Margins Stabilizing
Jarir Marketing Company 3Q2015 Result Preview
Buy
Upgrade to Buy
September 21, 2015 Expected Total Return Price as of Sep-20, 2015
SAR 181.33
Upside to Target Price
23.0%
Expected Dividend Yield
4.1%
Expected Total Return
27.1%
Market Data 52 Week H/L
SAR 241.00/165.00
Market Capitalization
SAR 16,379 mln
Enterprise Value
SAR 16,308 mln
Shares Outstanding
90 mln
Free Float
57.0%
12-Month ADTV (000’s)
87.55
TASI Weight
0.98%
Reuters Code
4190.SE
Bloomberg Symbol
JARIR AB
130 120 110 100 90 80 70 60 50
J
F M A M J
JARIR
TASI
J
A
TRETL
Source: Bloomberg
Sep-20-2015
After a relatively weak quarter, we expect strong seasonal sales led by back-to-school to drive profits in 3Q. We anticipate revenues to grow +20.4% Y/Y versus a 9.0% Y/Y increase last quarter (due to extraordinary consumer spending in 1Q). Third quarter has historically been one of the strongest for the Company and we expect the trend to continue in 2015 as well. We are somewhat displeased with just one new store opening in 3Q, that too outside KSA. Our net income forecast for the quarter stands at SAR 239 million (EPS SAR 2.66). Jarir has taken a beating at the Tadawul in the market bear run and is now trading at a –23% discount to our target price prompting us to upgrade the stock to a Buy. +20% Y/Y revenue growth likely We forecast a topline of SAR 1.72 billion for the quarter (+20% Y/Y) as consumers come back from summer holidays and back to school spending accelerates. Sales growth reflects partial impact of new store opening but more organic growth. Total store strength has risen by 1 to total 39, somewhat disappointing given our full year target of 6 stores and actual openings of just 3 and only one quarter remaining in the year. EPS forecasted at SAR 2.66 Gross margins are anticipated similar to last year at 16.5% as lower margin electronic products (including smartphones) continue to make up a higher proportion of the sales mix. Gross profit at SAR 283 million would be up +20.4% Y/Y while net income is forecasted at SAR 239 million (+17.9% Y/Y). Store additions lagging Store additions have been lagging in 2015 with a barren first quarter followed by 2 store additions in 2Q and just 1 in 3Q. The sole new store is a Company owned location in Abu Dhabi at a cost of SAR 15 million with a generous total area of 3600 square meters. It does not appear that our target of 6 new stores in the current year would be met given the track record year-to-date.
1-Year Price Performance
S O N D
12-Month Target Price SAR 223
Jarir
TASI
TRETL
181.33
7,366
13,427
F2015 forecasts moderated Jarir announced and distributed a SAR 1.46/share dividend for 2Q versus SAR 1.20/share for 2Q2014. We have toned down our F2015 sales and net income expectations. We now forecast revenues of SAR 6.85 billion (SAR 6.96 billion earlier) and net income of SAR 846 million (SAR 886 million previously) reflecting lower than anticipated store openings somewhat compensated by stronger sales growth. As a result, our full year DPS expectation is now at SAR 7.50 as compared to SAR 7.90 earlier.
Total Change
Key Financials
6-months
(15.3%)
(19.7%)
(20.7%)
1-Year
(11.5%)
(33.4%)
(24.1%)
2-Year
24.8%
(8.2%)
22.3%
FY December 31 (SAR mln) Revenue Gross Profit EBITDA Margin
2014A
2015E
2016E
2017E
5,699
6,846
7,875
9,043
887
1,020
1,236
1,402
13.3%
12.8%
13.3%
13.0%
8.23
9.40
11.16
12.56
12.4%
12.8%
12.5%
EPS (SAR)
(SAR mln)
RC Forecast
Net Margin
13.0%
Revenues
1,717
DPS (SAR)
6.65
7.50
8.90
10.10
Payout Ratio
81%
80%
80%
80%
3Q2015E
Gross Margin
16.5%
EBITDA
247
Net Income
239
Net Margin
13.9%
ROAE
59%
59%
62%
61%
ROAA
32%
33%
35%
35% 13.9x
EV / EBITDA
21.7x
18.7x
15.7x
P/E
22.1x
19.4x
16.3x
14.5x
P / CFPS
20.3x
21.3x
16.4x
16.2x
2.9x
2.4x
2.1x
1.8x
P/S
Muhammad Faisal Potrik
[email protected]
+966-11-203-6807
Sultan S. Al-Abdulkarim
[email protected]
+966-11-203-6812
Riyad Capital is licensed by the Saudi Arabia Capital Markets 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
