The National Shipping Company of Saudi Arabia - Bahri

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1 Recommendation Fair Value (SR) Price as of 2 nd of December 2013 (SR) Expected return Company data Tadawul symbol 52- week high (SR) 52-week low(sr) YTD change Average trading volume (thousand shares) Market Cap (million SR) Market Cap (million USD) Number of shares issued (million) Free float Financial indicators Revenues (million SR) Net Income (million SR) EPS (SAR) PE ratio (x) P/BV (x) Dividend yield Net Income growth *Ending Q , % %7..1 2,465 2, % 3.9% %6..7 % , % %6..7- Hold % 4030.SE % 948 8,159 2, % 2012 LTM* Quarterly Update Bahri noted that the merge with Vela fleet is in progress, but still pending regulatory approvals. The company will call for an extraordinary general assembly meeting to increase the company`s capital upon receiving such approvals, which is expected to be before the end of In November, Bahri Dry Bulk which is 60% owned by Bahri, signed with Bank Albilad a Shariah compliant financing facility for SAR 420 million to finance 70% of the cost of building 5 dry bulk vessels. The financing facility is for a period of 11 years including a maximum of 1 year grace period. It is worthwhile mentioning that the company will receive the first vessel before end of 2013 and the remaining four vessels before July In October, the company received its general cargo vessel Bahri Jazan from the South Korean builder, Hyundai MIPO. This is the fourth vessel delivered from the six vessels that were contracted by the company with this shipyard in 2011 for a total value of SAR 1,543 million. Bahri has two general cargo vessels remaining under construction at Hyundai MIPO with expected delivery before the end of the first half of Chemical shipping prices edged lower in the past three months, while crude oil shipping rates declined slightly by 2%. On the other hand, cargo shipping rates surged by 28% during the same period Bahri Tadawul Transport Index Tadawul Index Baltic Dry Index Source: Albilad Capital estimates, Tadawul For more information you may contact: Turki Fadaak Research & Advisory Manager tfadaak@albilad-capital.com Or Albilad Capital Head Office: Tel : Fax : P.O. Box 041 Riyadh Baltic Clean Tanker Baltic Dirty Tanker Source: Bloomberg 1

2 Financial Analysis Income Statement In the first nine months of 2013, revenues increased by 7.21%, compared to 2012 first nine months, to SAR 2,015 million. The gross profit margin; however, declined to reach 20.49% versus 25.53% during 2012 first nine months. This was mainly triggered by the increase in cost of services by 14.47% to SAR 1,602 million. During the first nine months of 2013, crude oil shipping revenue decreased by 10.64% compared to the same period in 2012 due to the decline in shipping rates. The gross profit margin of crude oil shipping also declined to reach 07.08%. The chemical s shipping revenue and the general cargo revenue increased by 46.97% and 12.77%, respectively. The gross profit margin of the chemical division declined to 25.45%; whereas, the gross profit margin of the general cargo segment increased to 21.63% Selling, general, and administrative expenses decreased by 10.76% to SAR 95 million while other income increased by 50.74% compared to the same period last year to reach SAR 224 million. Thus, during the first nine months of 2013, the company realized a decline in net income by only 1.03% recording SAR423 million versus SAR 427 million during the first nine months of In addition, the company showed decline in net profit margin to reach 20.99% versus 22.74% during the same period last year. In the third quarter of 2013, net income increased by 10.26% compared to the previous quarter. The increase in profits was due to higher shipping spot rates, especially for crude oil. Moreover, during the third quarter, the company s profits from Petredec has increased and the company recorded gain on sale of Saudi Hofouf amounting to SAR 07.6 million. Balance Sheet In 2012, total assets grew by 4.15%, in comparison to the previous year, reaching SAR 11,064 million and increased in first nine months of 2013 by 4.21% to SAR 11,529 million, compared to the ending balance in December Key highlights: 1. Increase in fixed assets due to capital expenditures amounting to SAR 620 million and SAR 574 million during 2012 and the first nine months of 2013, respectively. 2. Decline in 2012 inventory by 8.95% compared to 2011 and the increase in inventory ending balance by 40.03% during 2013 third quarter compared to 2012 third quarter to reach SAR 185 million 3. Increase in 2012 accounts receivable ending balance by 21.60% compared to 2011 and by 78.80% during 2013 third quarter versus the same period last year to reach SAR 551 million in September Decline in 2012 accounts payable ending balance by 19.92% compared to last year and the increase in accounts payable during the third quarter by 33.37% compared to 2012 third quarter to reach SAR 309 million in September M 2013 Gross Profit Breakdown 9M 2013 Revenue Breakdown 21% 6% 44% 20% 4% 52% 29% 24% Crude Oil Chemicals General Cargo Dry Bulk Crude Oil Chemicals General Cargo Dry Bulk Source: Bahri Filings Source: Bahri Filings 2

