Market trends Saudi Arabia 22 April 2018

Transcription

1 Food & Beverages Materials Telecom Healthcare REITs Comm & Prof Svc Aug15 Nov15 Feb16 May16 Aug16 Nov16 Feb17 May17 Aug17 Nov17 Feb18 GRE's SWAP Holders QFIs IPIs Corporates Market ownership: Gainers/ losers in Mar % 0.80% 0.60% 0.40% 0.20% 0.00% 0.20% 0.40% 0.60% 0.75% 0.11% 0.08% 0.28% 0.36% Spurt in foreign investor buying in YTD (1.00) (2.00) Net buying by Foreign investors (SWAPS + QFI) in SAR bn Major sectoral gainers/ losers in Mar % 8% 4% 0% 4% 8% 9.7% 9.0% 8.6% Mazen AlSudairi, Head of Research Tel alsudairim@alrajhicapital.com Nivedan Reddy, CFA Senior Research Analyst Tel patlollan@alrajhicapital.com Change in market ownership % change in sector index level 2.5% 2.8% 3.8% What moved the market? Mar 2018: TASI spurts on FTSE inclusion, oil rally TASI rose 6.1% in March 2018, the highest monthly gain in the last 9 months. This rise was also accompanied by high trading volume (highest monthly traded value in the last one year). We believe (a) confirmation of FTSE inclusion, and (b) oil prices sustaining well above $60/bbl (much higher than $56.9/bbl required to meet the budgeted oil revenue in 2018) were the key factors behind the market rally and higher investor interest. FTSE confirming s inclusion as secondary emerging market (likely weight of 2.7%) is a key development for Saudi capital markets which will likely witness $41bn inflows from foreign investors by our calculations (to reach 10% foreign ownership cap). Net buying by foreign institutions (both QFIs and SWAPs) also hit a new high in March 2018 reaching SAR3.8bn, bringing their YTD net investment to SAR7.8bn. In comparison, their 2016 net buying was SAR0.5bn while 2017 witnessed net selling of SAR0.37bn. This clearly indicates heightened interest by foreign investors in the Kingdom and we expect this trend to sustain/ harden going forward as global investors start aligning their portfolios relative to s 2.7% weight in the FTSE EM index. We believe s inclusion in FTSE materially increases the likelihood of its inclusion in the MSCI EM index (decision in June 2018). As has been the trend in past few months, the heavyweight Banking and Materials (Petchem + cement) sectors continue to witnessed heightened interest some of this is likely correlated to increased foreign investor activity. Following are the key takeaways from our analysis of March 2018 trading data: (a) Key TASI drivers to sustain over mediumlong term: Increasing foreign investor activity and oil sustaining above $60/bbl are key TASI drivers. As mentioned above, we see foreign investor activity gaining momentum over the medium term. Further, with the recent news flow of OPECRussia cooperation to extend beyond 2019, we believe the risk reward favours an upward bias for oil prices over the medium term, especially since global oil inventories are also trending down to the long term average. FTSE inclusion will lead to approx. $5.5bn passive inflows from foreign funds (source: FTSE). However, we believe that active funds inflows will also gain momentum especially in the current backdrop of improving macro led by higher oil prices, and upsides from sustained reforms. This is likely to result in a higher TASI multiple compared to past few years, when low oil prices impacted earnings of heavyweight sectors such as Banking, Petchem and Cement. Further, TASI multiple could also remain at or above the FTSE EM Index multiple, led by earnings uptick (TASI earnings sensitivity to oil prices is much higher than other EMs) over the medium term and supported by inflows from QFIs. (b) Key takeaways from market positioning: The market undertone was bullish in March 2018 with heavyweight sectors i.e. Banking and Materials (together 61% of TASI M.cap) continuing to witness higher investor interest (witnessed both price increase and higher than average trading volume). This is further corroborated by the fact that the sectors that witnessed price decline or lower than average trading volume were smaller sectors (Healthcare, Media, Diversified Fin, Comm & professional services) which account for just 4% of TASI M.Cap. Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign brokerdealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRAmember brokerdealer.

