Retail Sector Index. 1 July 2013

Transcription

1 EXtra Jarir A.Othaim Target Price (SR) Price as of 23 Jun Expected Return 21% -15% 30% Trailing Twelve Months EXtra Jarir A.Othaim Revenue Net Income EPS P/E Ratio Price to Book Dividend Yield 5% 4% 3% Earnings Growth 18% 9% 21% Retail Sector Index Tadawul Index Saudi Arabia`s retail sector witnessed remarkable development in the past five years, fueled by increasing government spending and minimum wage set by the Saudi government in The sector also witnessed a quantum leap due to spreading culture of recreational shopping, which encouraged the establishment of large shopping centers that spread across the Kingdom. We initiate our coverage on the sector represented by A. Othaim market, Jarir Marketing Co (Jarir) and United electronics (EXtra). We assign Buy recommendation for A. Othaim and EXtra with fair value of SAR 148 and SAR , respectively. However, we assign Underweight recommendation for Jarir share with fair value of SAR We valued A. Othaim share at SAR 148 per share with five year free cash flow valuation approach. The company also adopts an ambitious expansion plan which will add more than one hundred branches of hypermarkets, supermarkets and minimarkets in the next ten years. The company also showed sustainable cash flow coupled with resilient profit margins, on relative basis. We valued Jarir`s stock for SAR 164.3, using the same approach, assigning Underweight recommendation. The company will partially benefit from the growing demand for electronics, smart phones and tablets. However, the company doesn t pursue an aggressive expansion strategy coupled with the inability to maintain profit margins, due to the mature nature of the stationary segment with higher margins compared to Electronics. Finally, we add EXtra to our buy list with fair value of SAR The buy recommendation is also supported by the company's ability to maintain revenue growth, net income growth and relatively stable profit margins. Moreover, EXtra`s business model solely relies on sales from the fast growing electronics. For more information you may contact: Turki Fadaak Research & Advisory Manager tfadaak@albiladinvest.com Or Head Quarter: Tel : Fax : P.O. Box 041 Riyadh

2 Sector Overview With the stability of oil prices, the Saudi government has tended to support non-oil sectors of the economy, especially the retail sector. The minimum monthly salary set by the government in 2011 will continue to increase the household discretionary income especially for low income citizens, raising their purchasing power. The value addition of hypermarkets and large shopping centers with differentiated and attractive promotions enriched the shopping experience in the kingdom. Such new retail paradigm fulfilled the growing young population with the youth`s rising aspirations of adopting modern and up to date products. The young population also utilized other means of shopping such as shopping online due to the wide spread social media, smart phones and tablets. Increasing investments in developing shopping malls and large commercial centers throughout the Kingdom increased the retail contribution to GDP to 0..1% of Saudi Arabia`s GDP, if we include tourism and hospitality segments. The retail sector aggregate revenue is expected to increase to SAR 276 billion by the end of 2014, according to report issued by Business Monitor international. We think the sector positive momentum is also driven by GDP growth which is expected to grow strongly by 6.8% according to Mr. Ibrahim Al-Assaf, Saudi Arabia`s finance Minister. We share the same view of strong growth with his Excellency, but at lower pace between 5% and 5.5% which is quite high compared the kingdom historical growth or relative growth to other GCC countries. The strong growth potential of the sector upgraded Saudi Arabia to attain the seventh place in GDRI index. The index is issued and published annually by AT Kearney, one of the most prominent global consulting firms. The list also included other countries from the MENA region as Kuwait and UAE which occupied the fifth and ninth place, respectively. The report also highlighted the growth potential in the Middle East region despite the current political turmoil. In April of the current year, Jeddah hosted the annual retail summit to discuss and share the retail sector`s latest developments and the most innovative solutions to maintain the sector`s sustainable growth. During the summit workshops, the retail industry leaders and chief executives of large retail enterprises, such Jarir, EXtra and SAP retail solutions assured the strong growth potential of the sector, but stressed on the need for aligned strategy among shopping malls developers and retail store owners in order to provide customers with the highest value added shopping experience. Online shopping is an additional contributor to the retail sector`s strong growth. Online shopping, currently represents 20% of the electronic trading total volume in the kingdom. The trading volume also includes electronic fund transfers, e-payment systems and internet banking transactions, according to Abbas Safadiya, director general of Souq.com. Mr. Safadiya also highlighted the online segment`s competitive advantage of reaching shoppers inhibiting rural areas and creating channel of communication for after sales and subsequent promotions. 2

