Retail Sector Report - Al Rajhi Capital

Saudi Retail Sector 

Retail –Industrial 

Saudi Arabia 

05 January 2013 

January 18, 2010 

US$ 5.7 bn 73% US$4.2mn 

Market cap Free float Avg. daily volume 

Target mkt cap 23,942.8 12.0% over current 

Consensus mkt cap. 23,107.4 8.1% over current 

Current mkt cap. 21,368.1 as at 02/01/2013 

Research Department 

Majed Al Solaim 

Tel +966 1211 9471, alsolaimm@alrajhi-capital.com 

Underweight Neutral Overweight 

Overweight 

Key themes 

Driven by rising population, improving education, 

and changing lifestyle, we expect the retail sector in 

Saudi Arabia to continue growing. We expect bigbox 

retail formats and established players to flourish 

in the Kingdom, even as online sales gradually 

penetrate. We believe the retail market to spread 

beyond Riyadh and Jeddah and retailers will have to 

focus more on building relationships with its 

customers as competition intensifies. 

Implications 

We initiate coverage on Extra with an Overweight 

rating. We upgrade our target price for Jarir but 

maintain our Neutral rating. We also upgrade our 

target price for Alhokair after its impressive results in 

Q3 2012. On the other hand, we lower our target 

price for Alothaim. However we maintain an 

Overweight rating on both Alhokair and Alothaim. 

What do we think? 

Stock Rating Price Target 

Extra Overweight SAR123.5 

Alhokair Overweight SAR124.1 

Alothaim Overweight SAR96.7 

Jarir Neutral SAR168.6 

Why do we think it? 

Stock 3 year EBITDA CAGR* 2013 EV/EBITDA 

Extra 12.42% 11.6x 

Alhokair 9.80% 9.0x 

Alothaim 14.80% 5.7x 

Jarir 8.71% 14.6x 

*2012-2015 

Where are we versus consensus? 

200 

150 

100 

50 

0 

SAR 

Extra Alhokair Alothaim Jarir 

Current Consensus ARC 

Source: Company data, Al Rajhi Capital 

Saudi Retail Sector: 

Optimistic outlook 

We extend our Saudi retail sector coverage by adding United Electronic 

Company (Extra), a market leader in the home & electronic appliance segment 

in the Kingdom. We remain positive on the Saudi retail sector driven by 

healthy population growth and higher consumer spending. However, with 

intensifying competition and likely increase in costs, Saudi retailers will have 

to innovate rather than merely depending on store expansion. 

Retail market is promising: Favorable demographics coupled with higher 

income on the back of Saudi government’s massive social spending will drive the 

Kingdom’s retail market in the medium-term. 

Big-box formats to remain popular: While large retail formats are facing 

tough times across the globe, Saudi Arabia will remain an exception as they 

remain under-penetrated and are the only culturally accepted source of 

entertainment in the Kingdom. 

Different dynamics affecting grocery and non-grocery retail: Although, large 

players dominate a fragmented grocery retail market, we expect them to face 

higher costs (on account of Nitaqat) and intensifying competition, despite 

healthy growth prospects. In non-grocery retail, we expect two sub-categories: 

clothing & footwear as well as electronics & appliances to perform well in future. 

Valuation and conclusion. We initiate coverage on Extra with an Overweight 

rating as we like the company’s approach at selling electronics (targeted 

campaigns & online sales). We arrive at a target price of SAR123.5 per share. We 

have revised the target price of Alhokair to SAR124.1 and have upgraded our 

rating to Overweight. The company recently acquired NESK Group, which added 

more than 120 stores with more than ten brands to its portfolio. We reiterate our 

Overweight rating on Alothaim but have revised down target price to SAR96.7 as 

it needs to rein-in on its rising labor and marketing costs. We remain Neutral on 

Jarir despite an upward revision of target price to SAR 168.6, as its electronic 

appliances segment has witnessed slower than expected growth in Q3. 

Disclosures Please refer to the important disclosures at the back of this report. 

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Saudi economy has benefited 

from high oil prices and exports 

for most of 2012 

Retail is promising: 

growing despite challenges 

A strong economy moving away from oil 

The MENA region is expected to remain one of the few bright spots for global GDP growth in 

2012, even as the global economic recovery remains uncertain with a deepening financial 

crisis in Europe and a slowdown in the US as well as emerging Asian markets like China and 

India. According to the IMF’s update in July 2012, GDP growth in the MENA region will be 

higher by 200bps y-o-y in 2012 at 5.5% vs. decline of 20bps (advanced economies) to 340bps 

(Central and Eastern Europe), mainly due to higher oil production. As the global leader in oil 

exports, Saudi Arabia has been a beneficiary of the high crude prices witnessed in the first 

half of 2012. Although crude oil production from the Kingdom has moderated after it peaked 

in June 2012 at 10.1mbpd, it continues to be at elevated levels. 

Figure 1 Crude oil production are at elevated levels 

mbpd 

10.5 

Figure 2 Smaller sectors are growing faster 

40% 

10.0 

20% 

9.5 

9.0 

0% 

8.5 

-20% 

8.0 

7.5 

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 

Source: OPEC, Al Rajhi Capital 

Source: Bloomberg, Al Rajhi Capital 

Market Cap 1-year growth 

Performance 1-year growth 

The Saudi economy, with real GDP at SAR942bn in 2011, (source: IMF with 1999 as base 

year) has been growing strong thanks to its rising oil exports even as countries in the 

developed world continue to struggle. Although the IMF expects the Kingdom’s real GDP 

growth to remain at moderate levels (6% in 2012 vs. 7% in 2011), it remains better than 

developed economies and comparable to the emerging economies of Asia. Even at the 

regional level, Saudi Arabia has remained relatively unscathed from the uprisings witnessed 

in other countries in the MENA region. This is mainly due to the massive social spending 

activities worth SAR1.4tn being carried out by the Saudi government over 2010-2014 as per 

the ninth five-year development plan. 

The Saudi government has 

been using its export surpluses 

for increased social spending 

The Saudi government has allocated SAR250bn for building 500,000 new affordable housing 

units for low income Saudis. A new Saudization program (Nitaqat) aimed at increasing the 

employment of Saudi citizens in the private sector came into effect in late 2011, which has 

been supported by job placement and training schemes. A decree was passed in 2011 to 

increase the minimum wages for all public sector employees to SAR3,000 per month. Further, 

in January 2012, an unemployment allowance (Hafiz) of SAR2,000 per month was 

introduced, which the Ministry of Labor has estimated to cost around SAR5.5bn per annum 

for the Saudi government. We believe this massive social spending will generate employment 

opportunities leading to higher disposable income levels for Saudi citizens, which will 

gradually trickle down to various sectors such as retail. 

Apart from the social spending, the surpluses generated from oil exports are also being 

ploughed back to diversify the country’s economy. This has led to the development of new 

sectors such as agriculture, retail, and real estate which are growing at a faster pace as 

compared to other bellwether sectors such as petrochemicals and banking. We view this as a 

positive development for the long-term economic growth of the Kingdom. Although this may 

indicate slower growth than in the past, it will pave the way for a much more vibrant and 

diversified economy. 

Disclosures Please refer to the important disclosures at the back of this report. 2




Demographics continue to fuel retail growth 

Saudi Arabia is the largest market in the GCC region with a population of about 28mn in 2011 

(source: Central Department of Statistics and Information). The EIU forecasts this 

population to nearly double to 50mn by 2030. Further, it is pertinent to mention that 32% of 

the Saudi population is below 15 years of age, while around 50% are in the age group of 15-40 

(source: 2010 UN statistics). This young population is exposed to improving educational 

opportunities and a changing lifestyle aligned to modern technologies and western culture. 

In addition, the country has witnessed a steady growth in personal disposable income level, 

which bodes well for consumer sectors such as electronics, grocery and apparel retail. Higher 

level of disposable income in the hands of a young population is creating increased demand 

for better quality and diversified products, more number of supermarkets and hypermarkets, 

and the entry of a slew of foreign brands in the country. 

Figure 3 Saudi Arabia has a young population profile 

Figure 4 Rising disposable income leading to higher consumption 

80+ 

0.1 

US$ 

10,000 

Title: 

Source: 

60-79 

1.0 

8,000 

Please fill in the values above to have them entered in your report 

45-59 

3.0 

6,000 

30-44 

6.9 

15-29 

7.1 

4,000 

0-14 

8.5 

0 2 4 6 8 10 

Population in mn 

2,000 

2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E 

Personal disposable income* 

Household consumption 

Source: UNSD, Al Rajhi Capital; Note: Data is as of 2010 Source: EIU, CDSI, Al Rajhi Capital; Note:*EIU estimates from 2009 

Although the Saudi retail sector dwarfs in comparison to other mainstream sectors such as oil 

and petrochemicals, the EIU estimates the country’s retail sector sales to be around 

US$83.3bn in 2011, which is expected to grow at a healthy CAGR of 9.5% over 2011-2016 to 

reach US$131.2bn. Further, the number of supermarkets grew from 80 in 1984 to 450 by 

2009 and continues to grow. There are currently around 60 hypermarkets spread across the 

major cities of Riyadh, Jeddah and Dammam (source: USDA). 

Big-box formats to usher in the next level of growth 

Supermarkets and 

hypermarkets will grow faster 

than small groceries 

Small convenience stores will be gradually phased out 

The retail sector in Saudi Arabia, though bigger in size, is still evolving as compared to a 

country like the UAE, where it is much more developed due to the latter’s history of being a 

trading hub. Although big-box retail formats (supermarkets and hypermarkets) have sprungup 

in Saudi Arabia, they remain relatively under-penetrated compared to other global 

markets. Small convenience stores called “bakalas” currently dominate the retail sector with 

around 59% of the market share. 

We believe big-box formats will become more popular going forward due to their cost 

effectiveness (trading in large volumes lead to better margins) on the supply side and 

convenience (availability of diverse products and brands, discounts, comfort to choose) on 

the demand side. Savola, Alothaim, Fawaz Al Hokair (Alhokair), Bin Dawood, Tamimi 

(Safeway), Saudi Marketing Company (Farm Superstores) and the UAE-based Majid Al 

Futtaim in partnership with France’s Carrefour are among the top retailers in the Kingdom. 

Apart from these large players, the market consists of numerous small players, rendering the 

retail sector highly fragmented and ripe for consolidation. Alhokair’s acquisition of NESK 

Group (it operates 120 retail stores across the Kingdom) for SAR730mn in August 2012 is an 

indication of this growing trend. 





Figure 5 New format retail stores are under-penetrated 

Figure 6 Share of Top 5 players in the retail market 

100% 

70% 

80% 

15% 

25% 

19% 

60% 

59% 

59% 

24% 

50% 

60% 

40% 

36% 

62% 

40% 

30% 

33% 

25% 

57% 

20% 

0% 

39% 

23% 

16% 

Saudi Arabia Spain UK UAE 

Hypermarkets Supermarkets Small groceries 

20% 

10% 

0% 

15% 

Saudi Arabia Brazil UK 

Source: Savola investor presentation 

Source: Savola investor presentation 

Large formats to gain from the Kingdom’s demography 

Sales in big-box stores in the US and developed countries of Western Europe have been 

severely impacted with consumers switching to a savings mode due to the macro-economic 

slump in these countries. While the baby boomer generation has begun to age, the current 

young generation prefers to marry late and delay the arrival of children. These factors have 

reduced demand for consumer goods in the developed markets. Moreover, consumers are 

using online shopping to make comparisons and avail the best offers from retailers. Hence, 

large stores, which were earlier seen as efficient due to their scale of operations, are now 

becoming costly due to an inventory pile-up. 

Large stores are the only 

culturally accepted source of 

entertainment in the Kingdom 

Saudi Arabia provides one of 

the best environments in the 

MENA region for international 

retailers 

However, in Saudi Arabia, we believe the economic and cultural environment is conducive for 

large stores to thrive. Apart from the strong growth scenario as discussed earlier, large malls 

act as the only source of entertainment in the form of shopping and dining, which is 

culturally acceptable in the Kingdom. Supermarkets and hypermarkets with in-house 

facilities such as restaurants and theme parks are ideal locations for the Saudi population to 

relax along with their families. We believe this cultural connection coupled with the healthy 

income of a young population, will bring in more footfalls for the big-box formats over the 

medium to long-term. Moreover, there are other factors due to which online retail will take 

some time to catch-up in the Kingdom. 

International and regional retailers to increase their presence 

Leading retailers in the mature markets of the US and Europe are facing declining sales and 

profits in their domestic markets, which are their largest source of income. With growth 

expected to remain negative or at best at low single-percentage levels in their countries over 

the medium-term, retailers can reverse their fortunes only by expanding abroad. This idea is 

being promoted by leading built asset consultancy firm EC Harris in its first annual Retail 

International Program Expansion (RIPE) Index published in September 2012. According to 

the index, Saudi Arabia, Qatar, and the UAE offer attractive opportunities in the Middle East 

among international destinations. While these countries ranked 8 th , 11 th and 15 th respectively 

globally, they held the 1 st , 2 nd and 3 rd positions in the MENA region. 

