Saudi Airlines Catering Co. (Catering) Maintain Buy after Meeting with Management. December 2, 2015

Transcription

1 December 2, 2015 Maintain Buy after Meeting with Management Rating Summary Recommendation Buy 12-Month Target price (SAR) 160 Management meeting provides us with comfort on Catering s equity story Last week, we met Saudi Catering s management to seek clarity on five key issues which in our view are key investor concerns: 1) Saudia s fleet expansion plans, 2) potential of non inflight catering business, 3) new catering contract with Saudia, 4) possibility of scrapping meals in domestic flights and 5) dividends. After the meeting, on balance, we came out fairly positive which provides us with comfort on Catering s equity story. YTD, after sharp correction, (Catering - 35%, KSA peers -12%, global +23%), on a TTM P/E basis, Catering s discount to KSA (-25%) and global peers (-34%) stands close to historical high which seems unwarranted. While we have cut 2016E-17E earnings by 17%, reward vs. risk now seems largely skewed to the upside and we maintain Buy rating with a target price of SAR160/share (from SAR236/share). Saudi Airlines fleet to expand by between E Saudia has confirmed orders for 58 planes between 2016E-18E. However, while 18 new aircrafts are set to join the fleet in 2016E, 18 planes may be retired meaning the net fleet addition is nil for 2016E. Between E, while new aircraft additions could reach 58, 33 could be retired implying a net addition of 25 aircrafts or net addition to the 2015 year end fleet. Aggressive focus on non in-flight catering business to continue Management would continue to aggressively focus on other revenues sources such as Sky Sales, Al Fursan Lounges, ground catering etc. We expect strong momentum in non in-flight catering with a 2015E-17E Rev.CAGR of 19% (inflight catering 6%). Consequently, we expect non in-flight catering revenues to account for a larger 33% share of total in 2017E ( %). That said, while airport-based businesses would continue to generate strong margins due to lack of competition, competitive pressures imply non-airport business margins should be lower. Earnings impact from volume discount in new Saudia contract seem manageable Catering contract with Saudia has been renewed for 5 years. While the new one also works on a cost + a fixed markup methodology, the only new feature is the volume discount. It starts at 1% for SAR950m of in-flight catering sales to Saudia and linearly increases to 2.25% for SAR1.5bn of sales. While we do not exactly know the current inflight catering sales to Saudia, 1%-2.25% implies a discount of SAR10-34m or a manageable 1%-5% of 2016E-17E earnings. Scrapping meals on domestic flights seems unlikely although adjustments possible A key investor concern is the possibility of scrapping meals served in domestic flights (35%-4 of total meals). However, we think that s unlikely to be the case. Saudia is a full service national career and removing meal from the flight package could negatively affect ticket pricing that could defeat the very purpose of cost savings. Furthermore, cutting costs of a minor element (inflight catering costs = 4% of revenues in 2010) is unlikely to generate material cost savings. That said, meal structure adjustment is possible which should be largely manageable by the company. Dividends should remain at elevated levels, thanks to debt free B/S and strong FCF Dividends should remain at elevated levels due to debt free B/S, strong FCF from a low capex consumptive model and high yield seeking anchor shareholders. Between 2016E-17E, while Catering should generate SAR772m/year of operating cash flow, capex is estimated at SAR78m, leading to a free cashflow of SAR694m. This should enable the company to maintain high payout ratio of 89% leading to a SAR7.0 DPS (5.8% yield) in 2015E and SAR7.25 (6. yield) in 2016E. Valuation discount vs. KSA/Global peers is close to historical highs after correction YTD, Catering is the worst performer among KSA/global peers with a decline of 35% (KSA consumer -12%, global peers +23%). On a TTM P/E basis, its discount to KSA (-25%) and global peers (-34%) stands close to historical high which seems unwarranted. On our 2016 estimate, it is trading at 14.9x P/E implying an 11%/17% discount to KSA (16.9x)/Global (18.1x) peers. While we have cut 2016E-17E earnings by 17%, after sharp correction, reward vs. risk seems skewed to the upside and we maintain Buy with a TP of SAR160 (from SAR236). Upside/(Downside) 33% Stock Details Last Close Price* SAR Market Capitalization SAR mln 9,922 Shares Outstanding mln Week High SAR Week Low SAR Price Change (YTD) % -34.9% 6-Mth ADTV mln 35.8 EPS 2016E SAR 8.10 Reuters / Bloomberg Source: Tadawul, *as of 1 Dec Key Shareholders (%) 6004.SE CATERING AB SCCL. 25 Saudi Arabian Airlines 36 Public 39 Source: Tadawul Price Multiples 2015E 2016E P / E 15.4x 14.9x EV / EBITDA 14.0x 13.4x Dividend Yield 5.8% 6. Source: SFC 1-Year Share Performance S O N D J F M A M J J A S O N Source: Bloomberg Saudi Catering TASI Food & Agri Dipanjan Ray, CFA dipanjanray@fransicapital.com.sa AbdulAziz Jawdat ajawdat@fransicapital.com.sa Page 1