3 Recommendation Target Price (SR) Price as of 1 st of July 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 Overweight % 4001.SE % 149 2, % Al Othaim Markets Al Othaim Markets is one of Saudi Arabia`s leading retail and whole sales trading companies. The company serves 39 million customers annually through its 108 operating supermarkets, hypermarkets, wholesale outlets and minimarkets positioned throughout the kingdom. To address all market segments, the company offers a wide range of diversified products; a pool of national and international brands through frequent promotions, price reductions and family packages. Geographical distribution of branches is reflected on revenues in each of the kingdom`s region. For instance, the central region contributes to 73% of total sales, whereas the western region represents only 2% of revenue. Financial indicators Revenues Net Income EPS PE ratio P/BV Dividend yield EPS Growth , % 108.9% , % -7.3% , % 14.4% Last 12 months 4, % 21.2% A.Othaim Retail Index Tadawul Index

4 A. Othaim Latest Developments The company is constantly endeavoring to enhance its competitiveness, by keeping an international standard of service and pursuing various measures to promote quality. To achieve self-dependency and to maintain optimal efficiency, A. Othaim continues to construct more giant storage and cooling warehouses, as well as acquire its own fleet of distribution vehicles. A. Othaim announced its ambitious 10 year expansion plan to invest SAR 500 million and open 150 new branches. In Addition, A. Othaim seeks to adopt advanced technologies in retail and wholesale trading, including the launch of pilot electronic shopping service through the company's website to promote sales and after sales experience. During the last annual general meeting, the company`s shareholders refused to acquire the remaining shares of Abdullah Al Othaim Company for Investment and Real Estate Development, of which it owns 13.65%. Revenue Breakdown ( Geographical) Revenue Breakdown (Operational) 2% 6% 12% 7% Southern province Eastern province Northern province Rental Income 3% 73% Central province western province Revenues 97% 4

5 A. Othaim Financial Statement Analysis Income statement In 2012, the company's revenues grew by 4.28% over the previous year to reach SAR 4,266 million. Despite the slight growth in revenue, cost of sales increased to SAR 3,941 million, or 4.60%, which led to decrease in gross profit margin by 28 basis points to 7.62% compared to 7.90% in The company has relatively maintained stable marketing and administrative expenses which increased by 2.17 percent to SAR 169 million. The financial statements showed a significant increase in the company's share of net profit from associates which sky rocketed by % to SAR 30 million compared to SAR 13 million in Such increase fueled the bottom line with 14.45% to SAR 172 million, compared with SAR 150 million in the previous year, widening net profit margin by 36 basis points to 4.03% for the fiscal year ending December The company`s operation is seasonally affected by the holy month of Ramadan which fell in the third quarter in the past few years. In the first quarter of 2013, the company achieved an increase in revenue of 9.04% compared to the first quarter of 2012 to reach SAR 1,104 million. The increase in revenues was reflected on gross profit margin which widened to 7.49% compared to 7.10% in the same period of the previous year. Bottom line also increased but with lower pace of 7.5% and stood at SAR 43 million. Balance sheet A. Othaim total assets achieved growth rate of 5.24% and amounted to 1,763 million in December Moreover, it increased more by 7.71% during the first quarter of 2013 to reach SAR 1,899 million. The company`s balance sheet also showed the following: Investment infixed assets increased to SAR 115 million and SAR 45 million by the end of 2012 and the first quarter of 2013, respectively, which represent 2.69% of revenues in 2012 and 4.03% of revenues the first quarter of Inventory piled up by 3.35% at the end of 2012 compared to the previous year and 12.23% YoY by the end of the first quarter of Accounts payable also increased by 19.67% compared to the same period of last year to reach SAR 930 million Total Assets Total liabilities 350 Gross profit Net Income