2 India Brazil South Africa Russia Thailand Mexico Abu Dhabi Qatar Kuwait Thailand Brazil South Africa India Russia Mexico Qatar Kuwait Abu Dhabi Key trends March 2018: FTSE inclusion a watershed development During March 2018, was confirmed as a constituent of FTSE s EM Index. Saudi Arabia has been classified as a secondary emerging market and will likely be accorded a 2.7% weight in the FTSE EM index. This is a watershed development for as foreign institutional investors will deepen market liquidity and aid price discovery. Further, it also paves the way for companies to raise equity capital more easily due to the broadening of investor base. Figure 1 has a large M.Cap (in $bn), comparable to other large EMs Figure 2 and a very liquid market 1,200 1, , Liquidity/ M.Cap (in bps) Source: Bloomberg; Note: We excluded China due to its high M.Cap ($5.2 billion) relative to other EMs Source: Bloomberg; Note: We excluded China due to its high liquidity (62 bps) relative to other EMs The weight of in FTSE EM Index will be raised gradually to 2.7% over many tranches. According to FTSE, the transition of to Secondary Emerging market status within FTSE GEIS (Global Equity Index Series) will commence in conjunction with the March 2019 semiannual review and will be completed by December 2019 (see table 3). Figure 3 TASI ADTV posts yoy growth i.e. only the second time in the last 36 months Source: FTSE According to FTSE, passive investment to the tune of $5.5bn will flow to TASI. According to media, the passive investments tracking FTSE EM index are approx. $200bn and hence 2.7% of this amount will be allocated to Saudi markets, inline with its weight in the index. Apart from passive funds, we believe that active funds inflows will also gain momentum especially in the current backdrop of improving macro led by higher oil prices, and upsides from sustained reforms. Disclosures Please refer to the important disclosures at the back of this report. 2

3 Aug15 Sep15 Oct15 Nov15 Dec15 Jan16 Feb16 Mar16 Apr16 May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Jan17 Feb17 Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 Jan18 Feb18 Apr13 Jun13 Aug13 Oct13 Dec13 Feb14 Apr14 Jun14 Aug14 Oct14 Dec14 Feb15 Apr15 Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 Jun16 Aug16 Oct16 Dec16 Feb17 Apr17 Jun17 Aug17 Oct17 Dec17 Feb18 Apr18 Figure 3 TASI moves higher on the back of sustained uptick in oil prices TASI WTI oil price ($/bbl) RHS Source: Bloomberg Figure 4 and spurt in foreign investment (QFI + SWAPs) (1.00) (2.00) Net buying by Foreign investors (SWAPS + QFI) in SAR bn TASI multiple likely to stay elevated in the medium term We expect the TASI multiple (see chart 5) to stay elevated compared to past few years, when low oil prices impacted earnings of heavyweight sectors such as Banking, Petchem and Cement. Oil prices (WTI spot) have been trending higher since June 2017 and have recently hovered around $70/bbl. We believe oil prices trending higher is a key factor which is leading to (a) higher confidence that the government will be able to achieve its targeted oil revenue for 2018, which is based on average oil price assumption of $57/bbl (WTI Spot), and (b) improved liquidity and increased headroom for higher government spending/ fiscal stimulus. TASI earnings are still sensitive to oil prices as heavyweight sectors such as Petrochemicals (benefiting from higher product prices), Cement (benefiting from start of Capex cycle due to higher oil receipts for the govt.) and Banking (likely higher credit growth due to start of investment cycle and abating concerns over NPLs) are likely to be the key beneficiaries of an uptick in oil prices. Together, these sectors comprise 61% of TASI M.Cap as at March The TASI multiple could remain at or above the FTSE EM Index multiple, led by (a) earnings uptick for TASI over the medium term (TASI earnings sensitivity to oil prices is much higher than other EMs), and (b) supported by QFI inflows (see chart 4). Disclosures Please refer to the important disclosures at the back of this report. 3