2 Summary Financials SAR mn, ending Dec 31-st Income Statement E 2016E 2017E CAGR Q15E 4Q14 Y/Y Chg 3Q15 Q/Q Chg Revenues 1,867 2,136 2,269 2,454 2, % 579 (2%) Gross profit % 7% % 203 2% EBITDA % % 166 9% EBIT % % 160 Net Income % 7% % 158 8% Shares outstanding (mln) EPS (SAR) % % DPS (SAR) SAR mn, ending Dec 31-st CAGR Growth (y/y) E 2016E 2017E Balance Sheet E 2016E 2017E Sales 14% 6% 8% 12% Cash and equivalents EBITDA 16% 5% 5% 11% Receivables EBIT 16% 5% 5% 11% Inventories Net Income 16% 6% 3% 11% Other current assets DPS 23% 4% 4% Current assets 1,451 1,468 1,424 1,471 1,553 (1%) 4% Margins E 2016E 2017E PP&E Gross Margin 36% 35% 34% 34% Investments EBIT Margin 3 29% 28% 28% Total assets 1,689 1,809 1,915 2,010 2,148 6% 6% EBITDA Margin % 29% Net Margin 28% 28% 27% 27% Accounts payable Other current liabilities Valuation Multiples E 2016E 2017E Current liabilities % 12% P/E EV/EBITDA Employee benefits P/Sales Other non-current liabilities P/BV Total liabilities % Dividend Yield 3.9% 5.7% 5.9% 6.6% Total equity 1,159 1,226 1,307 1,387 1,501 6% 7% Ratios E 2016E 2017E Net Debt/Equity (55%) (33%) (42%) (41%) Total liabilities & equity 1,689 1,809 1,915 2,010 2,148 6% 6% Net Debt/EBITDA RoE 5 49% 48% 49% RoA 34% 34% 33% 34% SAR mn, ending Dec 31-st Operating FCF/EBITDA 58% 32% 102% 83% Cash Flow Statement E 2016E 2017E Payout Ratio 91% 89% 89% 89% CF from operation+wc change Working Capital/Sales 16% 23% 16% 15% Capex Operating FCF FCF after investing Dividends Debt Repayment/New debt Others Net Cash flow Sources: Company, Saudi Fransi Capital Page 2

3 2015E-20E Rev CAGR WACC Saudi Airlines Catering Co. (Catering) Valuation Maintain Buy rating with a revised target price of SAR160/share We used DCF to value Saudi Catering, but cross-checked our valuation with peer (KSA consumer, Global catering and food service) P/E multiples. Our assumptions are: We use our forecasts over 2016E 20E and use terminal growth rate of 3.5%. Overall, our cost of equity and WACC is 10.. Accordingly, we arrived at an equity value of SAR160/share. This implies a 32% cut from our earlier target price of SAR236/share primarily due to 17% cut in earnings and increase in cost of capital assumption due to an adverse change in the macroeconomic environment. At CMP, the stock trades at a 2016E P/E of 14.9x, while our target price implies a 2016E P/E of 19.8x. Fig. 1 : Calculation of equity value SAR mn Enterprise Value 12,832 Net cash 413 Other assets/liabilities (86) Equity value 13,159 No. of shares outstanding (mn) 82 Value per share Source: Saudi Fransi Capital Key Risks Key risks include: 1) Saudia fleet not expanding as estimated, 2) meal volume reduction on Saudia flights, 3) non-inflight catering business not ramping up, 4) margin compression from unforeseen adverse changes in the catering contract with Saudia, 5) receivables (SAR9.5/share, 4 of B/S) write-down. Valuation is sensitive to revenue growth/ebitda margin and WACC and terminal growth rate Our valuation is sensitive to revenue growth and EBITDA margin. Between 2015E-2020E, we expect revenue CAGR of 11% while our 2016E EBITDA margin estimate stands at 29.2%. All else equal, if revenue CAGR were to be 100bps more/less than our current projection, our valuation would be impacted by 4.2%. Similarly, all else equal, if EBITDA margin were to be 100bps higher/lower than our current estimate (2016E 29.2%), our valuation would be impacted by 3.6%. Fig. 2: Sensitivity Analysis 2015E-20E Revenue CAGR/EBITDA margin and WACC/terminal growth rate Sensitivity analysis 2015E-20E Revenue CAGR and EBITDA margin 2016E EBITDA Margin Sensitivity analysis WACC and terminal growth rate Terminal growth 27.2% 28.2% 29.2% 30.2% 31.2% 9% % % % % % % Sources: Saudi Fransi Capital Sources: Saudi Fransi Capital Page 3