Further, the presence of strong local trading partners and franchise operators in these 

countries implies lower-cost and ease of scalability for western retailers. We believe Saudi 

companies such as Savola, Alhokair, and Alothaim can also provide similar, if not better 

benefits and synergies to international retailers, who want to enter Saudi Arabia. Large 

regional retailers such as Majid Al Futtaim, Al Tayer, Landmark Group, Chalhoub Group and 

Alshaya have also been attracted by the growth opportunities available in the Kingdom. In 

June 2012, the EMKE Group opened its popular Lulu brand hypermarket in Riyadh, and is 

planning to open more stores over the next couple of years. 





While the increasing presence of international and regional players will intensify competition, 

we believe it will lead to an influx of brands, product diversification, attractive pricing and 

efficient operations, which will in turn benefit consumers. Large retail formats, that can 

house multiple brands under one roof, will be able to capture more market share rather than 

smaller stores with limited offerings. 

Increasing number of malls will 

lead to a decline in rental rates 

Steady supply of malls to lower retail rental rates 

Retail space is expanding in both Riyadh and Jeddah as new large retail malls are set up. 

Consequently, we believe rental rates are set to decline slightly, while poorly performing 

malls will see higher vacancy rates. This scenario implies lower costs and in turn better profit 

margins for those retailers who lease out their space over the next few quarters. 

According to Jones Lang LaSalle (JLL), the average rental value of retail space in Riyadh has 

increased to SAR2,520 per sq m per annum at the end of Q3 2012 after remaining unchanged, 

over the past three quarters, at SAR2,380 per sq m per annum. Rents in the malls located in 

prime locations are expected to rise in Q4 2012. However, average retail rental rates are 

expected to witness limited increase on account of downward pressure from lower rentals of 

malls not located in prime locations. Further, the mixed-use King Abdullah Financial District 

(KAFD) and Nakheel Mall are the next major quality retail projects which are expected to be 

delivered in 2014. We believe these will keep retail rental as well as occupancy rates in check 

in the traditional districts of Olaya, Malaz and Bathaa. Total mall space in Riyadh is expected 

to reach 1.5mn sq m by 2015 from 1.2mn sq m currently. 

Figure 7 Riyadh retail forecasts at the end of Q3 2012 Figure 8 Jeddah retail forecasts at the end of Q3 2012 

'000 sq m 

2,000 

'000 sq m 

1,200 

1,600 

1,200 

800 

800 

400 

400 

0 

2011 2012E 2013E 2014E 2015E 

0 

2011 2012E 2013E 2014E 2015E 

Completed Stock 

Future Supply 

Completed Stock 

Future Supply 

Source: Jones Long LaSalle, Al Rajhi Capital 

Source: Jones Lang LaSalle, Al Rajhi Capital 

At the end of Q3 2012, average rental rates for retail space in Jeddah increased slightly to 

SAR2,394 per sq m per annum from SAR2,380 per sq m per annum in Q2 2012(source: JLL). 

Apart from the Flamingo Mall on Prince Majid Road (80% pre-leased) with a retail area of 

46,000 sq m to be completed by in early 2013, no major retail space is expected to be added. 

As a result, average mall vacancy rates have remained quite low at 4% in Jeddah as compared 

to 11% in Riyadh due to healthy demand. There remains strong demand in the north and 

north-east of Jeddah to cater to the planned residential growth in this area. The central 

Jeddah region, such as Tahliyah, is also witnessing good demand on account of the high 

population density in the region. Hence, rental rates are expected to appreciate in the nearterm. 

However, with more than 70,000 sq m expected to be added to the total retail stock 

every year from 2013 onward, rental rates are expected to come down over the long-term. 

Religious tourism will provide 

support to Saudi retail growth 

story 

Retail growth to spread beyond Riyadh and Jeddah 

Apart from the growth in Riyadh and Jeddah, the retail sector is also expected to expand to 

other cities in the country spreading the growth more evenly across the country. The twin 

holy cities of Mecca and Medina, in particular, will witness considerable growth in retail 

space. Although both the holy cities witness an influx of nearly 10mn pilgrims every year, 

they have traditionally seen limited retail facilities as compared to Riyadh and Jeddah. This 

trend is set to change with large facilities under construction in both the holy cities. 





The Jabal Omar Development Company is developing a massive hotel and retail project on a 

2.2mn sq m land in Mecca near the Grand Mosque, which is scheduled to be completed over 

the next five years. The project, being the largest in the Kingdom, will be executed in phases 

at a cost of SAR20bn and shall add 38 hotel towers and a retail space of 89,000 sq m. In 

Medina, the King Abdullah Waqf project will add around 10,000 sq m of retail space. The 

store rents in shopping centers such as the Abraj al Bayt in Mecca are already 50-100% 

higher than that of premium locations in Riyadh or Jeddah, indicating the attractiveness and 

business potential of the holy cities. 

Online retail is yet to catch the 

fancy of the people due to a 

number of factors 

Online sales yet to catch-up 

Online retail sales still remain under-developed in the Kingdom, restricted to sales of 

consumer electronics and home appliances, booking air tickets, and hotel reservations. Some 

of the successful online businesses are those of United Electronics Company (under the 

brand Extra), mobile handset retailer Axiom Telecom, and sports & health equipment 

company U-Mark. Although companies like Savola’s Al Azizia Panda and Jarir display 

products on the internet, online payment and delivery systems are not available. In the 

former’s case, a printout of the shopping list can be taken from the website and processed at 

the nearest actual store. Alothaim started accepting online payment and making home 

delivery in July 2012. However, this service is limited to Riyadh currently. 

We believe that it will take some time before online retail sales pick-up rapidly even as a 

young Saudi population — who extensively use mobile, internet, and social media tools — 

begins to buy products online. The main reason for this delay could be that traditional brick 

and mortar retail stores are one of the main sources for entertainment in the Kingdom. Nonreligious 

music, cinema, gambling and drinking alcohol are forbidden in the Kingdom. 

Outdoor sports and adventure activities are also not possible due to the harsh weather 

conditions in the country. As a result, it will be hard to wean away the young population from 

retail malls, which are the main source for pastime and social interaction in the country. The 

reasons why online sales could pick-up is the convenience that it provides in receiving goods 

at home and it allows women to carry out purchases from the comfort of their home. 

Other reasons for limited development of online or e-commerce transactions in the Kingdom 

are: 

 

 

 

Lack of proper infrastructure (no secure payment gateway mechanism, lack of 

multiple payment options, limited technical knowledge to design e-commerce 

platforms, etc.) 

Non-availability of an efficient delivery system (the current postal system uses P.O. 

Box systems rather than postal addresses and the new Wasel service, which uses 

geographic information systems (GIS) covers only 2% of the Saudi population) 

Legislations regulating e-commerce retailing are still under development 

While online retail may take some time to establish in the Kingdom, we believe it is the way 

to go ahead, considering the success stories in developed countries. Hence, retailers who 

quickly adapt to technological and logistical requirements as they develop will be able to 

capture major the market share in this segment. 

Selling products will become a 

part of the entire customer 

relationship experience 

Saudi retailers will have to build relationships 

Saudi Arabian consumers are becoming more discerning because of availability of 

information on comparable products on the internet. Along with this, competition has 

intensified due to the presence of regional and international players. Hence, Saudi retailers 

will have to leverage on their local presence and proximity, and will have to provide 

competitive (best prices, discounts, financing arrangements, extended warrantees, etc.) and 

value-added services (door delivery, free installation, after-sales support, etc.) to ensure 

customer satisfaction and brand loyalty. Customizing products and developing marketing 

campaigns to target specific groups would also facilitate long-term growth. For instance, 

Extra launched a month-long “Women Festival” in early 2012, where women were offered 

products specific to their needs at discounted prices. 





Grocery retail: 

promising despite competition 

Demand for more diversified and protein-rich forms of food will be driven by an ever 

increasing population in the Kingdom and increasing disposable income in the hands of 

Saudi citizens. Food is the third most imported commodity by value after machinery and 

transport equipments, which highlights its importance. According to the EIU, a major part of 

the Saudi retail sales will be driven by sale of food products. The EIU estimates the retail 

sales to increase from US$83.3bn in 2011 to US$131.2bn by 2016, of which food sales’ 

contribution is expected to increase from 50% to 53%. 

Figure 9 Food is the third largest imported commodity 

Figure 10 Composition of food and non-food in retail sales 

SAR bn 

500 

400 

300 

200 

100 

41.7 

66.0 

53.0 

62.2 

77.6 

13.9 

45.2 

49.5 

56.7 

63.2 

73.6 

13.4 

US$ bn 

160 

120 

80 

Title: 

Source: 


117.3 99.0 

0 

2008 2010 

40 

Machinery, appliances & equipment 

Foodstuffs 

Metals & their products 

Textiles & clothing 

Transport equipment 

Chemical & metal products 

Other goods 

0 

2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E 

Non-food retail sales 

Food retail sales 

Source: SAMA, Al Rajhi Capital 

Source: EIU, Al Rajhi Capital 

Large players have an 

advantage in a fragmented 

market 

Opportunities exist but new challenges emerge 

Large players maintain a strangle hold on the market 

With big-box retail set to play a major role in the Saudi Arabia’s retail sector, we believe large 

grocery retailers like Savola, Alothaim and Tamimi will remain key players in the sector. 

Savola through its Panda brand leads the organized grocery retail market followed by Bin 

Dawood and Alothaim. Azizia Panda (the retail arm of Savola) opened 4 hypermarkets and 7 

supermarkets in 2011 to reach a total of 132 stores in Saudi Arabia. The company plans to 

open 5 hypermarkets and 14 supermarkets by the end of 2012. A large chunk of the grocery 

retail market (more than 80% as per our estimates) continues to be catered by small stores 

and the unorganized sector. Hence, we expect these retailers to continue launching new 

stores across the country to capture a larger share of the market over the next few years. 

Figure 11 Top five big-box retailers, 2011 

Sales area Avg. sales area Grocery sales Market share 

Company No. of stores (sq m) (sq m) (US$ mn) (%) 

Panda 144 628,500 4,365 1,742 4.2 

Bin Dawood 30 205,000 6,833 929 2.3 

Al Othaim 106 162,440 1,532 879 2.0 

Carrefour 17 107,000 6,294 683 1.7 

Farm 43 115,850 2,694 327 0.8 

Total 340 1,218,790 21,718 4,560 11 






Discount stores is a growth area 

The non-Saudi population accounts for around a third of the total population of Saudi Arabia. 

This expatriate population has grown over a period of time and looking at the country’s 

dependency on employing the expatriate population (58% as of 2011), this population will 

remain a substantial portion of the Saudi workforce in future. By analyzing the trend of 

remittances made by these expatriates, we find their income/savings levels have steadily 

increased. Therefore, retailers cannot afford to ignore this target group. Since most of them 

have left their home countries to earn and save as much as possible, these customers tend to 

be more price conscious than Saudi citizens. They will be driven by sales, free offers, 

discounts, and gifts rather than brands and high quality. 

Figure 12 Expatriate population growing among employed 

Figure 13 Remittances by expatriates 

mn 

12 

SAR bn 

120 

Title: 

Source: 

10 

100 


8 

6 

4 

5.79 

4.88 

3.88 4.00 4.09 4.14 4.26 4.31 

3.49 

80 

60 

40 

2 

0 

3.12 3.30 3.37 3.43 3.60 3.76 3.84 3.96 4.14 

2003 2004 2005 2006 2007 2008 2009 2010 2011 

Saudi Non-Saudi 

20 

0 

2003 2004 2005 2006 2007 2008 2009 2010 2011 

Source: Ministry of Economy and Planning, Al Rajhi Capital 

Source: SAMA, Al Rajhi Capital 

Saudi retailers can cater to this segment by opening up discount stores. According to the EIU, 

Alhokair plans to roll out 200 discount stores under its “Easy” brand. Similarly, in late 2011, 

the UAE-based Convenience Arabia announced plans to open 60 “Circle K” stores in Riyadh, 

with the option of opening another 400 outlets in Aldrees petrol stations. 

The emphasis on employing 

Saudi nationals imply higher 

costs for retail companies 

Training of Saudi nationals under Nitaqat to entail costs 

The private sector in Saudi Arabia currently employs around 6mn non-Saudis, while the 

number of Saudi nationals employed barely touch 1mn (source: SAMA 2011 annual report). 

At the same time, the Ministry of Labor’s data shows nearly 1mn Saudi nationals are 

unemployed. Consequently, the Saudi government rolled out the ‘Nitaqat’ program in 

November 2011 to ensure that a specified number of Saudi nationals are employed by the 

private sector. Non-compliance would lead to varying levels of restrictions on non-Saudis 

already employed by the private companies. 

An elaborate traffic lighting system (red, green and yellow) has been developed, which 

prescribes varying quota of Saudi nationals for private companies based on their existing 

employee strength. If a company falls in red category, then the company’s non-Saudi workers 

would lose their work permits. Companies in yellow cannot renew the work permits of non- 

Saudi workers after six years, while those in green will have the freedom to employ non-Saudi 

workers from other companies. 