4 Apr15 Jun15 Aug15 Oct15 Dec15 Feb16 Apr16 Jun16 Aug16 Oct16 Dec16 Feb17 Apr17 Jun17 Aug17 Oct17 Dec17 Feb18 Brazil India Mexico Thailand South Africa FTSE EM Index China Kuwait Qatar Abu Dhabi Russia Figure 5 TASI PE multiple set to break medium term highs Figure 6 but is still inexpensive vs. some other EMs TASI TASI PE Ratio (x) RHS Source: Bloomberg Source: Bloomberg Analysis of FTSE EM multiples We tried to analyse the multiples of various EMs based on their earnings growth, interest rates and currency volatility. Below is the snapshot of our analysis: Figure 7 Snapshot of vs. other major FTSE EMs M.Cap ($ bn) F.Float (%) Liquidity (ADTV $ mn) Liquidity (ADTV/ M.Cap in bps) P/E (2017) (201517) ( e) Interest rate Currency Volatility % % NA 2.25 NA China 5,185 32% 32, % 12.1% % India 1,097 49% 1, % 11.4% % Brazil % 2, % 11.0% % Russia % % 4.1% % South Africa % 1, % 15.6% % Mexico % % 20.4% % Thailand % 1, % 3.4% % Abu Dhabi % % NA 2.00 NA Qatar 99 61% % NA 5.00 NA Kuwait 95 62% % NA 3.00 NA Source: Bloomberg, Al Rajhi Capital EPS growth As can be seen in the above table, the markets that have relatively higher PE ratios are the ones that are expected to witness earnings momentum i.e. 10%+ estimated earnings growth during the next twoyear period. This is inline with the fundamentals of valuation, that PE ratios are most sensitive to expected earnings growth rates. Bloomberg captures only the positive earnings of Saudi stocks and hence we did not include the same. However, as we said in the previous section, we expect the earnings momentum to remain strong from 2018 onwards as benefit of higher oil prices starts percolating into the broader economy. The combination of higher oil prices (likely to kick start capex and investment cycle), reforms (start of women driving, higher locals and women employment, opening up entertainment sector etc), formalization of economy, and companies having already adjusted to the new normal are key earnings drivers in our view. Disclosures Please refer to the important disclosures at the back of this report. 4

5 Other takeaways from our analysis: Incidentally, our analysis does not show a correlation between PE ratios and interest rates i.e. economies with relatively higher interest rates (implies higher cost of capital) do not necessarily have lower PE ratios. Secondly, economies that have higher currency volatility (10%+ yearly standard deviation vs. USD) also do not exhibit lower PE ratios. Though interest rate and currency volatility are important parameters, we believe they have temporary impact on the market multiple (periods of abnormal interest rates and currency movements will lead to shortterm market shock), with normalized earnings momentum remaining the primary determinant of the market multiple. Key developments in March 2018 Apart from FTSE inclusion, which is a major development from the point of view of investors, we outline some other key developments in March 2018 below: Host of deals signed during HRH Crown Prince s tour: The recently concluded global tour of HRH Mohammed BinSalman, that started in early March, witnessed a spate of deals that will aid the economic growth and diversification efforts, inline with the objectives of the Kingdom s flagship Vision 2030 program. Among the deals that have been signed is the $200bn solar project, the world s largest, in partnership with Soft Bank. The project will reach its maximum capacity by 2030 and is expected to save $40bn power costs for the Kingdom. successfully places $11bn bonds: raised $11bn in March 2018, in the biggest dollar sale by an emergingmarket nation this year according to media (source: Bloomberg). We note that the offer for sale invited bids worth $50bn, which is ~4.5x the issue size, testimony to the Kingdom s credit standing in the international bond market. has also managed to lower the spread as compared to the previous issues. The lower spread essentially means the investors view the sovereign as less risky due to improving macro, driven by higher oil prices and successful implementation of multiple reforms. Note that the government, in a bid to shore up its nonoil revenue, has rolled out reforms such as VAT and higher electricity/ gasoline prices, both effective from January Further, the expat and dependent levy, the other significant nonoil revenue sources, are set to be raised from July 2018 as per the schedule mentioned in the fiscal balance program. Govt. bonds listed on the exchange: Saudi regulator approved the listing of localcurrency government bonds and sukuk on the Saudi Stock Exchange in March The bonds have been listed on the exchange on April 8, 2018 and they have a maturity of 5, 7 or 10 years. Apart from expanding the investor base, it also increases transparency and aids the price discovery in our view. We believe that it will also lead to a market determined yield curve, which will help further debt issues by govt. and corporate. TASI traded value spurts in March 2018 TASI traded value spurted in March While the traded value last month stood at SAR87.6bn (up 20.7% yoy), it is the average daily trading value (ADTV) which increased by 26.5% yoy. We see ADTV as the most important indicator of investors trading activity. Disclosures Please refer to the important disclosures at the back of this report. 5