4 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 1-Dec-10 1-Mar-11 1-Jun-11 1-Sep-11 1-Dec-11 1-Mar-12 1-Jun-12 1-Sep-12 1-Dec-12 1-Mar-13 1-Jun-13 1-Sep-13 1-Dec-13 1-Mar-14 1-Jun-14 1-Sep-14 1-Dec-14 1-Mar-15 1-Jun-15 1-Sep-15 2-Dec-10 2-Mar-11 2-Jun-11 2-Sep-11 2-Dec-11 2-Mar-12 2-Jun-12 2-Sep-12 2-Dec-12 2-Mar-13 2-Jun-13 2-Sep-13 2-Dec-13 2-Mar-14 2-Jun-14 2-Sep-14 2-Dec-14 2-Mar-15 2-Jun-15 2-Sep-15 Catering KSA Cons. Avg. Extra Savola Al Tayyar Farm Alhokair Jarir Othaim Al Marai Sadafco Herfy Nadec Catering Global Peer Avg. Catering Intl. Compass Sodexo SATS Auto Grill DO & CO Gate Group Saudi Airlines Catering Co. (Catering) YTD, Saudi Catering is the worst performer among KSA and global peers YTD, Catering is the worst performer among KSA and global peers. While Catering s stock price declined 35%, KSA consumer peers decreased 12% on average and global peers increased 23% on average. Fig. 3: YTD stock performance Saudi Catering vs. KSA peers and global peers YTD stock performance - Catering vs. KSA peers -35% -12% -29% -29% -33% -15% -14% -22% -21% 4% 5% 6% 17% YTD stock performance - Catering vs. global peers 5 42% 43% 4 36% 32% 3 23% 17% 7% % % After sharp correction, Catering s TTM P/E discount to KSA and global peers is close to historical high which seems unwarranted After a sharp correction YTD, on a TTM P/E basis, Catering trades at a steep discount to KSA and global peers. While Catering s discount to KSA consumer average stands at around 25%, its discount to global peers stand at around 34%. This also implies Catering s TTM P/E discount to KSA and global peers stand close to historical high (since Saudi Catering IPO) which seems unwarranted. Fig. 4: TTM P/E - Catering vs. KSA peers and Global peers Saudi Catering vs. KSA Consumer Avg. TTM P/E Saudi Catering vs. global peers median TTM P/E KSA Consumer Avg. Catering KSA Cons. 5 Yr Avg. Global Peers Median P/E Catering Global Peers 5 Yr. Avg. Median Fig. 5: TTM P/E discount - Catering vs. KSA peers and Global peers Saudi Catering s TTM P/E discount to KSA peers Saudi Catering s TTM P/E discount to global peers TTM P/E discount to KSA Peers 3 Yr. Avg. TTM P/E discount TTM P/E discount to Global Peers 3 Yr. Avg. TTM P/E discount Page 4

