
67
0%
32%
0%
Total Current Liabilities
112
164
172
175
-5%
0%
-10%
Term Loan
10
33
98
149
-17%
-34%
0%
Others
30
31
33
35
0%
0%
0%
Total Non Current Liabilities
40
64
131
184
-9%
-28%
0%
Total Liabilities
152
227
303
359
-6%
-14%
-5%
Shareholders Equity
538
546
567
587
-4%
-6%
-8%
3
HALWANI BROTHERS
EQUITY RESEARCH
COMPANY UPDATE
FAIR VALUE DEFINITION
RATING GUIDE
It is an unbiased estimate of the 12-month potential market price of the stock
SELL Downside
REDUCE -30%
HOLD -10%
ACCUMULATE +10%
+30%
BUY Upside
BUY: Upside potential in share price is more than 30% ACCUMULATE: Upside potential in share price is between 10 and 30% HOLD: Upside or downside potential in share price less than 10% REDUCE: Downside potential in share price is between 10 and 30% SELL: Downside potential in share price is more than 30%
ISSUER
Audi Saradar Investment Bank Audi Saradar Investment Bank SAL • Lebanese joint stock company with a registered capital of 10,000,000,000 Lebanese Pounds • Commercial Registrar in Beirut: 30812 • Holding number 33 on the Central Bank’s Banks List. Bank Audi Plaza • Bab Idriss • Beirut 2021 8102 Lebanon • P.O. Box 11-2560 • Beirut 1107 2808 • Lebanon. Phone: +961 1 964072 • Fax: +961 1 970403 • Email: [email protected]
November 23, 2012
4
HALWANI BROTHERS
COMPANY UPDATE
DISCLAIMER
EQUITY RESEARCH
“All rights reserved. This research document (the “Document”) is prepared by Audi Saradar Investment Bank SAL (“ASIB”), being an entity of Audi Saradar Group, for the use of the clients of ASIB and/or the clients of any entity within the Audi Saradar Group. This Document is disclosed to you on a confidential basis. Receipt and/or review of this Document constitute your agreement not to copy, modify, redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this Document prior to public disclosure of the same by ASIB or the Audi Saradar Group or without the express prior written consent of ASIB. This Document is not intended for dissemination, distribution to, or use by, any person or entity in any country or jurisdiction which would subject ASIB or any entity within the Audi Saradar Group, to any registration or licensing requirements within these jurisdictions or where it might be considered as unlawful. Accordingly, this Document is for distribution solely in jurisdictions where permitted and to persons who may receive it without breaching any applicable legal or regulatory requirements. In any case, this Document shall not be distributed in the Republic of Egypt. Your attention is drawn to the fact that you should not access this Document if the regulations of your country of citizenship and/or residency or any applicable regulations prohibit it. In any case, persons who are subject to any restrictions in any country, such as US persons are not permitted to access information contained herein. Neither the information, nor any opinion expressed herein constitutes an offer or an invitation or a recommendation to make an offer, to buy or sell any security or other investment product related to such security or investment. This Document provides general information only, is not intended to provide personal investment advice or recommendation and does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive it. You should seek financial, legal or tax advice regarding the appropriateness and suitability in investing in any security, other investment or investment strategy discussed or forecasted in this Document. You should carefully read the definitions of the Rating Guide provided in this Document. In addition you should read this Document in its entirety and not conclude its contents from the ratings solely. The information herein was obtained from various public sources believed in good faith to be reliable. Neither ASIB nor any entity within the Audi Saradar Group represents that the information contained in this Document is complete, accurate or free from any error and makes no representations or warranties whatsoever as to the data, information and opinions provided herein. This Document and any information, opinion and prospect contained herein reflect a judgment at its original date of publication by ASIB and are subject to change without notice. ASIB and/or any entity within the Audi Saradar Group may have issued, and may in the future issue, other research documents that are inconsistent with, and reach different conclusions from, the information, opinions and prospects presented in this Document. This Document reflects the different assumptions, views and analytical methods of the analysts who prepared them; ASIB, and the Audi Saradar Group are under no obligation to ensure that such other research documents are brought to the attention of any recipient of this Document. ASIB, any entity within the Audi Saradar Group, one or more of their affiliates and/or their officers (including but not limited to their strategists, analysts and sales staff ) may have a financial interest in securities of the issuer(s) or related investments, may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this Document and may take a view that is inconsistent with that taken herein. The price, value of and income from any of the securities or financial instruments mentioned in this Document can fall as well as rise. The value of securities and financial instruments is subject to market conditions, volatility, exchange rate fluctuation and credit quality of any issuer that may have a positive or adverse effect on the price or income of such securities or financial instruments. Any forecasts on the economy, stock market, bond market or the economic trends of the markets are not necessarily a guide to future returns. You should understand that statements regarding future prospects may not be realized. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future returns. As a result of the preceding, you may lose, as the case may be, the amount originally invested. None of ASIB, any entity within the Audi Saradar Group, any of their affiliates and/or their officers (including but not limited to their strategists, analysts and sales staff ) shall be held liable for any loss or damage that may arise, directly or indirectly, from any use of the information contained in this Document nor for any decision or investment made on the basis of information contained herein.”
November 23, 2012
5