6 A. Othaim Valuation and Recommendation We valued A.Othaim`s share using five year free cash flow to equity valuation model. In the valuation process we assumed risk free rate of 4%, terminal growth rate of 3% and risk premium of 7%. Based on the above valuation approach we assign Buy recommendation for A.Othaim`s stock with fair value of SAR 148 implying 30% premium to the company`s share price of SAR Valuation Model E 1122F 1122F 1122F 1122F Cash Flow From Operating Activities Less CAPEX Net Borrowing (13) (65) Free Cash Flow to Equity (18) Fair Value

7 A. Othaim Financial Statements Balance Sheet (million) E 2014 F 2015 F 2016 F 2017 F Current Assets Investments Fixed Assets , , , , , , ,011.5 Other Assets Total Assets 1, , , , , , , ,956.0 Current liabilities , , , ,126.2 Long Term Debt Other Liabilities Shareholders Equity , , ,448.7 Total Liabilities and Shareholders` Equity 1, , , , , , , ,956.0 Income Statement (million) E 2014 F 2015 F 2016 F 2017 F Sales Revenue 3, , , , , , , ,496.5 Cost of Sales 3, , , , , , , ,001.2 Gross Profit Sales & administrative Expenses Finance costs Other (Income)/Expense Net Income Before Zakat Zakat Net Income Cash Flow Statement (million) E 2014 F 2015 F 2016 F 2017 F Net Income before Zakat Depreciation Inventory Accounts receivable Accounts Payable Fixed Assets Other Changes Long Term Debt Dividend Paid Beginning Cash Ending Cash

8 A. Othaim Financial Ratios E 2014 F 2015 F 2016 F 2017 F Profitability Ratios Gross Profit Margin % 9.7 % 9.7 % 9.1 % 9.1 % 9.1 % 9.1 % 9.1 % 9.1 Operating Profit Margin % 4.0 % 9.7 % 9.9 % 9.9 % 9.9 % 9.9 % 9.9 % 9.9 Net Profit Margin % 4.1 % 9.9 % 4.1 % 4.1 % 4.1 % 9.7 % 9.7 % 9.7 Leverage Ratios LTD/Total Assets % 0..1 % 8.8 % 9.7 % 7.1 % 7.9 % 01.0 % 7.7 % 00.9 STD/Total Assets % 00.1 % 1.8 % 01.9 % 7.0 % 01.9 % 09.9 % 0... % 00.1 Total Debt/ Shareholders' Equity % 98.. % 41.7 % 40.8 % 49.8 % 48.1 % 91.9 % 49.9 % 49.0 Efficiency Ratios Return on Assets % 01.7 % 7.1 % 7.9 % 7.4 % 8.8 % 7.9 % 7.0 % 8.9 Assets Turnover %.99 %.44 %.4. %.91 %..9 %.91 %.9. %..1 Return on Equity % 91.0 %.8.. %.9.. %.4.0 %.0.7 %.1.1 % 08.9 % 09.4 Valuation Ratios PE Ratio Price to Book Div. Yield %..0 %..1 % 9.4 %..1 %..9 %..8 % 9.1 % 9.0 Price to CFO Balance Sheet (million) Q Q Change Income Statement (million) Q Q Change Current Assets % Sales Revenue % Investments % Cost of Sales % Fixed Assets % Gross Profit % Other Assets % Sales & administrative Expenses % Total Assets % Finance costs % Current liabilities % Other (Income)/Expense % Long Term Debt % Total other Income/Expense % Other Liabilities % Net Income Before Zakat % Shareholders Equity % Zakat % Total Liabilities and Shareholders` Equity % Net Income % 8