5 At 14.9x 2016E P/E, Catering is trading at an undemanding valuation and at a discount to KSA and Global peers On our 2016 estimates, Catering is trading at an undemanding 14.9x P/E implying an 11% discount to KSA peers and 17% discount to global peers. Due to lack of exact comparables, while we have chosen KSA consumer sector as the comparable group in KSA, we have chosen catering & food service companies outside KSA as its global peer group. Fig. 6: Catering vs. KSA and Global peers P/E EV/EBITDA P/BV Dividend Yield EBITDA Margin KSA 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E Othaim % 2.5% 6% 6% 21% 21% Jarir % 5. 13% 13% 53% 52% Extra % 3% 4% 11% 13% Al Hokair % 4.5% 16% 17% 3 32% Savola % 4.4% 7% 7% 15% 17% Al Marai % 1.7% 24% 25% 18% 19% Sadafco % 3.6% 15% 15% 19% Nadec % 2.2% 17% 17% 9% Herfy % 3.7% 27% 27% 3 3 Al Tayyar % 7. 16% 16% 38% 36% Farm % 2.4% 8% 8% 21% 21% KSA Average % 3.6% 14% 14% 24% 25% RoE Global Gate Group Nm % 4% 6% Nm 25% SATS % 4.1% 17% 17% 15% 15% Auto Grill % 0.8% 9% 9% 11% 13% DO & CO AG % 1.3% 11% 11% 15% 16% Compass Group % 2.9% 9% 9% 43% 4 SODEXO % 2.7% 7% 8% 19% 19% Catering International NA NA 0.9% 1. 6% 6% 11% 11% Global Avg % 9% 21% Catering % % 49% 48% Sources: Saudi Fransi Capital, Bloomberg Page 5

6 Fig. 7: Saudia net fleet addition Key takeaways from meeting with management Saudi Airlines fleet to expand by between E Saudia has confirmed orders for 58 planes between 2016E-18E. However, out of 18 new aircrafts that are set to join the fleet in 2016E, 15 Embraer planes (72 seaters) and 3 Boeing 747s may be retired meaning the net fleet addition is nil for 2016E. Between E, while new aircraft addition to the fleet could reach 58, according to our fleet retirement estimates (15 Embraer Planes in 2016, and retiring other aircrafts after 20 years in service), 33 aircrafts could be retired meaning a net addition of 25 aircrafts (148 aircrafts in total in 2018 end vs. 123 in 2015 end), or net addition to the 2015 year end fleet. Saudi fleet evolution (no. of aircrafts) Split of Saudia aircrafts by type Embraer 12% A320 29% B777 33% A321 13% E 2016E 2017E 2018E Fig. 8: Saudia fleet evolution B747 3% A330 Sources: Saudi Airlines, Saudi Fransi Capital 2015E 2016E 2017E 2018E Year - Beginning Aircrafts - Addition Aircrafts - Retirement Year - End % YoY 4% 15% 5% Fig. 9: Saudia fleet by year of inception Sources: Saudi Airlines, Airfleets.net Page 6

7 Fig. 10: Revenue mix evolution Aggressive focus on non in-flight catering business to continue While Saudi Catering will continue to benefit from Saudia s fleet increase coupled with an increase in the number of Hajj/Umrah travelers, we understood that management continues to aggressively focus on other sources of revenues such as Sky Sales, Al Fursan Lounges, ground catering and laundry etc. Sky Sales Addition of retail spaces in domestic and international terminals Al Fursan Lounges - Construction of new airport lounges and possibility of opening lounges to all passengers in lieu of payment of a flat fee and replicating the concept of lounges across broader user segments such as hospitals, head offices of companies etc. Overall, we expect strong revenue growth momentum in non in-flight catering segment to continue with a revenue CAGR of 19% between E ( E CAGR ) vs. inflight catering revenue CAGR of 6% for E ( E 7%). Consequently, we expect non in-flight catering revenues to account for a larger 33% share of total revenues (27% in 2015E) while in-flight catering should account for 67% share of total revenues in 2017E (73% in 2015E). Having said that, while the company would continue to register strong margins in segments which are based in airports due to absence of competitors, non-airport business margins are likely to be lower (SFC est. around 15% EBITDA margin) due to strong competition. Overall, while Catering s EBITDA margin has largely remained stable (3-31% in the 5 year period of E), we expect consolidated EBITDA margin to compress by 190 bps between 2015E-18E. Evolution of In-flight catering and other revenues Revenue growth CAGR 10 25% % 25% 27% 31% 33% 19% % % 75% 73% 69% 67% 5% 7% 6% E Inflight Catering (% of total) Other revenues (% of total) Inflight Catering Others Consolidated Inflight Catering Others Consolidated E Revenue CAGR 2015E-2017E Revenue CAGR Fig. 11: EBITDA margin evolution % 30.4% 30.1% 29.2% 28.8% 28.2% E 2016E 2017E 2018E Page 7