3 Valuation and Recommendation We valued Bahri`s share price using P/E ratio, Enterprise Value to EBITDA and Enterprise Value to Sales. We revise our fair value upwards to SAR per share after the strong third quarter earnings growth and the improvement in cargo shipping rates. Thus, We assign Hold recommendation for Bahri`s share. Company Nakilat Milaha Nippon Yusen KK MISC Berhad Country Qatar Qatar Japan Malaysia Currency Million USD Million USD Million USD Million USD Weighted Average Income Net Revenues ,987 7,449 EBITDA , Market Cap 7,707 7,760 2,747 7,282 Net Debt 2, ,779 0,822 Enterprise Value 8,969 7,820 04,271 9,441 P/E Multiple EV/EBITDA EV/Revenue Fair Value Stock Price as of 2 nd of December Expected Return 2.3% Recommendation Hold 3

4 Q3 Q3 Balance sheet (million SR) Change Balance sheet (million SR) Change Current Assets 1,117 1, % Current Assets 1,578 1,042 1, % Investment in Affiliated Companies % Investment in Affiliated Companies % Fixed Assets 8,703 8, % Fixed Assets 7,419 8,490 8, % Other Long Term Assets % Other Long Term Assets % Total Assets 11,064 11, % Total Assets 9,966 10,623 11, % Current Liabilities 1,007 1, % Current Liabilities , % Long Term Debt 4,254 4, % Long Term Debt 3,819 4,295 4, % Other Long Term Liabilities % Other Long Term Liabilities % Shareholders' Equity 5,726 5, % Shareholders' Equity 5,378 5,356 5, % Total Liabilities and Shareholders' Equity 11,064 11, % Total Liabilities and Shareholders' Equity 9,966 10,623 11, % 9M 9M Income statement (million SR) Change Income statement (million SR) Change Revenues 1,880 2, % Revenues 2,050 1,991 2, % Cost of Revenues 1,400 1, % Cost of Revenues 1,492 1,652 1, % Gross Profit % Gross Profit % Selling, General, and Admin. Expenses % Selling, General, and Admin. Expenses % Net Interest Expense % Net Interest Expense % Other Expenses/(Income) (149) (224) 50.7% Other Expenses/(Income) (66) (160) (168) 4.7% Total Other Expenses/(Income) 3 (84) - Total Other Expenses/(Income) % Net Income Before Zakat and % Net Income Before Zakat and Taxes % Taxes Zakat and Taxes % Zakat and Taxes % Minority Interest % Minority Interest % Net Income % Net Income % 9M 9M Cash flow statement (million SR) Change Cash flow statement (million SR) Change Net Income % Net Income % Depreciation and Amortization % Depreciation and Amortization % Inventory (60) (53) -12.1% Inventory (17) (12) 13 Accounts Receivable (37) (238) 537.5% Accounts Receivable 29 (113) (62) -45.0% Accounts Payable (4) 77 Accounts Payable (58) 0.0% Operations (193) (170) -11.6% Operations (47) (180) (155) -13.9% Change in Fixed Assets (422) (574) 36.1% Change in Fixed Assets (271) (1,417) (620) -56.2% Investing Activities % Investing Activities 670 (23) (67) 193.9% Change in Debt (102) 225 Change in Debt (620) % Dividends Paid (157) (313) 99.3% Dividends Paid (317) (311) (157) -49.5% Financing Activities - (10) - Financing Activities 80 (20) % Beginning Cash Balance % Beginning Cash Balance 762 1, % Source: Bahri Filings 4

5 Definitions Earnings Per Share It is an indicator of the company's profit in Saudi Riyals per each outstanding share. It is calculated by dividing the company s net income of by the number of outstanding shares. Revenue Is the amount of income that is brought into a company by its business activities. Gross profit A company s profit after deducting the cost associated directly with its sales or production. Does not include indirect cost like depreciation, interest, tax and non-operating expense. Price-to-earnings (P/E) Ratio It is the price paid by the company shareholders for the earnings of one of its shares. It is used to compare the prices of the company s shares with that of another company within the same sector. If the P/E is higher than the sector s average, it indicates either the share is overpriced or that there is a greater expectation for the company to generate more profits in the future, and vice versa. It is calculated by dividing the price of a share by the share s earnings in Saudi Riyals Book value per share The company's book value represents the value of the company in the event of liquidation or exit. Dividing the book value by the company s number of issued shares represents the book value of a share. Price-to-book (P/B) ratio It represents the market price per share vis-à-vis its book value. It is used to compare between companies within the same sector and comparing them to the sector s average. If the number is higher than the average, it means that the company s price is traded higher than its book value. This means that either the share is overpriced or that the company is in a growth state; and vice versa. The number is calculated by dividing the share s market price by its book value. Return on equity It is a percentage representing the extent of the company's efficiency in achieving earnings from the shareholders investment. It is calculated by dividing the company s net income by Shareholders' equity. The higher the percentage, the higher the efficiency, and vice versa. Net Debt Total long-term debt after deducting cash on hand and in banks. Enterprise Value It is the market capitalization plus net debt. Time horizon We recommend using a Time horizon of 9 to 12 months, during which the current price might reach the Target price Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight: Hold: Revise: Underweight: The Target share price exceeds the current share price by 02%. We expected the share price to reach the Target price over the next 9-12 months The Target share price exceeds the current share price by less than 15%. We expected the share price to reach the Target price over the next 9-12 months The Target share price is less than the current share price by less than 10%. We expected the share price to reach the Target price over the next 9-12 months The Target share price is less than the current share price by 01%. We expected the share price to reach the Target price over the next 9-12 months 5

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