9 Recommendation Target Price (SR) Price as of 1 st of July 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 Net Income EPS PE ratio P/BV Dividend yield EPS Growth , % % , % %05.2 Underweight , % % % 4190.SE % 47 11,610 3, % Last 12 months 4, % %5.8 Jarir Bookstore Jarir Bookstore was founded in Saudi Arabia October 2000, in Riyadh. By the end of 2012, its number of branches reached 35. Its ambitious expansion plan continues in 2013, as two new branches were added at the beginning of the year, and 5 more are on-stream. In the third quarter, two branches are expected to open in Hail and Khamis, whereas Salmiya branch in Kuwait will be launched during the fourth quarter of this year, alongside with two other branches in Riyadh and Dammam. Renovations and extensions in Sary showroom in Jeddah are expected to be completed during the second quarter of Jarir Bookstore is a leading retail and wholesale company, trading in office and school supplies, electronics and IT products, smart phones and accessories, toys, sports equipments, books, decor and furniture. However, wholesale activity is still a limited percentage of the Jarir s operations. Whereas retail represents 70% of the company's sales, and 89% of net profit for 2012, wholesale accounts for 9% of revenue and 11% of profits. The company also invests in real-estate leasing, contracting and real estate maintenance through its branches in UAE, Kuwait, Qatar and Egypt. Jarir Retail Index Tadawul Index

10 Jarir Latest Developments The company continuously invests in serving its customers through its sales outlets, after sales team and dedicated three call centers in Qatar and Saudi Arabia. Jarir is also undertaking an online bookstore with brand name " Jarir Reader ", which is expected to upload Arabic and foreign books and publications online, to attract more readers. In addition, the company also started to offer Jarir credit card which is a joint card between Jarir and SAMBA bank. The company announced the sale of Jarir building in Al Ahsa Street, Riyadh for SAR 71.4 million. The sale resulted in capital gain of SAR 40.3 million. The sale agreement also noted that Jarir will lease back the building for five years and the branch within the premises for 30 years. The company mentioned that the proceeds will be invested in financing future expansions. The company has recently commenced new branch in Yanbu aside from launching its seventh branch in Riyadh with total area of 3600 square meter. Moreover, the company plans to open five additional branches within the kingdom in 2013, increasing total number of branches to 37, by the end of In the longer term, Jarir intends to invest SAR million (i.e. 20% of 2012 retained earnings) in branch expansions. The company also noted that 80% of the expansions will take place within the kingdom. The company intends to set up 55 additional stores by Moreover, management hinted that Egypt is not excluded from the network expansion but, Saudi Arabia will remain the market with the highest growth potential, followed by the GCC. Revenues Net Income GCC 7% GCC 9% KSA 93% KSA 91% Net Profit Revenues Wholesale 8% Wholesale 8% Retail 92% Retail 92% 10

11 Jarir Financial Statements Analysis Income Statement In 2012, the company's revenues grew by 11.74% compared to the previous year reaching SAR4, 634 million. However, cost of sales increased to SAR 3,940 million, 12.14% higher than 2011 eroding 30 basis points from the gross profit margin to 14.98% from 15.28% in Marketing and administrative costs increased by 3.95% to hit SAR 132 million, while financing costs decreased by 19.97% compared to Jarir achieved an increase in net income of 11.08% to SAR 570 million, compared to SAR 513 million, slightly squeezing net profit margin by 7 basis points 12.30% The company`s quarterly sales show high seasonality and sensitivity towards the start of the academic year in Saudi Arabia. In the first quarter of 2013, the company continued to show double digit growth of 11.18%, compared to the first quarter of 2012, and stood at SAR 1,330 million. The company has maintained gross profit margin of to 15.85% compared to 15.90% in the same period of the previous year. Sales and Admin costs edged 5.5% higher YoY basis to SAR 31 million. Bottom line, advanced by 12.12% year on year basis and stood at SAR 181 million, while net profit margin continued to decline by 13 basis points to 13.60% on the back of 46.36% higher financing costs. Balance sheet Total assets achieved annual growth rate of 15.20% amounting to SAR 1,981 million by December Moreover, it also increased by 2.26% compared to the end of 2012 to reach SAR 2,026 million. After analyzing the balance sheet we have noted the following: Fixed assets advanced as result of increased investment, which amounted to SAR 93 million compared to SAR 26 million during 2012 and the first quarter of 2013, respectively, and represent an average of 1.99% of revenue. Inventory piled up by 20.81% at the end of 2012 compared to the previous year and accelerated its pace quarterly to 32.39% and stood at SAR 800 million, compared to the first quarter of the previous year Sales Net Icome 2500 Total Assets

