Jarir Marketing Company 29 September 2016 PDF
September 29, 2016 Rating 12- Month Target Price
Neutral SAR 118.00
JARIR MARKETING COMPANY (JARIR) 3Q2016 Preview
Target Price Cut to SAR 118
Expected Total Return Price as on Sep-28, 2016
SAR 92.47
Upside to Target Price
27.6%
Expected Dividend Yield
7.0%
Expected Total Return
34.6%
Market Data 90.25/188.0
52 Week H/L (SAR)
SAR 8,280 million
Market Capitalization
90 million
Shares Outstanding Free Float
56.79%
12-Month ADTV(000’s)
115,158
1-Year Price Performance
We expect revenues to decline -2% Y/Y for 3Q2016 while margins and profitability will suffer. However, we anticipate higher margins and profits as compared to the previous quarter. Slowing economic growth and decrease in point of sales transactions as well as cash withdrawals give an indication of measured consumer spending which is expected to moderate growth. Sales mix will be tilted towards school supplies this quarter on account of back to school. Given the changed economic environment, we have decreased our estimates going forward. Resultantly, target price falls from SAR 140.00 to SAR 118.00 and we downgrade the stock to Neutral. Jarir currently trades at a 2016E P/E of 11.5x.
Y/Y revenue decline shall continue In line with 2016 trends so far, we believe revenues will fall -2% Y/Y despite back to school season and launch of the new iPhone in 3Q. We forecast sales of SAR 1.5 billion, +8% Q/Q as government and consumer spending are still under pressure. Based on their seasonal trends, expect higher sales of school-related supplies. An emerging trend, which may be amplified next quarter, is the shift of people buying phones and other electronic devices from established retailers such as Jarir due to the reduction in quantum of smaller telecom shops.
EPS -10% lower Y/Y
120
We expect gross profit to come in at SAR 226 million, with gross margins of 15%. We believe operational activities in the retail segment will rebound in 3Q16 but unlikely for the wholesale segment. However, we forecast a net income of SAR 196 million (EPS SAR 2.18), with a drop of -10% Y/Y but higher than 2Q. Net margin of 13% is lower than last year but a 400bps improvement over the previous quarter.
110 100 90 80 70 60 50 40
Two new stores in 3Q16
30 S
O
N
D
J
F
M
A
JARIR
M
TASI
J
J
Company has achieved part of its target by opening four new stores year to date (versus a full year target of six stores). Two new stores were opened in 3Q, one in Riyadh and the other in Kuwait. This shall help Jarir to at least maintain market share. New stores need time to achieve optimal sales levels.
A TRETL
Source: Bloomberg 6M
1Y
2Y
0%
Revising estimates; cut to Neutral
-10%
We adjust downwards our 2016-2020E estimates as the economic outlook and spending patterns have shifted. A total DPS of SAR 3.00 has been announced for 1H16. The stock offers 2016 dividend yield at 7.0% (full year estimate of SAR 6.50) with a payout ratio of 85%. We cut target price from SAR 140.00 to SAR 118.00 and change our recommendation to Neutral.
-20% -30% -40% -50%
-60% Jarir
TASI
Retail
3Q2016E
SAR mln
Revenue
1,505
Gross Margin
15.0%
Operating income
184
Net Income
196
EPS (SAR)
2.18
Key Financial Ratios
Key Financial Figures FY Dec31 (SARmln) Revenue EBITDA Net Profit EPS DPS
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 (SARmln) BVPS ROAE ROAA EV/EBITDA P/E
2015A 16.71 58.0% 34.0% 12.6x 9.5x
2016E 18.29 43.9% 27.1% 13.6x 11.5x
2017E 19.91 41.5% 25.7% 12.4x 11.1x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
JARIR MARKETING COMPANY (JARIR) 3Q2016 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 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 118.00
JARIR MARKETING COMPANY (JARIR) 3Q2016 Preview
Target Price Cut to SAR 118
Expected Total Return Price as on Sep-28, 2016
SAR 92.47
Upside to Target Price
27.6%
Expected Dividend Yield
7.0%
Expected Total Return
34.6%
Market Data 90.25/188.0
52 Week H/L (SAR)
SAR 8,280 million
Market Capitalization
90 million
Shares Outstanding Free Float
56.79%
12-Month ADTV(000’s)
115,158
1-Year Price Performance
We expect revenues to decline -2% Y/Y for 3Q2016 while margins and profitability will suffer. However, we anticipate higher margins and profits as compared to the previous quarter. Slowing economic growth and decrease in point of sales transactions as well as cash withdrawals give an indication of measured consumer spending which is expected to moderate growth. Sales mix will be tilted towards school supplies this quarter on account of back to school. Given the changed economic environment, we have decreased our estimates going forward. Resultantly, target price falls from SAR 140.00 to SAR 118.00 and we downgrade the stock to Neutral. Jarir currently trades at a 2016E P/E of 11.5x.
Y/Y revenue decline shall continue In line with 2016 trends so far, we believe revenues will fall -2% Y/Y despite back to school season and launch of the new iPhone in 3Q. We forecast sales of SAR 1.5 billion, +8% Q/Q as government and consumer spending are still under pressure. Based on their seasonal trends, expect higher sales of school-related supplies. An emerging trend, which may be amplified next quarter, is the shift of people buying phones and other electronic devices from established retailers such as Jarir due to the reduction in quantum of smaller telecom shops.
EPS -10% lower Y/Y
120
We expect gross profit to come in at SAR 226 million, with gross margins of 15%. We believe operational activities in the retail segment will rebound in 3Q16 but unlikely for the wholesale segment. However, we forecast a net income of SAR 196 million (EPS SAR 2.18), with a drop of -10% Y/Y but higher than 2Q. Net margin of 13% is lower than last year but a 400bps improvement over the previous quarter.
110 100 90 80 70 60 50 40
Two new stores in 3Q16
30 S
O
N
D
J
F
M
A
JARIR
M
TASI
J
J
Company has achieved part of its target by opening four new stores year to date (versus a full year target of six stores). Two new stores were opened in 3Q, one in Riyadh and the other in Kuwait. This shall help Jarir to at least maintain market share. New stores need time to achieve optimal sales levels.
A TRETL
Source: Bloomberg 6M
1Y
2Y
0%
Revising estimates; cut to Neutral
-10%
We adjust downwards our 2016-2020E estimates as the economic outlook and spending patterns have shifted. A total DPS of SAR 3.00 has been announced for 1H16. The stock offers 2016 dividend yield at 7.0% (full year estimate of SAR 6.50) with a payout ratio of 85%. We cut target price from SAR 140.00 to SAR 118.00 and change our recommendation to Neutral.
-20% -30% -40% -50%
-60% Jarir
TASI
Retail
3Q2016E
SAR mln
Revenue
1,505
Gross Margin
15.0%
Operating income
184
Net Income
196
EPS (SAR)
2.18
Key Financial Ratios
Key Financial Figures FY Dec31 (SARmln) Revenue EBITDA Net Profit EPS DPS
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 (SARmln) BVPS ROAE ROAA EV/EBITDA P/E
2015A 16.71 58.0% 34.0% 12.6x 9.5x
2016E 18.29 43.9% 27.1% 13.6x 11.5x
2017E 19.91 41.5% 25.7% 12.4x 11.1x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
JARIR MARKETING COMPANY (JARIR) 3Q2016 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 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