Figure 14 Saudi nationals to be employed under Nitaqat program 

Employee strength Red Yellow Green Excellent 

< 10 0% 0% 0% 0% 

10-49 0-4% 5-9% 10-26% 27%+ 

50-499 0-9% 5-16% 17-33% 34%+ 

500-2,999 0-9% 10-23% 24-34% 35%+ 

3000 or more 0-9% 10-24% 25-36% 37%+ 






While the success of this program remains to be seen, we believe companies in the retail 

sector will find it increasingly difficult and expensive to employ Saudi nationals to work on 

labor intensive jobs. These jobs are presently carried out by low cost non-Saudi (South Asian 

and East Asian) nationals. As a result, these companies will have to incur higher costs for 

recruitment, training and retention, which would squeeze their profit margins. 

Clothing & footwear and 

electronics & appliance to lead 

non-grocery retail 

International competition is not far behind 

An attractive retail market has lured regional players like Majid Al Futtaim and EMKE Group 

(Lulu). Majid Al Futtaim has been present in Saudi Arabia through its French partner 

Carrefour since 2005, which had 9 hypermarkets in the country at the end of 2011. While the 

company owns malls across the UAE, Oman, Bahrain and Egypt, it has none in Saudi Arabia. 

Consequently, the management considers Saudi Arabia as a key strategic market for growth 

and plans to open several malls in Riyadh over the next few years. Separately, Lulu which has 

opened four stores in the country, of which three are in Riyadh, plans to expand further 

across the country. 

Non-grocery retail: 

promising despite competition 

We expect the non-grocery retail market to post a healthy growth driven by favorable 

demography, changing lifestyle, improving education, and aggressive expansion plans of 

large retailers. We expect two sub-categories: clothing & footwear as well as electronics & 

appliances to lead the growth in non-grocery retail. While the markets remain attractive for 

long-term growth, it will be crucial for players to stay ahead of the intensifying competition, 

be it in terms of launching new marketing campaigns or offering products/support services. 

Clothing & footwear market: brands will rule 

Branded apparel catching fancy of a young generation 

Clothing & footwear is the largest non-grocery retail sales category in Saudi Arabia. 

According to EIU estimates, this market was worth US$9bn in 2011 and is expected to grow 

to US$16bn by 2016. Sales in the clothing & footwear segment tend to be seasonal with peaks 

during summer breaks and Saudi religious holidays (Eid El Fitr at the end of Ramadan and 

Eid Al Adha at the end of Hajj). With high disposable income levels, Saudi consumers prefer 

branded products, so pricing takes a backseat. Consequently, designer and high-fashion 

branded clothing are witnessing robust demand and this trend is likely to continue, 

considering the growing young population in the Kingdom. Sales of clothing for women and 

children represent majority of the market. As a result, branded boutiques, especially for 

women and children, have gathered pace. Although, women wear the “abaya” (a long black 

robe) and veil in public, they wear fashionable clothes and footwear at home. Men wear the 

“thobe” (a traditional white dress). However, the younger generation is gradually choosing to 

wear formal suits and shoes for work, and jeans and t-shirts for casual gatherings. 

Figure 15 Retail clothing sales trend in Saudi Arabia 

US$ mn 

16,000 

Figure 16 Retail footwear sales trend in Saudi Arabia 

US$ mn 

1200 

1000 

12,000 

800 

8,000 

600 

400 

4,000 

200 

0 

2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 

0 

2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 







The potential opportunity for branded products has attracted regional players from the UAE, 

a retail hotspot in the GCC region. Prominent among them are the Jashanmal Group and 

Western International Group (WIG). While Jashanmal plans to launch stores simultaneously 

in Riyadh, Jeddah and Dammam in 2013, WIG has already launched its first “Brandzone” 

store in Riyadh and plans to open 50 stores across the country by 2015, apart from the seven 

stores under the “Shoe Point” brand in Saudi Arabia launched in 2012. 

Changing regulations for women centric retail 

For the first time, the Saudi government brought out a law mandating lingerie shops to 

employ only women staff for retail sales from January 2012 onward. In March 2012, the 

Ministry of Labor ordered closure of 600 outlets that had not complied with this rule. In July 

2012, the second phase of the law was enacted, which requires all cosmetic stores to employ 

Saudi women as front office staff. 

Recently, the Ministry also announced a decision to allow Saudi women to work as 

saleswomen in jewelry shops. Although arguments continue in support of and against women 

working in the Kingdom, we believe this trend reflects the government’s broadening mindset 

to empower women. Allowing women to work could be the first step to provide them with a 

wider and equitable role in the Saudi society. Women gaining more social and economic 

independence will augur well for the retail sector, since they are the sector’s main target 

customers. 

Apart from a few large players, 

the market remains fragmented 

The market remains fragmented led by a few players 

The leading clothes retailers in the Kingdom are Alhokair, Al Bandar Trading Company (Al 

Bandar), Alshaya Group and Al Sawani Group. Apart from these major companies, the rest of 

the market is fragmented. A brief description of the leaders in this market is listed below: 

Alhokair, the leader in fashion retail, offers a multitude of leading brands (75 franchises) 

such as GAP, Zara, Bershka, Marks & Spencer, Massimo Dutti, and Charles & Keith. Further, 

its subsidiary, Arabian Centres, has a network of 13 malls (12 in Saudi Arabia and 1 in Egypt), 

managing almost 2mn sq m of retail property with a combined gross leasable area (GLA) of 

835,710 sq m. The company plans to open 10 more malls by 2014. 

Al Bandar is part of the larger Landmark Group based out of Bahrain and offers major 

brands such as Lee Cooper, Zodiac, Louise Philippe, Reebok, Adidas, Bossini, Splash, Shoe 

Mart, and City Max in the Kingdom. The company operates through 300 stores in the country 

with more than 400,000 sq m of retail space. 

Alshaya is a Kuwaiti company with a portfolio of popular brands such as Debenhams, 

Mothercare, H&M, Next, Milano and Footlocker. The company also offers leading branded 

products such as The Body Shop, Estee Lauder, Boots and Vision Express in cosmetics and 

healthcare categories. 

Al Sawani Group, which was one of the first companies to launch department stores in the 

Kingdom, has brought in brands such as Benetton, Guess, Moschino, Marina Rinaldi, Betty 

Barclay, La Perla and Esprit. The company is the sole authorized distributor of the Espirit 

Brand in MENA region. 

Demand for latest electronic 

gadgets to grow 

Electronics and appliances market: booming market 

Smart phones and tablets to drive electronic appliance sales 

Absence of cinemas and concerts in the Kingdom has resulted in robust demand for home 

entertainment. Evidently, demand for DVDs, high-definition televisions (LCDs and LEDs), 

and computers remains healthy. With more than 80% of the population below the age of 40, 

the urge to be tech savvy among the youth is high and growing disposable income level 

supports this aspiration. This has resulted in rising demand for the latest electronic gadgets 

viz. smart phones, tablets and gaming consoles. In fact, smart phones and tablets are set to 

replace traditional laptops and desktops as they have advanced features, are portable, and 

add to the style quotient. 





Higher internet and mobile 

usage will drive smart phone 

and tablet sales 

Increasing internet and mobile usage to provide support 

According to CITC, internet penetration in the country stood at around 50.7% at the end of 

H1 2012. Although, this number is better than that of emerging markets, it remains much 

lower than developed markets like Japan, Germany and the US (more than 75%). Hence, 

there is ample room for growth. We believe that most of the sales growth in the smart phones 

and tablets will be driven by the growth in internet penetration. CITC estimates mobile 

broadband subscriptions to have reached 12.6mn by the end of H1 2012, implying a 

penetration rate of 43.4%. Internet usage will grow with the increasing popularity of social 

networking websites, web applications, and online games as well as a rise in e-commerce and 

m-commerce transactions. Further, the adoption of new communication technologies like 

3.5G (HSPA) and 4G should lead to increased demand for new and better electronic devices 

for high-definition mobile TV, video conferencing and 3D TV. 

Figure 17 Internet usage has been growing rapidly 

Figure 18 Mobile subscriptions have also surged 

mn 

16 

60% 

mn 

60 

Title: 

Source: 

200% 

12 

50% 

50 


160% 

40% 

40 

120% 

8 

30% 

30 

20% 

20 

80% 

4 

10% 

10 

40% 

0 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 H1 

2012 

0% 

0 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 H1 

2012 

0% 

Source: CITC, Al Rajhi Capital 

Internet users 

Penetration (RHS) 

Source: CITC, Al Rajhi Capital 

Post-paid Pre-paid Penetration (RHS) 

Home appliance sales to also witness growth 

The home appliances market has witnessed a steady growth with total sales reaching 

SAR6.8bn in 2010 (source: Extra Prospectus). Addition of new housing units is bound to 

drive the consumption of home appliances, especially split air conditioners, top and front 

load washing machines, and dryers. New ventures are being forged between private 

developers and government entities to meet the target of building 500,000 affordable 

housing units. According to JLL, 115,000 new residential units will be added in Riyadh, while 

76,000 units are expected to be added in Jeddah over the 2012-2015 period. Implementation 

of the recently approved mortgage law will provide further impetus. 

Electronics market is fragmented and ripe for consolidation 

Extra is the largest player in the electronics and appliances market and had a 9.3% market 

share in 2010 (Source: Extra prospectus). Jarir was second, trailing far behind with a market 

share of 4.7%. Axiom Telecom, Savola (through Hyper Panda) and Al Bandar (through E- 

Max) follow with a market share ranging between 2-2.6%. We believe that their share will 

have increased over the next couple of years. However, their ranking remains the same. 

Extra has been able to scale up aggressively in the Kingdom with 29 branches since 2003 

and has ambitious plans to launch 40 branches by 2015. The company offers 12,000 products 

from leading international brands. Products are offered in big-box retail formats as well as 

online sites, along with providing extensive after-sales services. Consequently, Extra has been 

able to overtake well established players like Jarir and become the market leader. 

Jarir, which started as a stationery and school book supplier, has diversified to office 

equipments, portable consumer electronics (smart phones, tablets and e-readers), computers 

and peripherals. The company, established in 1979, has been able to build a strong brand 

among Saudi nationals. At the end of 2011, the company had 30 retail (23 are leased) and five 

wholesale stores, apart from a central warehousing and distribution center. Jarir plans to 

open eight new stores by 2014, of which two will be located in Kuwait. 





The UAE-based Axiom Telecom has a strong presence across the GCC countries, UK and 

India with more than 500 outlets. The company retails all leading brands of mobile handsets, 

tablets and mobile accessories. Further, the company has a strategic partnership with 

telecom players du in the UAE and Mobily in Saudi Arabia. 

The Saudi electronics retail market is heating up with regional companies increasing their 

presence. Al Bandar’s “Emax” stores, Majid Al Futtaim’s “Best E-City” stores (which it 

acquired from Alhokair in 2009), and Egypt-based Itsalat International’s “i2” are retailers 

from the MENA region, which are viewed as potential competitors in the segment. However, 

they have very low market share as compared to Extra. 

Investment in education 

remains a priority for the 

government 

Emphasis on a knowledge economy to boost book sales 

The Saudi government has placed high emphasis on education for its nationals. The 

Kingdom’s goal of creating a knowledge-based society has led the Ministry of Economy and 

Planning to allocate SAR732bn toward human resources in the ninth five-year development 

plan, which includes education and training. Although the percentage of allocation has 

reduced from 56% in the eighth five-year development plan to the current 51%, it still 

remains a major area of focus. 

The ninth five-year development plan envisages increasing the number of students enrolled 

at each academic stage – elementary, intermediate, technical and vocational, graduate, and 

post-graduate levels. A number of new educational facilities (25 technology colleges, 28 

technical institutes, and 50 industrial training institutes) will be built. The plan also targets to 

monitor the implementation of projects under the first five-year plan of the National Policy 

for Science, Technology and Innovation, and will provide SAR900mn in grants for research 

projects each year. Further, initiatives include the launch of 10 research centers, 15 

technological innovation centers affiliated to King Abdullah City for Science and Technology 

(KACST), and at least 8 technology incubators at KACST and other universities. We believe 

this emphasis on education will provide a boost for book sales and stationeries benefitting 

retailers like Jarir — which has diversified to selling electronics (laptops, smart phones, and 

gaming equipment) and even has the motto “Not just a bookstore”. 

Figure 19 Education and heath are of prime importance 

SAR bn 

1600 

Figure 20 Spending is high on basic and college education 

SAR bn 

800 

1200 

Municipal & Housing 

Services 

Transport & 

Communications 

600 

Institute of Public 

Administration 

Science, Tech. & Innovation 

800 

Economic Resources 

Health 

400 

Technical & Vocational 

Higher Education 

400 

Human Resources 

(Education) 

200 

General Education 

0 

Eighth Plan (2005-09) Ninth Plan (2010-14) 

0 

Eighth Plan (2005-09) Ninth Plan (2010-14) 




RSI10 

Vol mn 

United Electronics Company 

Retail 

EXTRA AB: Saudi Arabia 


US$0.7bn 40% US$1.14mn 


Target price 123.5 19% over current 

Consensus price 123.4 19% over current 

Current price 103.75 as at 02/01/2013 


Overweight 

Key themes 

We expect rising population, improving education, 

and changing lifestyle to continue to drive the retail 

sector in Saudi Arabia. We believe the electronic 

retail segment, to which Extra caters, has immense 

potential not only in the Saudi Arabia but also in the 

GCC, thanks to the latent demand electronic 

gadgets and home appliances. 