12 Jarir Valuation and Recommendation We valued Jarir`s share using five year free cash flow to equity valuation model. In the valuation process we assumed risk free rate of 4%, terminal growth rate of 3% and risk premium of 7%. Based on the above valuation approach, we assign Underweight recommendation for the stock with fair value of SAR implying 15% discount to the market price of SAR Valuation Model E 1122F 1122F 1122F 1122F Cash Flow From Operating Activities Less CAPEX Net Borrowing Free Cash Flow to Equity Fair Value

13 Jarir Financial Statements Balance Sheet (million) E 2014 F 2015 F 2016 F 2017 F Current Assets , , , , , ,191.0 Investments Fixed Assets , , ,064.3 Total Assets 1, , , , , , , ,255.2 Current liabilities , , ,135.9 Long Term Debt Other Liabilities Shareholders Equity , , , , , ,806.7 Total Liabilities and Shareholders` Equity 1, , , , , , , ,255.2 Income Statement (million) E 2014 F 2015 F 2016 F 2017 F Sales Revenue 3, , , , , , , ,014.6 Cost of Sales 2, , , , , , , ,513.0 Gross Profit Sales & administrative Expenses Finance costs Other (Income)/Expense Net Income Before Zakat Zakat Net Income Cash Flow Statement (million) E 2014 F 2015 F 2016 F 2017 F Net Income before Zakat Depreciation Inventory Accounts receivable Accounts Payable Fixed Assets Long Term Debt Dividend Paid Beginning Cash Ending Cash

14 Jarir Financial Ratios E 2014 F 2015 F 2016 F 2017 F Profitability Ratios Gross Profit Margin % 1646 % 1345 % 1340 % 1340 % 1340 % 1340 % 1340 % 1340 Operating Profit Margin % 1541 % 1040 % 1041 % 1041 % 1041 % 1041 % 1041 % 1041 Net Profit Margin % 1545 % 104. % 1045 % 1040 % 1040 % 1041 % 1041 % 1041 Leverage Ratios LTD/Total Assets % 440 % 645 % 1041 % 944 % 943 %.49 %.45 % 44. STD/Total Assets % 543 % 549 % 049 % 044 % 044 % 046 % 046 % 043 Total Debt/ Shareholders' Equity % 1.4. % 1945 % 0141 % 0043 % 1944 % 1449 % 164. % 1341 Efficiency Ratios Return on Assets % 0.40 % 094. % 0.4. % 0644 % 0043 % 1.43 % 154. % 1045 Assets Turnover % % % % % % % % 9046 Return on Equity % 3040 % 3646 % 3343 % 3040 %.544 % 5341 % 0.46 % 0040 Valuation Ratios PE Ratio Price to Book Div. Yield %.40 % 340 % 549 %.40 %.44 % 341 % 34. % 34. Price to CFO Balance Sheet (million) Q Q Change Income Statement (million) Q Q Change Current Assets % Sales Revenue % Investments % Cost of Sales % Fixed Assets % Gross Profit % Total Assets % Finance costs % Current liabilities % Other (Income)/Expense % Long Term Debt % Total other Income/Expense % Other Liabilities % Net Income Before Zakat % Shareholders Equity % Zakat % Total Liabilities and Shareholders` Equity % Net Income % 14

15 Recommendation Target Price (SR) Price as of 23 rd 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 Net Income EPS PE ratio P/BV Dividend yield EPS Growth , % 138.1% , % 35.1% , % 20.1% Overweight % 4003.SE % 71 2, % Last 12 months 3, % 17.7% United Electronics Company EXtra United Electronics Company (EXtra) was founded in January 2002, while the commencement of the first branch was in Riyadh early The company was able to shape its footprint in few years as a leading electronics and durable goods retailer in the kingdom. By the end of 2012, EXtra`s branch network included 29 branches, five branches out of which was opened in In 2013, EXtra expanded beyond the borders of Saudi Arabia by opening its first branch in Bahrain. Moreover, it also plans to start its Omani operations in EXtra sells twelve thousand products from local and world renowned brands. The company also offers its customers delivery and installation services, as well as maintenance and after-sales services through its service centers spread across the Kingdom. The company was also included in Forbes Middle East among the most powerful 200 companies list in the GCC. The company was also selected as one of the fastest growing companies in the Kingdom by the Saudi General Authority for investment in 2010 and Extra Retail Index Tadawul Index