8 Volume discount in the renewed catering contract increases from 1%- 2.25% between SAR950m-SAR1.5bn of inflight catering sales to Saudia The catering contract with Saudia has been renewed in 2014 for 5 years. Similar to the last contract, while the new one also incorporates cost plus a fixed markup methodology implying largely fixed margins, the only new feature in the current contract is the volume discount. Between SAR950m and SAR1.5bn of Saudia s in-flight catering sales, the company will provide a discount of 1%-2.25%. While the discount starts at 1% for SAR950m of sales, it linearly increases to 2.25% for SAR1.5bn of sales. While we do not exactly know the step-up discount formula and the current inflight catering sales to Saudia, 1%-2.25% implies a discount of SAR10-34m or a manageable 1%-5% of 2016E-17E earnings. Scrapping meals on domestic flights seems unlikely although some adjustments could be made A key concern for investors on Saudi Catering s stock is the possibility of scrapping/significant reduction of meals served in domestic flights which in turn would negatively affect Catering s earnings as domestic flights accounted for a significant 37% of the total meals served in 2011 (although the data is old, we don t believe the business mix has materially changed). However, after meeting the management, we think that s unlikely to be the case for the following reasons. Saudia is a full service national career and removing meal from the flight package could negatively affect ticket pricing which could defeat the very purpose of cost savings Cost of inflight catering accounted for a minor 4% of Saudi Airlines revenues in 2010 (although the data is old, we don t think the ratio has materially changed) and cutting costs of a minor element of the broader cost base is unlikely to generate material cost savings for Saudia It could negatively impact brand perception for a full service national carrier such as Saudia especially when improvement of customer service is one of the key focus areas Having said that, we believe some adjustment in the meal structure is possible which should be largely manageable by the company. Fig. 12: Mix of meals served by end use % of meals served by customer category Saudia revenues vs. cost of inflight catering (2010, SAR 000) 10 13% 15% 16% 25, % 15% 13% 20, % 34% 35% 15, % 36% 37% 10, ,000 4% of Saudia Revenues Saudia Domestic Saudia Hajj and others Saudia International Other Airlines - Saudia Revenues Cost of inflight catering Sources: Saudi Catering IPO prospectus, Saudi Fransi Capital Sources: Centre for Asia Pacific Aviation, Saudi Catering prospectus Dividends should remain at elevated levels, thanks to debt free balance sheet, strong FCF and high yield seeking shareholders Considering the high yield seeking investors (Saudi Airlines 36% shareholding, Strategic Catering Company 25%), dividends are likely to remain at elevated levels. Between , while the payout ratio averaged 87%, we expect payout ratio to average 89% between 2015E-17E, thanks to a low capex consumptive business model and a debt free balance sheet. While we expect the company to pay a DPS of SAR7.0 (89% payout ratio, 5.8% yield), 2016E DPS is estimated at SAR7.25 (89% payout, 6. yield). Page 8

9 Between 2016E and 2017E, while we estimate Catering to generate SAR772m/year of operating cash flows, capex is estimated at SAR78m/year, leading to a free cashflow/year of SAR694m vs. an estimated dividend outflow of SAR605m/year. Fig. 13: DPS, payout ratio and dividend yield DPS and payout ratio Dividend yield % % 89% 89% 89% % 3.9% 5.8% % E 2016E 2017E DPS (LHS) Payout ratio (RHS) E* 2016E* 2017E* Fig. 14: Cash flow analysis 2015E-17E Sources: Saudi Fransi Capital Working capital improvement likely as payment terms are worked out Currently Saudia pays a flat SAR100m/month to Catering. However, working capital has significantly increased in 2015 YTD (from SAR334m in end 2014 to SAR546m in 3Q15). While part of the working capital buildup this year could be attributed to construction of lounges for Saudia which has not been paid yet, the remainder could be attributed to increase in receivables from normal course of business. Overall, receivables from related party (mostly Saudia) increased from SAR465m in end 2014 to SAR683m in 3Q15. While we do not believe a material write-off is likely, we understood the management is working with its anchor client Saudia to improve payment terms. Although no further details or specific targets are disclosed, management expects an improvement in working capital situation from hereon. No exposure to Bin Laden sukuk 2015E 2016E 2017E 2016E-17E Avg. EBITDA Other operating cash flows (193) 90 (56) 17 Capex (272) (74) (83) (78) Operating FCF Other investing cash flows Cash flow after investing Dividend (564) (584) (625) (605) Net Cash Flow (245) Opening Cash+Securities Closing Cash+Securities As of end 3Q15, the company had a SAR100m sukuk (5% of balance sheet) investment in Bin Laden. This has been redeemed in full in early October and Catering s exposure to Bin Laden stands at nil. Page 9