Upgrade to Buy
September 21, 2015 Expected Total Return Price as of Sep-20, 2015
SAR 181.33
Upside to Target Price
23.0%
Expected Dividend Yield
4.1%
Expected Total Return
27.1%
Market Data 52 Week H/L
SAR 241.00/165.00
Market Capitalization
SAR 16,379 mln
Enterprise Value
SAR 16,308 mln
Shares Outstanding
90 mln
Free Float
57.0%
12-Month ADTV (000’s)
87.55
TASI Weight
0.98%
Reuters Code
4190.SE
Bloomberg Symbol
JARIR AB
130 120 110 100 90 80 70 60 50
J
F M A M J
JARIR
TASI
J
A
TRETL
Source: Bloomberg
Sep-20-2015
After a relatively weak quarter, we expect strong seasonal sales led by back-to-school to drive profits in 3Q. We anticipate revenues to grow +20.4% Y/Y versus a 9.0% Y/Y increase last quarter (due to extraordinary consumer spending in 1Q). Third quarter has historically been one of the strongest for the Company and we expect the trend to continue in 2015 as well. We are somewhat displeased with just one new store opening in 3Q, that too outside KSA. Our net income forecast for the quarter stands at SAR 239 million (EPS SAR 2.66). Jarir has taken a beating at the Tadawul in the market bear run and is now trading at a –23% discount to our target price prompting us to upgrade the stock to a Buy. +20% Y/Y revenue growth likely We forecast a topline of SAR 1.72 billion for the quarter (+20% Y/Y) as consumers come back from summer holidays and back to school spending accelerates. Sales growth reflects partial impact of new store opening but more organic growth. Total store strength has risen by 1 to total 39, somewhat disappointing given our full year target of 6 stores and actual openings of just 3 and only one quarter remaining in the year. EPS forecasted at SAR 2.66 Gross margins are anticipated similar to last year at 16.5% as lower margin electronic products (including smartphones) continue to make up a higher proportion of the sales mix. Gross profit at SAR 283 million would be up +20.4% Y/Y while net income is forecasted at SAR 239 million (+17.9% Y/Y). Store additions lagging Store additions have been lagging in 2015 with a barren first quarter followed by 2 store additions in 2Q and just 1 in 3Q. The sole new store is a Company owned location in Abu Dhabi at a cost of SAR 15 million with a generous total area of 3600 square meters. It does not appear that our target of 6 new stores in the current year would be met given the track record year-to-date.
1-Year Price Performance
S O N D
12-Month Target Price SAR 223
Jarir
TASI
TRETL
181.33
7,366
13,427
F2015 forecasts moderated Jarir announced and distributed a SAR 1.46/share dividend for 2Q versus SAR 1.20/share for 2Q2014. We have toned down our F2015 sales and net income expectations. We now forecast revenues of SAR 6.85 billion (SAR 6.96 billion earlier) and net income of SAR 846 million (SAR 886 million previously) reflecting lower than anticipated store openings somewhat compensated by stronger sales growth. As a result, our full year DPS expectation is now at SAR 7.50 as compared to SAR 7.90 earlier.
Total Change
Key Financials
6-months
(15.3%)
(19.7%)
(20.7%)
1-Year
(11.5%)
(33.4%)
(24.1%)
2-Year
24.8%
(8.2%)
22.3%
FY December 31 (SAR mln) Revenue Gross Profit EBITDA Margin
2014A
2015E
2016E
2017E
5,699
6,846
7,875
9,043
887
1,020
1,236
1,402
13.3%
12.8%
13.3%
13.0%
8.23
9.40
11.16
12.56
12.4%
12.8%
12.5%
EPS (SAR)
(SAR mln)
RC Forecast
Net Margin
13.0%
Revenues
1,717
DPS (SAR)
6.65
7.50
8.90
10.10
Payout Ratio
81%
80%
80%
80%
3Q2015E
Gross Margin
16.5%
EBITDA
247
Net Income
239
Net Margin
13.9%
ROAE
59%
59%
62%
61%
ROAA
32%
33%
35%
35% 13.9x
EV / EBITDA
21.7x
18.7x
15.7x
P/E
22.1x
19.4x
16.3x
14.5x
P / CFPS
20.3x
21.3x
16.4x
16.2x
2.9x
2.4x
2.1x
1.8x
P/S
Muhammad Faisal Potrik
[email protected]
+966-11-203-6807
Sultan S. Al-Abdulkarim
[email protected]
+966-11-203-6812
Riyad Capital is licensed by the Saudi Arabia Capital Markets 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