16 Extra Latest Developments EXtra announced the resignation of Mr.Mohamed Galal Ali Fahmi as chief executive officer of the company, while retaining membership of the board of directors. Mr. Fahmi was succeeded by Karim Al Dahabi in June 1 st 2013 EXtra opened the 30 th branch within KSA in Al Qunfudah, which extends over an area of 1,200 square meters serving the region with estimated population of 250 thousand. Moreover, in late 2012 EXtra commenced its store Hail, which is the fifth branch, to be opened in The branch has Leasable area of 1,500 square meters, which serves the city's population of 330 thousand. Moreover, the company announced the opening of its first showroom in the city of Yanbu in May The branch`s built up area is 1500 square meters to serve the city's population of 250 thousand. In order to provide value added services for its clients EXtra expanded its after sales service, maintenance and repair services to homes through the brand of EXtra Care. The service has been warmly welcomed among its clients and the company expects the brand to contribute more to the top line going forward. The success of EXtra Care was supported by establishment of 1200 square meter service center in Riyadh. EXtra has reached an important milestone after opening its first showroom in the kingdom of Bahrain. The branch`s area is 4300 square meter offering more than 10 thousand products with investment cost of SAR 28 million. EXtra also announced its plan to expand in Qatar through its strategic alliance signed earlier with Al Meera Holding Company to build and operate new showrooms. EXtra also signed an agreement with Brother Gulf International, to display their printers, IT equipments and accessories in the various showrooms. It is worthwhile mentioning that the company was awarded the "Most Innovative Company" for the year 2012, by Symantec partners in its annual awards ceremony for its distributers, held in Dubai. On the earnings side, the company expects 20% growth in bottom line in 2013, on the back of increasing showrooms and pent-up demand for electronics, smart phones and tablets. Management noted that they heavily invested the company's enterprise systems and internal controls during the past 24 months in order to grow organically in 2013 going forward. 16

17 Extra Financial Statements Analysis Income Statement In.10., Extra s revenues grew by...47%, in comparison to the previous year, reaching SAR 9,109 million. Cost of goods sold, on the other hand, increased by 22.62% to SAR 2,485 million, which led to a decline in the gross profit margin by 8 basis points to 17.60% versus 17.68% in Selling, general, and administrative expenses also increased by 22.58% to SAR 367 million, compared to SAR 299 million in Thus, the fiscal year ending December 2012 showed a growth in net income by 20.07% to SAR 159 million, compared to SAR 132 million in 2011, but the company realized a decline in the net income margin by 11 basis points to reach 5.26%. In the first quarter of 2013, revenues grew by 15.55%, compared to 2012 first quarter, to reach SAR 723 million. The gross profit margin continued to decline to reach 17.51% versus 17.88%, compared to the same period last year. Selling, general, and administrative expenses also increased by 13.78% to SAR 100 million. Thus, the company realized a growth rate in net income of 10.25% only, recording SAR 26 million versus SAR 24 million in 2012 first quarter. In addition, the company continued to show a decline in the net profit margin by 17 basis points to reach 3.62% for 2013 first quarter. Balance Sheet In 2012, total assets grew by 22.11%, in comparison to the previous year, reaching SAR 946 million and increased in 2013 first quarter by 45.90% to SAR 1,381 million, compared to the ending balance in December Key highlights: 1. Increase in fixed assets triggered by capital expenditures amounting to SAR 108 million and SAR 22 million during 2012 and 2013 first quarter, respectively, which represents on average 3.32% of total revenues. 2. Increase in 2012 inventory ending balance by 22.33% compared to 2011 and by 70.27% during the current quarter compared to 2012 first quarter to reach SAR 794 million in March Increase accounts payable during 2013 first quarter by 39.17% compared to 2012 first quarter to reach SAR 844 million Total Assets ,500 3,000 2,500 2,000 1,500 1, Sales 41 Net Income