6 Q Q Q Q Q Q Q Q Q Q Mar15 May15 Jul15 Sep15 Nov15 Jan16 Mar16 May16 Jul16 Sep16 Nov16 Jan17 Mar17 May17 Jul17 Sep17 Nov17 Jan18 Figure 8 TASI ADTV posts yoy growth i.e. only the second time in the last 36 months 40.0% 30.0% 20.0% 10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% TASI ADTV yoy (%) TASI ADTV no growth yoy TASI ADTV (SAR bn) RHS Investors must note that this is the first time in 16 months that the ADTV has grown on yoy basis and only the second time over the past 36 months (3 years). The only other time the ADTV has showcased yoy growth in the past 3 years was in Nov2016 (see chart 8), when it grew 10.6% yoy, due to heavy buying by Private Funds (see chart 9). This time, the buying was majorly driven by institutional activity. Figure 9 Rise in Private Fund Assets drove TASI traded value in Nov 2016 (Q4 2016) Private Funds Assets (part of Saudi Mutual funds) SAR bn TASI trading value (SAR bn) RHS Source: CMA, Tadawul, Al Rajhi Capital Institutions drove the spurt in traded value Across the board, the institutions (not the Private Fund assets that are classified under Saudi Mutual Funds) drove the spurt in trading value during March One would have thought Saudi individuals to have proportionately increased their trading activity, but that was not the case last month. Majority of the increase in traded value was attributable to: Foreign institutions (SWAP + QFIs), up 121% yoy Saudi Corporate, up 90% yoy GCC institutions, up 87% yoy, and Institutional Portfolio Investors (IPIs), up 66% yoy Disclosures Please refer to the important disclosures at the back of this report. 6

7 31Aug15 30Sep15 31Oct15 30Nov15 31Dec15 31Jan16 29Feb16 31Mar16 30Apr16 31May16 30Jun16 31Jul16 31Aug16 30Sep16 31Oct16 30Nov16 31Dec16 31Jan17 28Feb17 31Mar17 30Apr17 31May17 30Jun17 31Jul17 31Aug17 30Sep17 31Oct17 30Nov17 31Dec17 31Jan18 28Feb18 Of the above, IPIs are classified as part of Saudi Individuals, however, since they represent investors with assets over SAR50mn, we classify them as Institutions for the purpose of our market analysis. Saudi retail investors (portfolio value less than SAR1mn), who contribute the most to TASI traded value (average 38% during YTD 2018) witnessed 11% decline in traded value. However, HNWIs (High net worth individuals), with SAR150mn portfolio value, who contribute the second highest TASI traded value (average 31% during YTD 2018) witnessed 29% jump in their traded value. We believe the higher institutional trading activity is positive for the market traded value over the shortmedium term. However, over the mediumlong term, higher market ownership by Institutional investors may lead to decline in market traded value due to their lower churn and longer holding periods. Figure 10 Saudi Individuals market ownership continues to decline 33.0% 32.0% 31.0% 30.0% 29.0% 28.0% 27.0% 26.0% 75.0% 74.0% 73.0% 72.0% 71.0% 70.0% 69.0% 68.0% 67.0% Saudi Individuals market ownership (%) Saudi Institutions + GCC + FPI ownership (%) RHS Source: Company data, Al Rajhi Capital Figure 11 Only Saudi Individuals have high churn, but their declining market ownership will have implications for the market traded value over the mediumlong term Saudi Individuals GCC FPIs Saudi Institutions Mar18 Average Annual turnover Disclosures Please refer to the important disclosures at the back of this report. 7