Implications 

Extra is our preferred stock in the retail sector. Extra 

has become a leader in a very short time thanks to 

its aggressive expansion plans backed by an 

attention to all aspects of setting up an efficient 

business. We expect the stock to perform well in 

future, benefitting from the young demography and 

higher disposable income levels. 

Performance 

103 

Earnings 

Period End (SAR) 12/11A 12/12E 12/13E 12/14E 

Revenue (mn) 2,462 2,850 3,302 3,830 

Revenue Growth 38.4% 15.8% 15.8% 16.0% 

EBITDA (mn) 158 180 199 218 

EBITDA Growth 33.6% 13.8% 10.9% 9.3% 

EPS 5.51 6.17 6.81 7.31 

EPS Growth -4.2% 12.0% 10.3% 7.4% 


Valuation 

18.0 

16.0 

14.0 

12.0 

10.0 

8.0 

6.0 

4.0 

2.0 

93 

83 

73 

70 

30 

-104 

3 

2 

1 

Price Close 

P/E (x) 

MAV10 

12/11 04/12 07/12 10/12 

Source: Bloomberg 

0.0 

01/09 01/10 01/11 01/12 


136 

129 

122 

115 

107 

100 

93 

86 


Majed Alsolaim, 


Extra 

Ushering in the digital age 

Extra is the market leader in the home & electronic appliance segment in the 

Kingdom and has maintained solid revenue growth over the past few years on 

account of Saudi Arabia’s strong demographics. We expect the company to post 

healthy revenue growth over the next few years due to new store openings. 

Although, the company’s margins are lower as compared to its peers, we 

attribute it to the selling and distribution costs. We believe that high SGA 

expenses are justified, given that the company is in a rapid expansion mode. 

We initiate Extra with an Overweight rating and a target price of SAR123.5, 

implying an upside potential of 19%. 

Favorable market conditions: We believe that Saudi Arabia’s retail sector will 

benefit immensely in the coming years on account of a young (80% below 40) 

and rapidly growing population. Apart from the Kingdom, neighboring GCC 

countries also have a similar demographic profile. While improving income 

levels, low internet penetration levels and an attraction to modern lifestyle will 

lead to a surge in demand for electronic devices, an increase in housing units will 

ensure steady demand for home appliances. Extra, being a market leader in the 

Kingdom, is positioned to reap rich dividends from this trend. 

Growth to come from rapid store expansion: Extra is planning to set up 42 

stores in the country by 2015 from 29 stores currently. Given the fact that Extra 

has been expanding rapidly over the past couple of years, we believe that it is 

capable of adding 4-5 stores every year for the next couple of years, implying 

double-digit revenue growth over the near-term. 

Aggressive sales pitch: Extra has been conducting huge sales events like the 

“Women Festival” and the recently concluded “Mega Sale” to capture the 

attention of Saudi consumers. The financials also point to the fact that Extra’s 

selling and distribution expenses are very high as compared to its peer Jarir and 

thus have impacted profit margins. However, we believe this is mainly due to 

Extra’s rapid expansion plans. 

Financials are supportive for growth: Although inventory value has grown 

considerably (+86% y-o-y) at the end of Q3 2012 and represents a chunk of the 

balance sheet (around 55%), we believe the company can easily tide over any 

working capital issues. Our belief stems from the fact that Extra has zero debt on 

its balance sheet and hence can raise debt if required. 

Valuation: We like Extra’s business for its growth potential and its approach at 

selling electronic products (targeted sales campaigns and online sales) in the 

Kingdom. We feel the company will ride on the retail wave in the Kingdom as 

well as the GCC region at large and expect it to witness high revenue and profit 

growth in future. We have conservatively kept selling expenses at the same level 

in the forecast period, but we understand that this could reduce substantially in 

future, boosting margins. We initiate coverage on the stock with and Overweight 

rating and arrive at a target price of SAR123.5 per share using a blend of long 

run discounted economic profit (DEP) method (70% weight) along with 

comparable P/E and EV/EBITDA multiples of Extra’s peers (30%). 


Powered by Enhanced Datasystems’ EFA Platform 13




Corporate summary Share information Valuation 

Extra is one of the fastest growing 

electronic retail companies in Saudi 

Arabia with plans to expand to the 

GCC. The company retails electronic 

products under different categories. 

The company has established 29 stores 

in the Kingdom and targets to reach 42 

by 2015. Extra has become a leader in 

a very short time thanks to its 

aggressive expansion plans backed by 

an attention to all aspects of setting up 

an efficient business. 

Market cap (SAR/US$) 2.484bn / 0.662bn 

52-week range 78.00 - 104.3 

Daily avg volume (US$) 

1.061mn 

Shares outstanding 

24.00mn 

Free float (est) 40% 

Performance: 1M 3M 12M 

Absolute 11% 8.1% 35.3% 

Relative to index 8.4% 8.4% 27.9% 

Major Shareholder: 

Fawzan Holding Company 45.4% 

Abdulaziz Alsaghyir Investment Company 14.9% 


Period End 12/11A 12/12A 12/13E 12/14E 

Revenue (SARmn) 2,462 2,850 3,302 3,830 

EBITDA (SARmn) 158 180 199 218 

Net Profit (SARmn) 132 148 163 176 

EPS (SAR) 5.51 6.17 6.81 7.31 

DPS (SAR) 2.50 2.50 2.50 4.39 

EPS Growth -4.2% 12.0% 10.3% 7.4% 

EV/EBITDA (x) 15.3 13.2 11.6 10.3 

P/E (x) 18.8 16.8 15.2 14.2 

P/B (x) 6.6 5.4 4.4 3.8 

Dividend Yield 2.4% 2.4% 2.4% 4.2% 


A fresh look at electronics 

growing fast organically 

Extra continues to expand at a 

fast pace 

Extra has been busy over the past couple of years setting up stores rapidly across the 

Kingdom. Extra added 7 stores in 2011 and has added 5 more by the end of Q3 2012 with the 

total number reaching 29. The company plans to take this number to 42 by 2015, which 

implies and addition of 4-5 stores every year for the next couple of years. Considering the 

bright outlook for retail in Saudi Arabia and the low rental rates for retail property expected 

over the next few years (refer to our discussion on steady supply of malls in Page 5), we 

believe that Extra will be able to expand rapidly given that most of the company’s stores are 

rented rather than owned. 

Apart from expansion within the country, Extra also has plans to establish stores in the GCC. 

The first store outside Saudi Arabia will come up in the Bausher region in Muscat, Oman with 

a retail space of 4,000 sq m. Further, the company has entered into a partnership agreement 

with Qatar-based Al Meera Holding Company to open a big-box store in Qatar in 2013. 

According to a statement made by the Chairman of Extra in May 2012, the company also has 

plans to expand into Bahrain in future. The rapid expansion plans of the company seem to 

have borne fruit with the company rising to the top in a very fragmented market, overtaking 

experienced players like Jarir. 

Figure 21 Market share by value 

Brand Name Company 2008 2009 2010 

eXtra United Electronics Company 6.7% 8.0% 9.3% 

Jarir Bookstore Jarir Marketing Co 3.3% 4.0% 4.7% 

Axiom Axiom Telecom LLC 2.3% 2.5% 2.6% 

Hyper Panda Al-Azizia Panda United Inc 2.2% 2.2% 2.3% 

E-max Al Bandar Trading Co 1.5% 1.8% 2.0% 

Electro Advanced Electronics Company 1.2% 1.3% 1.3% 

Carrefour Majid Al Futtaim Hypermarkets LLC 1.6% 1.3% 1.1% 

Best E-City Al Futtaim Group LLC 0.4% 0.4% 0.3% 

Others 80.7% 78.5% 76.3% 

Source: Euromonitor, Company data, Al Rajhi Capital 

While Jarir is into electronics 

and stationeries, Extra is into 

electronics and home 

appliances 

While Jarir has diversified from selling books, stationeries and school & office supplies to 

also selling electronic items, Extra’s product portfolio comprises of electronic items 

(computers, gaming devices, smart phones, and cameras) as well as home appliances 

(television, kitchen appliances, refrigerators, air conditioners, etc.). Considering the young 

demographic profile and the high disposable income levels, we believe Extra has timed it 

right to enter a segment which will witness robust growth at least for another couple of years. 





Adoption of new technologies 

will boost the demand for smart 

phones and tablets 

Portable electronic devices and gaming to drive growth 

We believe sales of tablets and smart phones will overtake PCs and witness high growth levels 

going forward. According to recent estimates by Gartner, around 820mn smart phones and 

tablets will be sold globally in 2012 and it will reach 1.2 billion by 2013, which indicates a 

46% growth y-o-y. Gartner predicts mobile phones to overtake PCs as the most common web 

access device worldwide by 2013 and more than 80% percent of the handsets sold in mature 

markets to be smart phones by 2015. It also estimates tablet sales to surge from 13mn units 

worldwide in 2012 to 53mn by 2016. 

According to CITC data, while mobile subscriptions reached 181% in the Kingdom, mobile 

broadband subscriptions reached 11.7mn at the end of Q3 2012, representing a population 

penetration rate of 40%. Hence, we believe the demand for new handsets is likely to surge 

with the increasing popularity of social networking websites, online games and development 

of m-commerce transactions. In the case of tablets, we expect their portability and sleek 

features to make them popular over traditional desktop PCs and laptops in future. 

With the increasing popularity of bringing your own device to office, consumer preferences 

will dictate corporate choice and although this trend is just catching up, we believe it won’t be 

long before we see this development in Saudi Arabia. Already, Extra is eyeing business to 

business sales in the Kingdom and sees it as a potential market, especially those involved 

with government initiatives. Currently, corporate sales account for a mere 1-1.5% of total 

sales on a monthly basis. 

Both online and offline gaming 

is catching up and represent a 

huge market for electronic 

retailers 

With more than 80% of the population below 40 in the Kingdom, gaming is another market 

where we see potential growth for companies like Extra. According to Turkey-based Peak 

Games, a social gaming company which competes with top global players like Zynga, 

King.com and EA Sports, more than two-thirds of the internet users in Saudi Arabia are 

playing games online and the country has one of the highest average revenue per user 

(ARPU) rates in social gaming. According to the company, daily ARPU rates in Gulf countries 

average around eight cents which is higher as compared to around six cents in developed 

markets like the US and Europe. Apart from online gaming, offline sales through gaming 

equipments like Sony’s Play Station 3 and Microsoft’s X-box 360 are also expected to be 

robust, especially with the popularity of regional Arabic titles. While online gaming will drive 

the sales for tablets and smart phones, offline gaming will drive the sales for gaming devices. 

Figure 22 Extra: Revenue growth trend 

SAR bn 

5 

50% 

4.2 

4 

3.8 

40% 

3.3 

3 

2.5 

2.9 

30% 

2 

20% 

1 

10% 

0 

2011 2012E 2013E 2014E 2015E 

0% 

Revenue 

Y-o-Y growth (LHS) 


Considering the young population of Saudi Arabia, we believe that Extra can accelerate its top 

line by catering to these specific product categories. We expect sales of smart phones, tablets 

and gaming devices to complement Extra’s aggressive store expansion plans. We estimate 

Extra to achieve revenue growth of around 16% in 2012 and expect the company to maintain 

healthy growth over the next three years, though we have been very conservative regarding 

store expansions post 2014. 





Extra has been aggressively 

promoting its products by 

conducting special events 

Aggressive sales pitch 

Extra has been periodically conducting events to attract the attention of Saudi consumers, 

apart from ramping up its stores aggressively. The company received the “Retail Marketing 

Initiative of the Year” in June 2012 from the Middle East Retail Academy in recognition of its 

month-long marketing campaign called “Women Festival,” held in the Kingdom. During the 

period, diverse marketing channels were employed to market products specifically used by 

women. Targeting women customers through extensive marketing efforts is unprecedented in 

the Kingdom. As a result, the company’s sales in March 2012 increased by 17% compared to 

the previous month. 

The company has also been conducting an event called the “Mega Sale” for the past eight 

years and the recent one was held in October 2012 for five days. It can be considered as one 

of the largest consumer electronics and home appliances event in the Middle East going by 

the numbers in 2011. In 2011, the “Mega Sale” attracted 1.2mn visitors to Extra’s stores and 

website (a 40% increase y-o-y) and double the volume of sales witnessed in the “GITEX 

Technology Week”, one of the largest ICT events held every year in Dubai. While these events 

promote brand visibility they also result in higher footfalls and revenue growth. It helps to lay 

the foundation for a strong reputation, which is very precious for repeat sales in a country 

like Saudi Arabia. 

Consumers have been kept in 

mind right from product pricing 

to after sales service 

Extra’s beauty lies in its eye for details 

Consumers have been kept in mind at all stages of the sales cycle 

Pricing and Products: Majority of Extra’s target customers comprise the middle and high 

income segments of both the Saudi and non-Saudi population. Product categories have been 

built to cover all price points, from the basic entry level to the high end luxury level, making a 

deep penetration into the mobile consumer segment. Extra also provides a comprehensive 

range among specific consumer groups. For instance, the company offers a variety of kitchen 

appliances under various leading brands to cater to its female customers, while it offers the 

top brands of gaming devices, iPods, MP3/MP4 players to the young customers. 