18 Extra Valuation and Recommendation We have valued EXtra`s share using free cash flow to equity valuation model with five year projection horizon. In the valuation process we assumed risk free rate of 4%, terminal growth rate of 3% and risk premium of 7%. Based on the above valuation approach, we assign Buy recommendation for the stock with fair value of SAR implying 21% premium to the market price of SAR 98. Valuation Model E 1122F 1122F 1122F 1122F Cash Flow From Operating Activities Less CAPEX Net Borrowing (12) Free Cash Flow to Equity Fair Value

19 Extra Financial Statements Balance Sheet (million) E 2014 F 2015 F 2016 F 2017 F Current Assets , , , , ,90..7 Fixed Assets Total Assets , , , , ,980.8 Current liabilities Long Term Debt Other Liabilities Shareholders Equity Total Liabilities and Shareholders` Equity , , , , ,980.8 Income Statement (million) E 2014 F 2015 F 2016 F 2017 F Sales Revenue 1, , , , , , , ,821.8 Cost of Sales 1, , , , , , , ,149.4 Gross Profit Sales & administrative Expenses Finance costs Other (Income)/Expense Net Income Before Zakat Zakat Net Income Cash Flow Statement (million) E 2014 F 2015 F 2016 F 2017 F Net Income before Zakat Depreciation Inventory Accounts receivable Accounts Payable Other Changes Fixed Assets Long Term Debt Dividend Paid Beginning Cash Ending Cash

20 Extra Financial Ratios E 2014 F 2015 F 2016 F 2017 F Profitability Ratios Gross Profit Margin % 08.0 % 09.9 % 09.1 % 09.1 % 09.1 % 09.1 % 09.1 % 09.1 Operating Profit Margin % 9.1 % 9.9 % 9.4 % 9.4 % 9.4 % 9.4 % 9.4 % 9.4 Net Profit Margin % 9.9 % 9.4 % 9.9 % 9.9 % 9.9 % 9.9 % 9.9 % 9.9 Leverage Ratios LTD/Total Assets %..0 % 1.1 % 1.1 % 0.1 % 0.1 %..0 % 9.. % 4.. STD/Total Assets % 0.1 % 1.1 % 1.1 % 1.1 % 1.1 % 1.1 % 1.1 % 1.1 Total Debt/ Shareholders' Equity % 9.1 % 1.1 % 1.1 % 9.7 % 9.7 % 4.8 % 9.9 % 7.8 Efficiency Ratios Return on Assets % 01.9 % 09.1 % 01.8 % 0..7 % 0..9 % 0... % 00.8 % 00.4 Assets Turnover % % % %.49.4 %.91.9 %.91.9 %...0 %.04.9 Return on Equity % 41.. % 99.. % 99.1 % 90.8 % 91.1 %.8.8 %.9.1 %.1.9 Valuation Ratios PE Ratio Price to Book Div. Yield % 1.1 % 1.1 % 9.1 %..4 % 4.1 % 9.9 % 9.9 % 1.1 Price to CFO Balance Sheet (million) Q Q Change Income Statement (million) Q Q Change Current Assets % 72.2 Sales Revenue % 18.1 Fixed Assets % 07.0 Cost of Sales % 11.1 Total Assets 0, ,981.8 % 77.1 Gross Profit % 17.1 Current liabilities % 01.2 M&A Expense % 17.5 Long Term Debt Finance costs % Other Liabilities % 18.0 Other (Income)/Expense % 71.2 Shareholders Equity % 22.2 Total other Income/Expense % 17.8 Total Liabilities and 0, ,981.8 % 77.1 Net Income Before Zakat % 12.0 Shareholders` Equity Zakat % 12.0 Net Income %

21 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. 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 Target price It is the price we expect the current share price to reach during the Time horizon. Rating Methodology Al-Bilad Investment Co. 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: Neutral: Revise: Underweight: The Target share price exceeds the current share price by 09%. 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 21

22 Albilad Investment Company Client Services Tel: Toll-free: Research & Advisory Tel: Brokerage Tel: Asset Management Tel: Investment Banking Tel: Disclaimer AlBilad Investment Co. exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Investment Co., its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it. This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Investment Co. We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions. Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools. AlBilad Investment Co. preserves all rights associated with this report. 22