8 1Aug15 1Oct15 1Dec15 1Feb16 1Apr16 1Jun16 1Aug16 1Oct16 1Dec16 1Feb17 1Apr17 1Jun17 1Aug17 1Oct17 1Dec17 1Feb18 1Aug15 1Oct15 1Dec15 1Feb16 1Apr16 1Jun16 1Aug16 1Oct16 1Dec16 1Feb17 1Apr17 1Jun17 1Aug17 1Oct17 1Dec17 1Feb18 Sustained buying by foreigner investors 2018 is turning out to be a milestone in terms of foreign investor interest the combined QFI + SWAPs net buying stood at SAR7.98bn in YTD We believe the investors optimism on inclusion of in EM indices of major index compilers such as MSCI and FTSE is the main driver of this trend. FTSE has already included as a secondary emerging market in its EM index, and MSCI will likely follow suit with its decision in June Further, as stated in our previous few reports, CMA s move to further ease QFI investment rules in early January may have also acted as a catalyst for the spurt in foreigners net buying. FTSE s release showed that will have a weight of 2.7% in its EM Index, while news sources indicate that will have a potential weighting of 2.3% in MSCI s emergingmarket index the third largest in the Europe, the Middle East and Africa, according to MSCI (Source: Bloomberg). The combined market ownership of QFI + SWAPs now stands at 1.53% in Mar 2018, up 19bps vs. 1.34% at the end of Feb 2018, and up by a material 61 bps in YTD 2018 (from 0.92% at the end of December 2017). Majority of the ownership increase in YTD 2018 was due to QFIs (up 37bps) and the rest due to SWAPs (up 24bps). Inclusion in FTSE will lead to approx. $5.5bn passive inflows from foreign funds (source: FTSE). However, we believe that inflows from active funds will also gain momentum especially in the current backdrop of improving macro led by higher oil prices, and upsides from sustained reforms. Figure 12 Significant increase in QFI ownership Figure 13 and SWAP ownership too % 0.70% 0.60% 0.50% % 1.05% 0.95% % 0.85% 0.50 (0.50) 0.30% 0.20% 0.10% (1.00) (2.00) 0.75% 0.65% 0.55% (1.00) 0.00% (3.00) 0.45% QFI net buying (SAR bn) QFI ownership RHS SWAP net buying (SAR bn) SWAP ownership RHS What is the market thinking? In this report, we tried to pick broad trends in the market using trading volumes and price action of various sectors: By traded value, heavyweight sectors such as Banks, Materials (Petchem + Cement), and Real Estate witnessed heightened trading (vs. historical average) in the last month. On the other hand, sectors that witnessed lower trading (vs. historical average) were Insurance, Media and REITs. By price level, 16 out of 20 TASI sectors gained as the market leapt 6.1% during the month. Both the heavyweight sectors i.e. Banking (up 6.5%) and Materials (up 9.0%) gained after witnessing a decline in Feb Other sectors that gained include Telecom (up 8.6%), Food & Beverages (up 9.7%), and Media (up 5.3%). The sectors that declined were Disclosures Please refer to the important disclosures at the back of this report. 8