Payment: Extra became the first retailer in the Kingdom to join SAMA’s SADAD payment 

system in August 2012. SADAD is a single electronic payment platform that links different 

billers and banks, enabling consumers to pay electronically through any bank in the 

Kingdom. Various banking channels including internet banking, phone banking and ATMs 

can be used, providing consumers with the maximum flexibility in terms of how they choose 

to pay. 

After-Sales: We also like the fact that Extra has taken efforts in sales and after sales 

services. The company allows customers to purchase online and receive delivery at home, a 

feature available only by a handful of retailers in Saudi Arabia. Further, it provides a 

comprehensive list of programs including extended warranties, 24/7 remote technical 

support, computer servicing, and mobile upgrading services (Jawwaly). This differentiates 

Extra from the others and shows that the company is keen to nurture a long-standing 

relationship with its customers rather than merely increasing sales. 

Most of the stores are rented, 

which allows the company to 

focus only on inventory 

management 

Stores have been set up at minimal costs 

The company has been careful in setting up its stores with most of them being leased (only 3 

out of 24 stores were owned at the end of 2011) and in stand-alone locations. According to the 

company, stand alone stores typically have lower rentals and service charges compared to 

those based in shopping malls, which results in lower costs and facilitate aggressive pricing. 

Further, this allows the company to focus on its core operations of only managing inventory 

levels as well as expand at a fast pace. 

While Extra has established large stores with sales space averaging around 5,000 sq m in 

large cities such as Riyadh, Jeddah and Khobar, more than 75% of the company’s stores are 

small with a sales space averaging around 2,000 sq m. This shows that the company has been 

spreading its base across the Kingdom and not focusing only on the major cities. 

Multiple warehouses keep 

inventory levels at manageable 

levels and allow smooth 

operations 

Strategically placed warehouses 

Extra operates three central warehouses located in Riyadh, Jeddah and Khobar, which supply 

to the retail stores in specific regions. The Jeddah and Khobar warehouses have the capacity 

to receive direct imports and break it down for smaller deliveries to retail stores across the 

country. These warehouses, which are all rented, also serve as logistic hubs for making home 

delivery to consumers. Having three warehouses ensure inventory levels remain manageable 

and operations can continue even in case of break down in any specific region. 





Figure 23 Extra's warehouses 

Location Total area (sq m) Stores covered 

Dammam 16,000 Khobar, Dammam, Al Hassah, Hafr Al Batin, AlFaisaliah 

Jeddah 14,000 Sultan, Abha, Taif, Medina, Old Airport, Mecca, Tabuk, Najran 

Riyadh 6,500 Worood, Ghurnath, Sweidi, Qassim, Khurais, Al Raed, Al Rimal, Al Badiah 

Source: Company prospectus, Al Rajhi Capital 

Rising inventory levels could 

impact Extra 

Piling-up Inventory could impact operations 

The electronics market is constantly changing with products having a very short shelf-life due 

to changing technologies and new products constantly replacing old ones. With most of the 

company’s investment locked in inventory, it becomes important for the company to 

maintain optimal inventory levels at all times. We have noticed that inventory levels have 

been slowly building up over the past few quarters. The value of inventory in the balance 

sheet stood at SAR699mn at the end of Q3 2012, 86% higher than a year ago at the end of Q3 

2011 and representing 55% of the total assets on the company’s balance sheet. 

Figure 24 Inventory levels have been going up 

SAR mn 

800 

Days 

100 

600 

80 

60 

400 

40 

200 

20 

0 

Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 

0 

Inventory 

Inventory days* (LHS) 


* Days are calculated based on annualized revenue for respective quarter 

While, we understand that some of it can be attributed to support the recently conducted 

“Mega Sale” and fill in the pipeline of new stores, any further increase could entail cash 

management issues. However, considering the fact that Extra is a zero debt company, we 

believe that the company will be easily able to raise fresh debt, if required. 

Extra needs to control its SGA 

costs to improve profitability 

Extra versus its peers 

Extra has been performing better than Jarir in terms of gross margin. However, Extra has a 

very low EBITDA margin as compared to Jarir, which we believe is on account of the fact that 

the company is incurring high selling and distribution expenses of 8-10% of revenue. This has 

resulted in higher SGA expenses (12-13%) as compared to Jarir (2.5-3%). Consequently, 

Extra’s ROA and ROE are also comparatively lower than Jarir’s. As per our analysis every 2% 

reduction in Extra’s SGA expenses, will result in a net profit growth of around 4%. On 

comparing with international peers who have similar market capitalization and operate in 

comparable product categories, Extra’s offers decent returns. 

Figure 25 Extra vs. other retailers, in terms of profitability 

Gross EBITDA 

Company Market Cap Ent. Value Margin Margin ROA ROE 

Name (SAR mn) (SAR mn) (%) (%) (%) (%) 

Jarir Marketing Co 9,525 9,642 15.3 12.8 32.3 57.3 

Conn's Inc 3,893 5,118 41.7 12.5 5.2 11.5 

Officemax Inc 3,152 5,140 25.4 2.6 11.7 54.9 

Mobilezone Holding 1,408 1,380 n/a 10.9 21.0 32.5 

United Electronics Co 2,490 2,394 17.7 6.4 17.1 35.2 

Source: Bloomberg, Company data, Al Rajhi Capital 





Valuation multiples are high, 

but we believe it is justified 

Extra seems fairly valued, but is worth a premium 

Extra’s EV/EBITDA multiples for 2012 and 2013 are lower than that of Jarir. However, we 

feel that Extra deserves a premium as the company 1) is more focused on electronics and the 

related home appliances segment, 2) is growing faster than Jarir, and 3) has started paying 

dividend, which we expect to improve in future. Extra commands a premium over 

international peers, given the bright sector outlook for the company in the GCC region over 

the next few years. 

Figure 26 Extra vs. other retailers, in terms of valuation 

Company P/E EV/EBITDA EV/EBITDA Div Yield 

Name 2013E 2012E 2013E 2013E 

Jarir Marketing Co 14.9 16.2 14.5 4.7 

Conn's Inc 14.7 12.0 9.6 n/a 

Officemax Inc 11.6 6.4 6.0 0.4 

Mobilezone Holding Ag-Br 14.6 9.4 8.9 6.2 

United Electronics Co 15.2 13.2 11.6 2.4 

Source: Bloomberg, Company data, Al Rajhi Capital 

We expect Extra to achieve 

post strong results in Q4 2012 

Looking forward: we expect strong Q4 and full year 

results 

As we approach the end of 2012, we think it will be useful to highlight our forecasts for Q4 

2012 and the full year. We expect Extra to report strong results in Q4 as compared to the last 

three quarters. We expect revenue growth of 10% y-o-y in the last quarter of 2012, after a 

weak performance in Q3, partly due to better efficiencies from its three new stores which 

were launched in Q3 and partly due to the Hajj season. This should result in full-year sales 

growth of 16% y-o-y. 

In terms of profits, we expect Q4 net profit to grow by 15% as compared to the same period 

last year, resulting in 12% full-year net profit growth. We have kept SGA expenses in Q4 at 

lower levels (10.9% of revenue) as compared to Q3 2012 (13.1% of revenue). We believe SGA 

expenses as a percentage of revenue will be at similar levels seen in Q4 2011, on account of 

Hajj. However, we remain conservative and expect only a nominal improvement in margins 

for the full year 2012 as compared to 2011. 

Figure 27 Extra Q4 and full-year comparison 

% chg. % chg. % chg. 

SAR mn Q4 2011 Q3 2012 Q4 2012E y-o-y q-o-q FY2011 FY2012E y-o-y 

Revenue 724 699 799 10.4 14.4 2,462 2,850 15.8 

Gross Profit 120 121 136 13.0 12.3 435 500 14.8 

Gross Margin % 16.6 17.3 17.0 17.7 17.5 

Operating Profit 42 29 49 16.3 66.1 136 152 11.9 

Operating Margin % 5.8 4.2 6.1 5.5 5.3 

EBITDA 48 36 56 16.4 52.8 158 180 13.8 

EBITDA Margin % 6.6 5.2 7.0 6.4 6.3 

Net Income 41 28 48 15.3 67.5 132 148 12.0 

Net Margin % 5.7 4.1 5.9 5.4 5.2 






We have valued Extra using a 

combination of two different 

methods 

Extra’s valuation: using multiple methods 

We use two valuation methods for Extra: the long-run DEP method and a blend of 

comparative P/E and EV/EBITDA multiples. For estimating Extra’s fair value using the longrun 

DEP, sometimes also called the discounted long-run economic value added (EVA) 

method, we use a WACC of 9.6%. 

Figure 28 Extra: Calculation of WACC 

Particulars 

Risk-free Rate 2.0% 

Market Risk Premium 11.5% 

Adjusted Beta 0.7 

Cost of Equity 9.6% 

Pre-tax Cost of Debt 0.0% 

Effective Tax rate 2.7% 

After-tax Cost of Debt 0.0% 

Target D/(D+E) 0.0% 

WACC 9.6% 

Source: Bloomberg, Company Data, Al Rajhi Capital 

Using our core assumption of a period of competitive advantage of 25 years, we estimate fair 

value per share for Extra. In DEP forecasting, the appraised fair enterprise value may be 

broken down into two elements: opening invested capital, i.e. the debt and equity capital that 

have already been deployed in the business, and discounted economic profit, i.e. the present 

value of future economic returns (returns above the cost of capital). We believe the value of 

the company lies more in its future economic returns considering that it represents around 

90% of our fair enterprise value of SAR3.06bn. 

We arrive at a fair value of 

SAR132.1 per share for Extra 

based on DEP valuation 

Discounted economic profit is shown in the table below as “total value created/destroyed”. 

We add the value of associates as well as net debt forecasted for 2012 (in the case of Extra net 

debt is negative) to the appraised enterprise value to arrive at the estimated equity value of 

SAR3.17bn. Dividing this value with the current number of outstanding shares, we estimate 

Extra’s fair value per share at SAR132.1. 

Figure 29 Extra valuation: Discounted economic profit 

Particulars 

SAR mn 

Total value created / (destroyed) 2,753 

Opening Invested capital 310 

Total Enterprise Value 3,063 

Value of associates 1 

Value of debt 108 

Value of minorities 0 

Equity Value 3,171 

Fair value per share (SAR) 132.1 


We have used weighted P/E 

and EV/EBITDA multiples for 

valuation based on comparative 

multiples 

For the comparative analysis, we use the weighted 2013 PE and EV/EBITDA multiples of 

Extra’s peers. We assign the highest weight to Jarir’s multiples as it is has a very similar 

profile and is influenced by the same macroeconomic factors as Extra. We assign lowest 

weight to Mobilezone as it has lower market capitalization than Extra. 

Figure 30 Calculation of P/E and EV/EBITDA multiples 

Company Name Weights Mkt. Cap. (SAR mn) P/E EV/EBITDA 

Jarir Marketing Co 66% 9,525 14.9 14.5 

Conn's Inc 20% 3,893 14.7 9.6 

Officemax Inc 10% 3,152 11.6 6.0 

Mobilezone Holding Ag-Br 4% 1,408 14.6 8.9 

Average 14.5 12.5 






Using the P/E multiple, we arrive at the appraised value of SAR98.7 per share. 

Figure 31 P/E multiple approach 

Particulars 

Extra's 2013 EPS (SAR) 6.8 

P/E multiple (x) 14.5 

Price per share (SAR) 98.7 

Source: Al Rajhi Capital 

Using the EV/EBITDA multiple we arrive at an enterprise value of SAR2,483mn. Since net 

debt is negative, we add it to the enterprise value along with the book value of associates to 

arrive at the appraised value of SAR2,591mn. Dividing this by the total number of shares, we 

arrive at Extra’s appraised value of SAR107.9 per share. 

Figure 32 EV/EBITDA multiple approach 

Particulars 

SAR mn 

Extra's 2013E EBITDA 199.3 

EV/EBITDA multiple (x) 12.5 

Extra's enterprise value 2,482.5 

Value of non-core assets 0.3 

Value of debt 107.7 

Value of minorities 0.0 

Appraised value of the enterprise 2,590.5 

# of Shares (mn) 24.0 

Price per share (SAR) 107.9 


We arrive at a fair value of 

SAR103.3 per share for Extra 

based on comparative multiples 

The simple average of the appraised values arrived at using the P/E and EV/EBITDA 

multiples works out to SAR103.3 per share. 

Figure 33 Extra's value using relative valuation methods 

Particulars 

Appraised value using P/E multiple 107.9 

Appraised value using EV/EBITDA multiple 98.7 

SAR 

Fair value per share 103.3 

Source: Al Rajhi Capital 

We arrive at a target price of 

SAR123.5per share for Extra 

combining valuation under both 

the methods 

Finally, we take the weighted valuation of the long-run EVA and comparative multiples 

analysis methods. We assign a 70% weight to the fair value arrived using the EVA method 

and a 30% weight to the fair value arrived using the comparative multiples method to arrive 

at the final fair value of Extra at SAR123.5per share, implying a 19% upside from the current 

market price. We believe this valuation as justified, given the positive outlook for the retail 

sector in the Kingdom and the growth prospects of the company. 