10 Disclosure levels could be improved We understood that the company is looking to increase transparency and is likely to improve disclosure levels to analysts and investors. This could include increased participation in investor conferences, hosting conference calls and publishing data on KPIs. Selling pressure from a key shareholder seems to have largely subsided YTD, Saudi Catering has significantly underperformed the broader Tadawul index. Catering has lost around 35% while TASI lost around 13%. In our view, while macro uncertainty (threat of lower oil price affecting economic activity and hence domestic/international air travel) and stock specific concerns (uncertainty on meals on domestic flights and new catering contract with Saudia) were reasons for the stock s underperformance, another key factor was selling of shares by Strategic Catering Company Limited (SCCL), a key shareholder. According to data published in Tadawul and Bloomberg, while SCCL s shareholding in the company was 34% in end 4Q14 (28.1m shares), its shareholding stood at only 25% (20.7m shares) as of end Nov 2015 implying an offloading of around 9% stake. Having said that, it seems selling pressure has largely subsided (SCCL s shareholding remained broadly stable in the previous two months) which could be positive for stock price performance in the coming days. Fig. 15: Catering s share Px. trend vs. TASI and SCCL shareholding Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 Nov SCCL shareholding (mn shares, LHS) Catering* (RHS) TASI * (RHS) Page 10

11 Estimate changes We cut 2016E-17E earnings by 17%; we are 13% below consensus Keeping in mind recent trends and our outlook for 2016E and 2017E (growth slowdown in 2016E from an uncertain economic environment and a stronger 2017E), we have cut Catering s 2016E-17E revenues, EBITDA and net profit by 12%, 16% and 17%, respectively. While we expect 2016E net profit to grow by 3% yoy, we expect a stronger 2017 with 11% yoy increase in net profit. Fig. 16: Earnings estimate revision (SARm) New Old Change 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2016E-17E Revenue 2,269 2,454 2,751 2,447 2,781 3,149-7% -12% -13% -12% EBITDA % -15% -17% -16% EBITDA Margin 30.1% 29.2% 28.8% 30.4% 30.4% 30.5% EBIT % -16% -19% -18% EBIT Margin 29.1% 28.2% 27.9% 29.7% 29.8% 29.9% Net Profit % -16% -18% -17% Sources: Saudi Fransi Capital Consequently, we are 13% lower than Bloomberg consensus. Fig. 17: SFC estimates vs. Bloomberg consensus (SARm) SFC estimates Bberg consensus Change 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2016E-17E Revenue 2,269 2,454 2,751 2,359 2,720 3,227-4% - -15% -12% EBITDA % -9% -13% -12% EBITDA Margin 30.1% 29.2% 28.8% 30.4% 30.4% 30.5% EBIT % - -16% -13% EBIT Margin 29.1% 28.2% 27.9% 29.7% 29.8% 29.9% Net Profit % -11% -15% -13% Sources: Saudi Fransi Capital Fig. 18: Revenue and net profit evolution (SARm) Revenues Net Profit 3,000 2,500 2,000 1,500 1, % 14% 6% 8% 12% 16% 14% 12% 8% 6% 4% 2% % 6% 3% 11% 25% 15% 5% E 2016E 2017E E 2016E 2017E Revenues (SARm) % YoY growth Net Profit (SARm) % YoY growth Sources: Company data, Saudi Fransi Capital Sources: Company data, Saudi Fransi Capital Page 11

12 Research and Advisory Department Rating Framework BUY Shares of the companies under coverage in this report are expected to outperform relative to the sector or the broader market. HOLD Shares of the companies under coverage in this report are expected to perform in line with the sector or the broader market. SELL Shares of the companies under coverage in this report are expected to underperform relative to the sector or the broader market. Saudi Fransi Capital Call Center Commercial Registration Research and Advisory P.O. Box Riyadh Saudi Arabia Head Office Riyadh License No

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