9 Food & Beverages Materials Telecom Banks Cap Goods Media Pharma Energy Insurance Transport Retail Utilities Cons Dura & App Consumer Services Food & Stapl Ret Real Estate Diversified Financials Healthcare REITs Comm & Prof Svc Materials Banks Insurance Real Estate Cap Goods Food & Bev Consumer Services Telecom Energy Retail Media REITs Transport Comm & Prof Svc Healthcare Food & Stapl Ret Utilities Cons Dura & App Diversified Financials Pharma Healthcare (down 2.5%), REITs (down 2.8%), and Commercial & Professional services (down 3.8%). In the following charts, we outline the sectors which witnessed higher trading vs. last month. If the sector s current contribution to Tadawul s traded value is higher/ lower vs. its historical average, it potentially indicates higher/ lower investor interest respectively in the sector. Figure 14 Major sectors: Traded value vs. historical average Figure 15 Other sectors: Traded value vs. historical average 40.0% 40.0% 5.0% 5.0% 35.0% 30.0% 35.0% 30.0% 4.0% 4.0% 25.0% 25.0% 3.0% 3.0% 20.0% 15.0% 20.0% 15.0% 2.0% 2.0% 10.0% 10.0% 1.0% 1.0% 5.0% 0.0% 5.0% 0.0% 0.0% 0.0% Sector traded value/ (Historical) Sector traded value/ (last 1 month) RHS Sector traded value/ (Historical) Sector traded value/ (last 1 month) RHS Figure 16 Changes in price levels (March 2018) 12.0% 10.0% 9.7% 9.0% 8.6% 8.0% 6.0% 4.0% 2.0% 6.5% 6.1% 5.3% 5.2% 4.9% 4.8% 4.5% 3.9% 2.7% 2.0% 1.9% 1.6% 1.5% 0.0% 2.0% 0.8% 4.0% 2.5% 2.8% 3.8% 6.0% Note: Sectors which are currently witnessing heightened investor interest (or vice versa) are determined by comparing the sector s contribution to Tadawul traded value in last month vs. historical average (since Aug 2015). Further, sectors which are currently infavour or outoffavour are determined based on price change (levels of sectoral indices). Key takeaways from market positioning TASI gained 6% in March We believe the investor positioning last month was guided by (a) sustained increase in oil prices WRI oil prices (spot) are hovering close to $70/bbl, and (b) FTSE inclusion of in its EM indices. Due to the above, the core sectors Banking and Materials (they together account for 61% of TASI s M.Cap) witnessed material price increase. Disclosures Please refer to the important disclosures at the back of this report. 9

10 Sectors with high investor interest (both price increase and traded value) were Materials (Petchem + Cement), Banks, Retail, Real Estate, Cap Goods and Pharma. The sustained increase in oil prices and s FTSE inclusion are positive for heavyweight sectors such as Banks and Petrochemicals. Led by higher oil prices, the increased likelihood for fiscal stimulus is positive for Cap Goods and Real Estate stocks. The market share gains for retailers on the back of regulatory tailwinds is helping them post significant earnings growth. Sectors with low interest (decline in both price and traded value) are the smaller sectors such as Media and Diversified financials. That none of the heavyweight sector witnessed lower investor interest signifies the bullish undertone for TASI. Until April 19, 2018, TASI gained approx. 5% over March 2018 close. In the following table, we list the stocks with significant price action in March 2018: Figure 17 Stocks with significant price action Company 1M price perf (%) Comments Dar Al Arkan 28 Debt capital raise in March 2018 to drive company's growth in the Kingdom National Petrochemical 24 Good Q4 results NADEC 22 Merger with Al Safi Danone completed Extra 21 Solid Q4 results and expectation of strong performance in 2018 Savola Group 20 Uptick in stock price reversing the significant correction in previous few months Qassim Cement (5) First two months sales came lower than expected Saudi Ceramic (6) Weak Q4 results and higher competition from imported products Tabuk Cement (8) First two months sales came lower than expected Dallah Healthcare (8) Lower than expected Q4 results Fawaz Al Hokair (9) Expected impact from lower consumer spending in 2018 due to multiple reforms Source: Al Rajhi Capital Combining the traded value and price data points, the following heat map shows sectors allocated to various quadrants on the traded value and price axes. Generally, sectors with both higher than average traded value and price increase are considered to have bullish bias and vice versa. Figure 18 Sectoral heat map: Traded value and price action in the last month Lower than average volume Higher than average volume Price Decline Diversified Financials Media Healthcare Comm & Prof Serv Price Increase Food & Bev, REITs Food & Staples Retail Telecom, Energy, Insurance Transport, Utilities, Consumer srvcs Consumer Durables & App Materials, Banks Retail Real Estate Cap Goods, Pharma Disclosures Please refer to the important disclosures at the back of this report. 10