We expect revenue to be 

around SAR2.8bn for 2012 

Income Statement (SARmn) 12/10A 12/11A 12/12A 12/13E 12/14E 

Revenue 1,778 2,462 2,850 3,302 3,830 

Cost of Goods Sold (1,456) (2,026) (2,350) (2,730) (3,175) 

Gross Profit 322 435 500 572 655 

Government Charges 

S.G. & A. Costs (223) (299) (348) (404) (475) 

Operating EBIT 99 136 152 168 180 

Cash Operating Costs (1,660) (2,304) (2,671) (3,103) (3,612) 

EBITDA 118 158 180 199 218 

Depreciation and Amortisation (19) (22) (28) (32) (38) 

Operating Profit 99 136 152 168 180 

Net financing income/(costs) (0) (0) (0) - - 

Forex and Related Gains - - - - - 

Provisions - - - - - 

Other Income 1 0 0 - - 

Other Expenses 

Net Profit Before Taxes 100 136 152 168 180 

Taxes (2) (3) (4) (4) (5) 

Minority Interests - - - - - 

Net profit available to shareholders 98 132 148 163 176 

Dividends - (60) (60) (60) (105) 

Transfer to Capital Reserve 

12/10A 12/11A 12/12A 12/13E 12/14E 

Adjusted Shares Out (mn) 24.00 24.00 24.00 24.00 24.00 

CFPS (SAR) 6.86 6.43 7.32 8.13 8.89 

EPS (SAR) 5.75 5.51 6.17 6.81 7.31 

DPS (SAR) 0.000 2.500 2.500 2.500 4.388 

Growth 12/10A 12/11A 12/12A 12/13E 12/14E 

Revenue Growth 23.5% 38.4% 15.8% 15.8% 16.0% 

Gross Profit Growth 42.8% 35.1% 14.8% 14.4% 14.5% 

EBITDA Growth 94.5% 33.6% 13.8% 10.9% 9.3% 

Operating Profit Growth 143.1% 36.7% 11.9% 10.2% 7.4% 

Net Profit Growth 138.1% 35.3% 12.0% 10.3% 7.4% 

EPS Growth 40.1% -4.2% 12.0% 10.3% 7.4% 

Margins 12/10A 12/11A 12/12A 12/13E 12/14E 

Gross profit margin 18.1% 17.7% 17.5% 17.3% 17.1% 

EBITDA margin 6.6% 6.4% 6.3% 6.0% 5.7% 

Operating Margin 5.6% 5.5% 5.3% 5.1% 4.7% 

Pretax profit margin 5.6% 5.5% 5.3% 5.1% 4.7% 

Net profit margin 5.5% 5.4% 5.2% 4.9% 4.6% 

Other Ratios 12/10A 12/11A 12/12A 12/13E 12/14E 

ROCE 37.9% 35.3% 32.4% 27.0% 25.6% 

ROIC 44.3% 56.7% 47.7% 46.1% 45.3% 

ROE 50.3% 42.7% 35.4% 31.8% 29.0% 

Effective Tax Rate 2.3% 2.5% 2.7% 2.5% 2.5% 

Capex/Sales 6.5% 2.9% 3.5% 3.5% 3.5% 

Dividend Payout Ratio 0.0% 45.4% 40.5% 36.7% 60.0% 

Extra trades at 2013 PE of 

15.2x 

Valuation Measures 12/10A 12/11A 12/12A 12/13E 12/14E 

P/E (x) 18.0 18.8 16.8 15.2 14.2 

P/CF (x) 15.1 16.1 14.2 12.8 11.7 

P/B (x) 10.2 6.6 5.4 4.4 3.8 

EV/Sales (x) 1.0 1.0 0.8 0.7 0.6 

EV/EBITDA (x) 14.8 15.3 13.2 11.6 10.3 

EV/EBIT (x) 17.7 17.8 15.7 13.8 12.5 

EV/IC (x) 10.6 7.8 6.7 6.0 5.6 

Dividend Yield 0.0% 2.4% 2.4% 2.4% 4.2% 






Balance Sheet (SARmn) 12/10A 12/11A 12/12A 12/13E 12/14E 

Cash and Cash Equivalents 30 65 108 226 294 

Current Receivables 5 5 3 4 4 

Inventories 257 341 575 588 575 

Other current assets 30 46 91 91 91 

Total Current Assets 322 457 777 909 963 

Fixed Assets 267 317 388 472 568 

Investments 0 1 0 0 0 

Goodwill - - - - - 

Other Intangible Assets - - - - - 

Total Other Assets - - - - - 

Total Non-current Assets 267 318 388 472 569 

Total Assets 589 775 1,166 1,381 1,532 

Short Term Debt 9 - - - - 

Accounts Payable 304 370 671 735 804 

Accrued Expenses - - - - - 

Dividends Payable - - - - - 

Other Current Liabilities - - - - - 

Total Current Liabilities 313 370 671 735 804 

Long-Term Debt 12 - - 48 48 

Other LT Payables 7 9 8 8 8 

Provisions 14 21 25 25 25 

Total Non-current Liabilities 33 30 32 81 81 

Minority interests - - - - - 

Paid-up share capital 240 240 240 240 240 

Total Reserves 3 135 222 325 407 

Total Shareholders' Equity 243 375 462 565 647 

Total Equity 243 375 462 565 647 

Total Liabilities & Shareholders' Equity 589 775 1,166 1,381 1,532 

Ratios 12/10A 12/11A 12/12A 12/13E 12/14E 

Net Debt (SARmn) (9) (65) (108) (178) (246) 

Net Debt/EBITDA (x) (0.08) (0.41) (0.60) (0.89) (1.13) 

Net Debt to Equity -3.8% -17.2% -23.3% -31.5% -38.0% 

EBITDA Interest Cover (x) 686.5 354.0 1,436.6 

BVPS (SAR) 10.14 15.64 19.25 23.56 26.95 

Cashflow Statement (SARmn) 12/10A 12/11A 12/12A 12/13E 12/14E 

Net Income before Tax & Minority Interest 100 136 152 168 180 

Depreciation & Amortisation 19 22 28 32 38 

Decrease in Working Capital 71 (35) 25 51 83 

Other Operating Cashflow (187) 6 (2) (4) (5) 

Cashflow from Operations 3 129 203 246 296 

Capital Expenditure (115) (72) (99) (116) (134) 

New Investments 4 0 - - - 

Others 3 (0) - - - 

Cashflow from investing activities (108) (73) (99) (116) (134) 

Net Operating Cashflow (106) 56 104 130 162 

Dividends paid to ordinary shareholders - - (60) (60) (94) 

Proceeds from issue of shares - - - - - 

Effects of Exchange Rates on Cash - - (0) - - 

Other Financing Cashflow 191 (3) (1) - - 

Cashflow from financing activities 121 (22) (61) (12) (94) 

Total cash generated 16 34 43 118 68 

Cash at beginning of period 15 30 65 108 226 

Implied cash at end of year 30 65 108 226 294 

Ratios 12/10A 12/11A 12/12A 12/13E 12/14E 

Capex/Sales 6.5% 2.9% 3.5% 3.5% 3.5% 



RSI10 

Vol th 

Fawaz Abdulaziz Alhokair 


ALHOKAIR AB: Saudi Arabia 

05January 2013 

US$2.0bn 51% US$1.29mn 


Target price 124.1 15 % over current 

Consensus price 120.45 12.8% over current 



Majed Al Solaim 



Overweight 

Key themes 

We expect the retail sector in Saudi Arabia to 

continue its growth momentum on the back of everincreasing 

population, improving education, and 

changing lifestyle. Alhokair holds a strong position in 

the Saudi fashion market. The company will continue 

to grow through M&A activities as well as roll out of 

new stores. 

Implications 

Alhokair is one of our preferred stocks in the retail 

sector. On the operational front, the company has 

been performing well with sound financials. We 

expect M&A activities, new store launches, and 

healthy same-store sales to drive the company’s 

growth over the near-term. 

Performance 

Earnings 

Period End (SAR) 03/11A 03/12A 03/13E 03/14E 

Revenue (mn) 2,575 3,203 4,327 5,149 


EBITDA (mn) 307 545 739 830 

EBITDA Growth -3.3% 77.3% 35.8% 12.3% 

EPS 4.52 6.39 8.60 9.73 

EPS Growth 36.6% 41.4% 34.6% 13.1% 


Valuation 

16 

14 

12 

10 

8 

6 

4 

2 

113 

103 

93 

83 

73 

63 

53 

70 

30 

1000 -10 

500 

Price Close 

P/E (x) 

0 

01/09 01/10 01/11 01/12 


MAV10 

12/11 04/12 07/12 10/12 


169 

154 

139 

124 

109 

94 

79 

Alhokair 

Upside potential 

Alhokair continued to deliver an impressive performance during the second 

quarter of 2012/2013 (its financial year ends March 31st) on the back of strong 

like-for-like sales and launch of new stores. The company was able to report 

37% and 25% y-o-y growth in its revenue and net profit respectively. Further, 

Alhokair finalized the acquisition of NESK Group, which contributed positively 

in the last quarter. International operations coupled with acquisition of local 

brands will spur the company’s near-term growth. We have revised our 

forecasts on the back of strong Q2 results to arrive at a new target price of 

SAR124.1 (old: SAR91.4). The new target price offers an upside potential of 15% 

due to which we upgrade our rating to Overweight. 

Solid revenue growth: Alhokair achieved 37% y-o-y growth in Q2, driven by 

the acquisition of NESK, a fast-growing apparel market in the Kingdom, launch 

of new stores, the Ramadan season and the start of the new academic year. The 

company’s same-store sales are expected to grow between 6-7% y-o-y in the 

second half of 2012. According to our estimates, Alhokair has so far achieved an 

organic growth of above 5.5% in 2012. We expect the company to achieve 35% 

sales growth this year to reach SAR4,327mn. 

Outstanding bottom-line: The company reported a net income of SAR252mn 

in Q2 beating our estimates of SAR223mn on the back of international 

operations and acquisition of new brands. We believe the company will continue 

its strong performance through various expansion programs locally and 

internationally. 

Higher dividends expected: We believe Alhokair’s bottom-line growth will 

enable the management to distribute higher dividends. The company distributed 

SAR2 per share in cash dividends for the year 2011/2012. We expect Alhokair to 

increase its dividends to SAR3 per share for this year on the back of a strong 

performance. According to our estimates, this implies a payout ratio of 35% and 

a dividend yield of 2.8%. 

Changes in calculation of gross margin: Starting from the last quarter, 

Alhokair has adopted the direct cost method by calculating gross margin after 

deducting the direct costs of all stores. The new presentation is aimed at 

controlling total costs at the store level. Therefore, we will see gross margin 

dropping by almost 50% offset by a corresponding decline in SG&A. Hence, 

when comparing with other companies, it will be useful to compare with EBIT 

margin of the company rather than gross margin. 

Valuation Given the impressive results, following the successful acquisition of 

NESK, as well as the ongoing store openings locally and internationally, we have 

revised our forecasts for Alhokair and increased our revenue and profit 

forecasts. We have set a new target price of SAR124.1(old target: SAR91.4). The 

target price offers an upside potential of 15%. Thus, we have upgraded our rating 

from Neutral to Overweight. Alhokair trades at a 2013 -2014 EV/EBITDA 

multiple of 9x and a PE ratio of 11x. 







Fawaz Abdulaziz Alhokair Company is 

a leading fashion retailer in Saudi 

Arabia, with a market capitalization of 

US$2bn. The company primarily sells a 

wide gamut of fashion items such as 

luxury apparel, sport wear, shoes, 

bags, and fashion accessories. Alhokair 

is a franchisee for 50 international 

brands such as Zara, Gap, Marks & 

Spencer, and Aldo. 


52-week range 62.50 - 107.5 


1.220mn 


70.00mn 



Absolute 10.5% 13.8% 66.7% 

Relative to index 7% 13.2% 58.2% 


Fas Company 49.0% 

Abdulmajeed Abdulaziz Alhokair 7.0% 



Revenue (SARmn) 2,575 3,203 4,327 5,149 

EBITDA (SARmn) 307 545 739 830 


EPS (SAR) 4.52 6.39 8.60 9.73 

DPS (SAR) 2.50 2.00 3.00 4.50 

EPS Growth 36.6% 41.4% 34.6% 13.1% 

EV/EBITDA (x) 21.2 12.3 10.0 9.0 

P/E (x) 23.8 16.8 12.5 11.0 

P/B (x) 6.9 5.4 4.2 3.5 



Expectations for Q3 2012/2013 

Decent results expected 

Figure 34 Alhokair : Q3 & FY2012/13 results estimates 

(SAR) mn 2011Q3A 2012Q3E YOY % chg. FY2011/12A FY2012/13E YOY % chg. 

Revenues 758.3 1,006.4 32.7% 3,202.7 4,327.4 35.1% 

EBITDA 107.9 140.9 544.5 739.4 35.8% 

EBITDA margin (%) 14.2% 14.0% 17.0% 17.1% 

Operating profit 74.7 98.7 32.1% 425.6 586.2 37.7% 

Operating profit margin (%) 9.9% 9.8% 13.3% 13.5% 

Net Income 76.5 101.3 32.4% 447.4 602.3 34.6% 







Revenue 2,074 2,575 3,203 4,327 5,149 


Gross Profit 914 1,139 1,447 1,235 1,190 


S.G. & A. Costs (675) (877) (1,022) (649) (522) 



EBITDA 318 307 545 739 830 



Net financing income/(costs) (43) (32) (18) (31) (28) 



Other Income 45 105 76 79 79 



Taxes (11) (15) (36) (33) (36) 

Minority Interests 1 (3) (1) 1 (2) 


Dividends (140) (175) (140) (210) (315) 


03/10A 03/11A 03/12A 03/13E 03/14E 


CFPS (SAR) 4.41 5.21 8.10 10.77 12.08 

EPS (SAR) 3.31 4.52 6.39 8.60 9.73 

DPS (SAR) 2.000 2.500 2.000 3.000 4.500 

We expect double digit revenue 

growth in the forecast period 

Growth 03/10A 03/11A 03/12A 03/13E 03/14E 


Gross Profit Growth 14.4% 24.7% 27.1% -14.7% -3.6% 

EBITDA Growth 87.7% -3.3% 77.3% 35.8% 12.3% 



EPS Growth 68.2% 36.6% 41.4% 34.6% 13.1% 

Margins 03/10A 03/11A 03/12A 03/13E 03/14E 


EBITDA margin 15.3% 11.9% 17.0% 17.1% 16.1% 





ROCE 16.9% 19.4% 24.5% 22.7% 22.7% 

ROIC 27.0% 21.8% 33.2% 36.5% 27.1% 

ROE 23.7% 28.9% 35.8% 37.7% 34.4% 


Capex/Sales 6.0% 2.5% 8.6% 7.7% 4.9% 



P/E (x) 32.5 23.8 16.8 12.5 11.0 

P/CF (x) 24.4 20.6 13.3 10.0 8.9 

P/B (x) 6.9 6.9 5.4 4.2 3.5 

EV/Sales (x) 3.1 2.5 2.1 1.7 1.5 

EV/EBITDA (x) 19.9 21.2 12.3 10.0 9.0 

EV/EBIT (x) 26.5 24.9 15.7 12.6 11.2 

EV/IC (x) 5.5 5.5 4.4 3.1 2.8 









Current Receivables - - - - - 

Inventories 476 599 746 1,017 1,179 


Total Current Assets 914 1,199 1,420 1,912 2,132 

Fixed Assets 584 613 790 1,193 1,286 

Investments 260 219 245 245 245 

Goodwill 61 61 61 473 473 

Other Intangible Assets 78 81 78 93 93 


Total Non-current Assets 983 975 1,174 2,003 2,096 

Total Assets 1,897 2,174 2,594 3,915 4,229 

Short Term Debt 70 161 227 279 279 




Other Current Liabilities 224 335 332 563 563 

Total Current Liabilities 444 782 807 1,270 1,216 

Long-Term Debt 300 225 313 763 763 

Other LT Payables - - - - - 

Provisions 39 42 49 64 64 


Minority interests 20 31 23 23 25 


Total Reserves 394 395 702 1,094 1,461 

Total Shareholders' Equity 1,094 1,095 1,402 1,794 2,161 

Total Equity 1,114 1,126 1,425 1,817 2,186 

Total Liabilities & Shareholders' Equity 1,897 2,174 2,594 3,915 4,229 

Ratios 03/10A 03/11A 03/12A 03/13E 03/14E 

Net Debt (SARmn) 294 279 341 773 715 

Net Debt/EBITDA (x) 0.93 0.91 0.63 1.05 0.86 

Net Debt to Equity 26.4% 24.7% 23.9% 42.5% 32.7% 

EBITDA Interest Cover (x) 7.4 9.6 30.7 23.8 30.2 

BVPS (SAR) 15.63 15.64 20.03 25.64 30.87 




Decrease in Working Capital (88) (119) (181) (162) (217) 

Other Operating Cashflow 44 15 (23) (22) (36) 



New Investments (98) 30 (31) (479) - 

Others (6) 23 (6) (15) - 


Net Operating Cashflow 48 267 86 (223) 373 

Dividends paid to ordinary shareholders - (261) (140) (210) (315) 


Effects of Exchange Rates on Cash - - - - - 

Other Financing Cashflow 3 9 (9) 1 - 

Cashflow from financing activities 3 (236) 5 294 (315) 

Total cash generated 52 31 91 71 58 



Ratios 03/10A 03/11A 03/12A 03/13E 03/14E 

Capex/Sales 6.0% 2.5% 8.6% 7.7% 4.9% 



RSI10 

Vol mn 

Abdullah Al Othaim Markets 


AOTHAIM AB: Saudi Arabia 


US$0.5bn 72% US$0.65mn 


Target price 96.7 19% over current 

Consensus price 101.7 25% 



Majed Alsolaim 

+966 1211 9471, alsolaimm@alrajhi-capital.com 


Overweight 

Key themes 

We expect the retail sector in Saudi Arabia to 

continue on its growth path on the back of everincreasing 

population, improving education, and 

changing lifestyle. Alothaim enjoys a strong presence 

in the grocery market. We expect the company to 

continue its growth journey by opening new stores as 

well as benefiting from the changing lifestyle in the 

Kingdom. 

Implications 

Alothaim is well managed, both operationally and 

financially, which makes it attractive. In our view, the 

stock has potential for further upside, given the yearto-date 

dip in Alothaim’s share price. 

Performance 

108 

103 

98 

93 

88 

83 

78 

70 

30 

-102 

1 

1 

Earnings 


Revenue (mn) 4,091 4,326 4,592 5,090 


EBITDA (mn) 233 234 294 325 

EBITDA Growth 22.4% 0.3% 25.7% 10.6% 

EPS 6.67 6.77 7.61 8.69 

EPS Growth -7.3% 1.5% 12.4% 14.2% 


Valuation 


Price Close 

P/E (x) 

20 

18 

16 

14 

12 

10 

8 

6 

4 

2 

0 

01/09 01/10 01/11 01/12 


MAV10 

12/11 04/12 07/12 10/12 

107 

100 

92 

85 

77 

70 

62 

Alothaim 

Recovered in Q3 

Alothaim remains one of the attractive stocks in the Saudi retail industry. After 

a disappointing performance in the first half of 2012 (9% y-o-y decline in net 

profit), the company delivered a decent performance in Q3, reporting a growth 

of 13% y-o-y, reaching SAR40.7mn. One of Alothaim’s main challenges is to 

reduce high labor and marketing costs, which are pressurizing its profit 

margin. We believe the launch of new stores and improving same-store sales 

will enable the company to report decent results going forward. We remain 

Overweight on Alothaim, but due to its underperformance, especially in the 

first half of 2012, we have reduced our target price from SAR109.4 to SAR96.7. 

Slight growth in top-line Alothaim reported revenue growth of 3.5% y-o-y for 

the nine months ended September 2012, reaching SAR3,239mn, on the back of 

high volumes from same-store-sales (SSS) and leasing income. At the end of 

2012, we expect the company’s revenue to reach SAR4,325mn, reflecting a 5.7% 

y-o-y increase backed by healthy same-store sales growth and leasing income. 

We expect SSS to continue to grow by 3.5% y-o-y. Further, the leasing income 

from other retailers will contribute substantially to Alothaim’s Q4 revenue. 

Consequently, we believe the company will continue to maintain its 3.8% market 

share and position itself as the second-largest grocery retailer in Saudi Arabia. 

Significant labor cost effect: Alothaim has incurred high labor costs mainly 

due to the fact it has been incorporating the minimum wage of SAR3,000 since 

2011 coupled with high attrition. In addition, the labor cost has risen by SAR12- 

15mn as a result of the Ministry of Labor’s recent decision to hike work permit 

fees from SAR100 to SAR2,400 annually for private companies, who employ 

more foreigners than Saudis. We believe these higher costs will squeeze 

Alothaim’s profit margin. 

New stores expansion likely to gain pace: The company has ambitious plans 

to increase its selling area by focusing more on supermarkets and hypermarkets. 

Alothaim’s management plans to open around 10-15 stores in Saudi Arabia each 

year. However, Alothaim is very selective about choosing its store locations while 

looking out for the best prices. As a result, we believe the company will roll out 

7-9 outlets every year to reach 130 stores by 2014, with a total selling space of 

around 290,000 square meters. 

Valuation: We believe Alothaim will continue to report decent results based on 

its same-store sales growth, expansion plans, and rising population. Given the 

year-to-date dip in Alothaim’s share price (around 20%), we believe the 

company is attractive (current price SAR81.25). Thus, we reiterate our 

Overweight rating on the stock but have revised our target price downward from 

SAR109.4 to SAR96.7, implying an upside potential of 19%. Alothaim trades at a 

2013 EV/EBITDA multiple of 5.7x and a PE ratio of 10.7x. 







Abdullah Al Othaim Markets is the 

second-largest grocery retailer in Saudi 

Arabia with a market capitalization of 

$US0.5bn. The company is an 

extension of Saleh Al-Othaim company, 

which was founded in 1957. Alothaim 

operates around 108 stores which sell 

food products & supplies, household 

equipments, electrical and mechanical 

equipments, cooked and non-cooked 

catering services and other products at 

wholesale and retail level. Furthermore, 

Al-Othaim owns private labels such as 

HALEY, Proof, SHERR, and REX. 


52-week range 80.50 - 102.5 


0.532mn 


22.50mn 



Absolute 0.3% -7.1% -16.5% 

Relative to index -4.2% -6.9% -22.8% 


Alothaim company 27.6% 

Abdullah Saleh Alothaim 6.0% 



Revenue (SARmn) 4,091 4,326 4,592 5,090 

EBITDA (SARmn) 233 234 294 325 


EPS (SAR) 6.67 6.77 7.61 8.69 

DPS (SAR) - 3.50 3.50 3.65 

EPS Growth -7.3% 1.5% 12.4% 14.2% 

EV/EBITDA (x) 7.3 7.1 5.7 5.1 

P/E (x) 12.2 12.0 10.7 9.4 

P/B (x) 3.4 2.7 2.4 2.1 



Expectations for Q4 2012 

Marginal improvement 

We expect revenues to reach 

SAR4.3bn by the end of this 

year 

Alothaim is likely to report revenue of around SAR1.1bn for Q4 2012, indicating a 12.9% y-o-y 

growth, driven by higher same-store-sales and lease income. As a result, the revenue for 2012 

will stand at SAR4.3bn, reflecting an increase of 5.7% y-o-y. In Q4, we expect the company to 

report a double-digit y-o-y growth (19.2%) in EBITDA to reach SAR68.7mn. For Q4 and fullyear, 

the company’s EBITDA margin is estimated to be 6.3% and 5.4% respectively. We 

expect the Q4 net profit to reach SAR41mn, indicating an increase of 12.4% y-o-y. For 2012, 

Alothaim’s bottom-line is expected to grow by around 1.5% y-o-y, reaching SAR152.3mn. The 

slow growth in the company’s net profit for 2012 is primarily due to the lack of new store 

openings in 2012 and high labor costs. 

Figure35 Alothaim : Q4 & FY2012 results estimates 

(SAR) mn 2011Q4A 2012Q4E YOY % chg. FY2011A FY2012E YOY % chg. 

Revenues 963 1,087.1 12.9% 4,090.9 4,325.9 5.7% 

EBITDA 58 68.7 19.2% 232.9 233.6 0.3% 

EBITDA margin (%) 6.0% 6.3% 5.7% 5.4% 

Operating profit 38 43.5 14.0% 157.6 146.1 -7.3% 


Net Income 36 41 12.4% 150.1 152.3 1.5% 






We expect revenues to reach 

SAR4.3bn by the end of this 

year 


Revenue 3,521 4,091 4,326 4,592 5,090 


Gross Profit 278 323 321 366 407 


S.G. & A. Costs (138) (166) (175) (192) (214) 



EBITDA 190 233 234 294 325 



Net financing income/(costs) 13 0 8 (1) 5 



Other Income 13 (4) 2 2 2 

Other Expenses - 


Taxes (4) (4) (4) (4) (5) 



Dividends (68) - (79) (79) (82) 


12/10A 12/11A 12/12A 12/13E 12/14E 


CFPS (SAR) 9.40 10.02 10.66 12.90 14.52 

EPS (SAR) 7.20 6.67 6.77 7.61 8.69 

DPS (SAR) 3.000 0.000 3.500 3.500 3.649 

Growth 12/10A 12/11A 12/12A 12/13E 12/14E 


Gross Profit Growth 32.2% 16.1% -0.8% 14.2% 11.2% 

EBITDA Growth 42.7% 22.4% 0.3% 25.7% 10.6% 

Operating Profit Growth 57.7% 12.1% -7.3% 19.5% 10.8% 

Net Profit Growth 108.9% -7.3% 1.5% 12.4% 14.2% 

EPS Growth 108.9% -7.3% 1.5% 12.4% 14.2% 

Margins 12/10A 12/11A 12/12A 12/13E 12/14E 


EBITDA margin 5.4% 5.7% 5.4% 6.4% 6.4% 





ROCE 22.4% 22.6% 16.5% 17.9% 16.3% 

ROIC 29.0% 23.7% 20.4% 21.7% 22.4% 

ROE 40.9% 30.6% 25.1% 23.5% 23.5% 


Capex/Sales 7.9% 5.1% 3.3% 4.6% 4.5% 



P/E (x) 11.3 12.2 12.0 10.7 9.4 

P/CF (x) 8.6 8.1 7.6 6.3 5.6 

P/B (x) 4.1 3.4 2.7 2.4 2.1 

EV/Sales (x) 0.5 0.4 0.4 0.4 0.3 

EV/EBITDA (x) 9.0 7.3 7.1 5.7 5.1 

EV/EBIT (x) 12.1 10.8 11.3 9.5 8.6 

EV/IC (x) 2.6 2.4 2.1 2.0 1.8 









Current Receivables - - - - - 

Inventories 283 311 348 380 417 


Total Current Assets 410 452 559 626 814 

Fixed Assets 948 1,083 1,137 1,229 1,327 

Investments 105 119 168 168 168 

Goodwill 15 13 12 12 12 



Total Non-current Assets 1,067 1,215 1,318 1,409 1,507 

Total Assets 1,478 1,667 1,877 2,036 2,321 






Total Current Liabilities 821 934 954 1,020 1,091 

Long-Term Debt 179 166 200 200 300 


Provisions 29 35 39 39 39 





Total Shareholders' Equity 449 531 683 776 890 

Total Equity 449 531 683 776 890 


We expect net debt to gradually 

decline over the forecast period 

Ratios 12/10A 12/11A 12/12A 12/13E 12/14E 

Net Debt (SARmn) 306 287 270 236 185 



EBITDA Interest Cover (x) (14.8) (1,670.3) (27.9) 507.9 (59.5) 