11 Figure 19 Investor categories as classified by Tadawul Naitonality Investor category Definition Individuals Retail Retail investors are Saudi individuals, excluding IPIs (see below) and HNWIs High Net Worth Investors (HNWIs) HNWIs are Saudi individuals who have had an average portfolio size of SAR 1m (and above) for the preceding 12 months, excluding IPIs IPIs are Saudi individuals who have had an average portfolio size of SAR 50m (and above) for the preceding 12 Saudi Individual Professional Investors (IPIs) months and a portfolio turnover ratio of not more than 4 times annually Saudi individual investment account in which the manager (Authorized Person) makes the buy/sell decisions for Individual DPMs its client without referring to the account owner (based on to the agreed terms between them) Institutions Corporates Saudi company with a commercial registration permitting its investment in the stock market Mutual Funds A mutual fund managed by an Authorized Person and licensed by the CMA Government Related Entities (GREs) A Government entity or a supranational authority recognized by the CMA Saudi institutional investment account in which the manager (Authorized Person) makes the buy/sell decisions for Institutional DPMs its client without referring to the account owner (based on to the agreed terms between them) GCC Individuals GCC natural person Institutions GCC legal person with a commercial registration certificate (corporate or mutual fund), in addition to GCC government entities Foreign Source: Tadawul GCC DPMs SWAP Holders Foreign Residents QFIs Foreign DPMs Strategic Partners GCC investment account (institutional or individual) in which the manager (Authorized Person) makes the buy/sell decisions for its client without referring to the account owner (based on to the agreed terms between them) Authorized Person with the permission to enter into SWAP agreements to transfer the economic benefits of its ownership of shares in Saudi companies listed on the Saudi Stock Exchange to its nonresident foreign clients Foreign investors domiciled in the Kingdom with a valid residency permit (Iqama) (excluding GCC nationals) Qualified Foreign Institutional investors registered with the CMA in accordance with the QFI Rules, to invest in shares listed on the Saudi Stock Exchange Foreign resident investment account in which the manager (Authorized Person) makes the buy/sell decisions for its client without referring to the account owner (based on to the agreed terms between them) Foreign investors considered founders and partners of Saudi listed companies Disclosures Please refer to the important disclosures at the back of this report. 11

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Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction. Disclosures Please refer to the important disclosures at the back of this report. 12

13 Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company ( Al Rajhi Capital ) of Riyadh,. It has been prepared for the general use of Al Rajhi Capital s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction. Explanation of Al Rajhi Capital s rating system Al Rajhi Capital uses a threetier 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 10% above the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 12 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 12 month time horizon. "Target price": We estimate target 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. 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 Mazen AlSudairi Head of Research Tel : alsudairim@alrajhicapital.com Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh Kingdom of research@alrajhicapital.com Al Rajhi Capital is licensed by the n Capital Market Authority, License No /37. Disclosures Please refer to the important disclosures at the back of this report. 13