BVPS (SAR) 19.93 23.61 30.38 34.49 39.57 




Decrease in Working Capital 55 73 (39) 34 34 

Other Operating Cashflow (7) (7) (14) (4) (5) 



New Investments - (1) (43) - - 

Others (7) - 13 - - 


Net Operating Cashflow (20) 86 17 113 131 

Dividends paid to ordinary shareholders (56) (68) - (79) (81) 



Other Financing Cashflow - - - - - 

Cashflow from financing activities (42) (87) 60 (79) 19 

Total cash generated (62) (2) 78 35 150 



Ratios 12/10A 12/11A 12/12A 12/13E 12/14E 

Capex/Sales 7.9% 5.1% 3.3% 4.6% 4.5% 



RSI10 

Vol th 

Jarir Marketing Company 


JARIR AB: Saudi Arabia 


US$2.5bn 100% US$1.13mn 


Target price 168.60 6.2% over current 

Consensus price 157.1 -0.4 below current 



Majed Al Solaim, 

+966 1211 9471, alsolaimm@alrajhi-capital.com 

Neutral 


Key themes 

Driven by rising population, improving education, and 

changing lifestyle, we expect the retail sector in Saudi 

Arabia to continue growing. Jarir has a very strong 

position in books, office & school supplies, and 

electronics markets. Jarir should continue to grow by 

opening new stores and benefiting from new 

electronics segment growth. 

Implications 

Jarir is one of our preferred stocks in the retail sector. 

It has a unique business model with strong position in 

electronics and school supplies markets. However, its 

share price has performed well and, in our view, most 

of its positives have been priced in. 

Performance 

Earnings 


Revenue (mn) 4,147 4,681 5,383 6,029 


EBITDA (mn) 527 610 644 736 

EBITDA Growth 26.9% 15.7% 5.6% 14.3% 

EPS 10.26 9.90 10.34 11.54 

EPS Growth 2.4% -3.5% 4.5% 11.6% 


Valuation 

18 

16 

14 

12 

10 

8 

6 

4 

2 

170 

160 

150 

140 

130 

70 

30 

600 -10 

400 

200 

Price Close 

P/E (x) 

MAV10 

12/11 04/12 07/12 10/12 


0 

01/09 01/10 01/11 01/12 


114 

110 

107 

103 

99 

95 

92 

88 

84 

Jarir 

Limited upside potential 

Despite a slight decline in Q3 revenue (1.6% y-o-y), Jarir reported a top-line 

and bottom-line growth of 10.5% and 11.3% y-o-y respectively for the nine 

months ended September 2012. According to our estimates, same-store sales 

growth was low due to pressure in electronic margins and a delay in the 

launch of iPhone 5 this year, especially for Q3. Jarir was able to maintain gross 

margin levels of 15% for the first nine months of 2012, mainly due to the 

growth of non-electronic segment. We expect the company to report a sales 

growth of 19.9% y-o-y in Q4 driven by sales of tablets, iPhone 5 (and other 

smart phones) and sale of non-electronic items. Further, Jarir plans to open 

more than four stores every year. Given the 9M results, we have revised our 

forecasts and set a new target price of SAR168.6. However, as the share price 

currently offers an upside potential of only 6.2%, we remain Neutral. 

Still growing overall: Jarir reported y-o-y sales growth of 10.5% in the first 9 

months of 2012. We believe this sales growth was driven by all segments 

(especially school supplies and books), except smart phones. Jarir has only 10% 

market share in the smartphone market, which indicates that there is still 

potential for further growth. Additionally, the tablet market is developingrapidly 

and hence offers much more room for growth. 

Some concerns in margins: The slow growth in smart phones and tablet sales 

is affecting Jarir’s gross margin, but sales of non-electronic items such as school 

supplies and books, which deliver high profit margins, has enabled the company 

to maintain 15% gross margin for the first nine months of 2012. However, it’s 

worth noting that Jarir has been able to slightly reduce its SGA expenses as a 

proportion of sales. We expect the margin pressure to continue, but not in Q4 

considering the robust seasonal sales of school supplies. 

iPhone 5 likely to support same-store sales growth: Jarir continued to 

expand organically, adding two stores in Riyadh and Yanbu to take the store 

count to 32. The management believes the increase in the number of stores is 

one of the reasons for its bottom-line growth. The launch of the new iPhone is 

likely to support smartphone sales in Q4 and H1 2013. Further, tablets have 

created a new sub-market and the launch of new brands is expanding this 

market. Thus, we believe Jarir will report double-digit same-store sales growth 

for at least another 6 months. 

Generous dividends: Jarir distributed cash dividends of SAR5.9 per share for 

the first nine months of 2012. We expect a dividend of SAR1.8 for Q4, resulting 

in a full year dividend of SAR7.7, which implies a dividend yield of 5%. 

Conclusion: We have raised our target price to SAR168.6, given that we have 

marginally increased our earnings forecasts. Our new target price implies an 

upside potential of 6.2%. Therefore, we maintain our Neutral rating. Jarir 

currently trades at a 2013 EV/EBITDA multiple of 14.7x and a PE ratio of 15.4x. 







Jarir Marketing Company is one of the 

leading retail companies in the GCC 

with a market capitalization of US$2.5. 

The company sells books, school 

supplies, office supplies, laptops, 

software, and other electronic products 

at both wholesale and retail levels. The 

retail sector of the company contributes 

to approximately 90% of the revenues. 

The company owns 32 branches, 27 

are in Saudi while the remaining four 

are in the GCC region. 


52-week range 136.0 - 165.0 


1.028mn 


60.00mn 



Absolute 3.6% 1.8% 11.4% 

Relative to index 0.1% 1.2% 2.9% 


Jarir Investment company 12.0% 

Mohammed Abdulrahman Alaqeel 9.0% 


Expectations for Q4 2012 


Revenue (SARmn) 4,147 4,681 5,383 6,029 

EBITDA (SARmn) 527 610 644 736 


EPS (SAR) 10.26 9.90 10.34 11.54 

DPS (SAR) 7.00 7.70 8.80 8.65 

EPS Growth 2.4% -3.5% 4.5% 11.6% 

EV/EBITDA (x) 14.8 15.5 14.7 13.2 

P/E (x) 15.5 16.0 15.4 13.8 

P/B (x) 10.5 9.1 8.2 7.1 



Continuous success story 

Figure 36 Jarir : Q4 & FY201 results estimates 

(SAR) mn 2011Q4A 2012Q4E YOY % chg. FY2011 A FY2012E YOY % chg. 

Revenues 1,025 1,229 19.9% 4,147 4,681 12.9% 

EBITDA 129 167 527 610 15.7% 

EBITDA margin (%) 12.6% 13.6% 12.7% 13.0% 

Operating profit 123 160 29.8% 507 587 15.8% 


Net Income 125 162 29.7% 513 594 15.8% 







Revenue 3,015 4,147 4,681 5,383 6,029 


Gross Profit 502 634 724 780 874 


S.G. & A. Costs (106) (127) (137) (167) (187) 



EBITDA 415 527 610 644 736 



Net financing income/(costs) (11) (7) (6) (7) (8) 



Other Income 29 31 31 31 31 



Taxes (12) (18) (18) (16) (18) 



Dividends (314) (420) (462) (528) (519) 


12/10A 12/11A 12/12A 12/13E 12/14E 


CFPS (SAR) 10.51 10.67 10.29 10.86 12.35 

EPS (SAR) 10.02 10.26 9.90 10.34 11.54 

DPS (SAR) 7.85 7.00 7.70 8.80 8.65 

Growth 12/10A 12/11A 12/12A 12/13E 12/14E 


Gross Profit Growth 3.1% 26.4% 14.2% 7.8% 12.1% 

EBITDA Growth 3.0% 26.9% 15.7% 5.6% 14.3% 



EPS Growth 7.2% 2.4% -3.5% 4.5% 11.6% 

We expect gross margin to 

remain above15% in 2012 

Margins 12/10A 12/11A 12/12A 12/13E 12/14E 


EBITDA margin 13.8% 12.7% 13.0% 12.0% 12.2% 





ROCE 44.1% 49.9% 46.9% 43.8% 38.8% 

ROIC 48.9% 57.0% 56.0% 50.4% 50.9% 

ROE 52.7% 60.2% 60.7% 56.0% 55.3% 


Capex/Sales 1.3% 5.0% 2.6% 3.2% 3.6% 



P/E (x) 15.8 15.5 16.0 15.4 13.8 

P/CF (x) 15.1 14.9 15.4 14.6 12.9 

P/B (x) 8.0 10.5 9.1 8.2 7.1 

EV/Sales (x) 2.1 1.9 2.0 1.8 1.6 

EV/EBITDA (x) 15.0 14.8 15.5 14.7 13.2 

EV/EBIT (x) 15.7 15.4 16.1 15.5 14.2 

EV/IC (x) 7.2 9.2 8.0 7.2 5.7 









Current Receivables 212 243 260 312 452 

Inventories 543 601 688 794 922 


Total Current Assets 843 943 1,049 1,226 1,462 

Fixed Assets 555 742 841 982 1,150 

Investments 36 35 34 34 34 

Goodwill - - - - - 



Total Non-current Assets 591 777 875 1,016 1,184 

Total Assets 1,433 1,720 1,924 2,242 2,646 



Accrued Expenses 69 94 93 119 127 



Total Current Liabilities 501 664 619 787 822 

Long-Term Debt 100 108 200 234 432 


Provisions 35 41 55 55 55 





Total Shareholders' Equity 798 907 1,050 1,167 1,338 

Total Equity 798 907 1,050 1,167 1,338 


Ratios 12/10A 12/11A 12/12A 12/13E 12/14E 

Net Debt (SARmn) 98 145 171 184 415 



EBITDA Interest Cover (x) 36.4 78.9 109.2 88.8 91.8 

BVPS (SAR) 19.94 15.11 17.51 19.45 22.29 




Decrease in Working Capital (45) 24 (84) 11 (234) 

Other Operating Cashflow (23) 19 (34) (16) (18) 



New Investments - - - - - 

Others 0 0 - - - 


Net Operating Cashflow 326 386 395 490 290 

Dividends paid to ordinary shareholders (326) (404) (450) (504) (521) 



Other Financing Cashflow - - - - - 

Cashflow from financing activities (313) (379) (392) (470) (323) 

Total cash generated 13 7 3 20 (33) 



Ratios 12/10A 12/11A 12/12A 12/13E 12/14E 

Capex/Sales 1.3% 5.0% 2.6% 3.2% 3.6% 






Disclaimer and additional disclosures for Equity Research 

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Additional disclosures 

1. Explanation of Al Rajhi Capital’s rating system 

Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage 

except financial stocks and those few other companies not compliant with Islamic Shariah law: 

"Overweight": Our target price is more than 15% above the current share price, and we expect the share price to reach the target on a 

6-9 month time horizon. 

"Neutral": We expect the share price to settle at a level between 5% below the current share price and 15% above the current share 

price on a 6-9 month time horizon. 

"Underweight": Our target price is more than 5% below the current share price, and we expect the share price to reach the target on a 

6-9 month time horizon. 

2. Definitions 

"Time horizon": Our analysts make recommendations on a 6-9 month time horizon. In other words, they expect a given stock to reach their 

target price within that time. 

"Fair value": We estimate fair value per share for every stock we cover. This is normally based on widely accepted methods appropriate to 

the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. 

"Target price": This may be identical to estimated fair value per share, but is not necessarily the same. There may be very good reasons 

why a share price is unlikely to reach fair value within our time horizon. In such a case we set a target price which differs from estimated fair 

value per share, and explain our reasons for doing so. 

Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if 

a company’s profits or operating performance exceed or fall short of our expectations. 

Contact us 

Research department 

Tel : +966 1 2119471 

research@alrajhi-capital.com 

Al Rajhi Capital 


Head Office, King Fahad Road 

P.O. Box 5561 

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Email: research@alrajhi-capital.com 

Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.

Retail Sector Report - Al Rajhi Capital

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