Market Data Bloomberg Code: ALMARAI AB Reuters Code: 2280.SE CMP (20 th Mar 2010): SR181.7 O/S (mn): 115 Market Cap (SRmn): 20,901.2 Market Cap (US$mn): 5.573.7 P/E 2010e (x): 14.2 P/Bv 2010e (x): 3.4 Price Performance 1-Yr High / Low (SR): 182.0 / 141.5 Average Volume: 141,761 Market Data 1m 3m 12m Absolute 5.0% 12.5% 22.0% Relative -0.8% 3.2% -32.2% Price Index Performance 7,000 6,500 6,000 5,500 5,500 4,500 4,000 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 TASI - LHS Source: Tadawul & Zawya (SR) - RHS 190.00 180.00 170.00 160.00 150.00 140.00 130.00 120.00 Company () Global Research - Saudi Arabia Concentric diversification leading to expansion of target market & product lines. Strategic alliances to expand geographical network. Operational synergies to improve margins. Investment Update Hold Target Price SR 185.9 Acquisition & infant food segment - Expanding production line & target market Company () recently completed Hail Agriculture Development Company (HADCO) takeover, which will diversify its current production line from dairy to poultry products and enable it to serve the exiting target market with poultry products. Based on the given information, the company is expected to make an investment of SR2.0bn in HADCO during 2011-12 to increase its chicken handling and processing capacity and improve its existing distribution network. In addition, the expected completion of infant food segment during 1H2011 will not only expand the target market but also help the company to place itself in a better way to capture the benefits of a rising regional population. Marketing strategy - Improving operational synergies The company has a competitive edge over the other players in the local market with the ability to place its products in an effective manner through the retail outlets of Savola i.e. Hyper Panda. The acquisition of HADCO will strengthen the distribution network and allow the company to derive value out of the supply chain by using the production of grains and animal feed for in-house production of milk. The company is also likely to adopt product bundling strategy with in the GCC region.jv with Pepsi Co. in Egypt will help the company to expand geographically i.e. Middle East (excluding GCC), Southeast Asia and Africa. In addition, we cannot rule out the possibility of product bundling with Pepsi Co. for the agreed regions. Improving profitability - Increase in product prices and population to drive growth We expect the company s gross and net profit margins to show improvement during 2010-13 to 41.8% and 22.1% respectively in 2013 as compared to 40.3% and 18.7% respectively recorded in 2009. The expected improvement in the company s profitability margin is mainly on the back of (i) expected increase in average price of dairy products at a 2009-13 CAGR of 6.9%, (ii) expected increase in regional population at a 2009-13 CAGR of 2.3% and (iii) benefits arising out of product and geographical diversification. Valuation We have updated our DCF base valuation to SR185.9, which offers a potential upside of 2.3% from the current market price of SR181.7 (as on 20th ). Moreover, the stock is trading at the prospective 2010E and 2011E price-earnings multiple of 14.2x and 12.7x, respectively. We, therefore, recommend HOLD for the stock. Syed Taimure Akhtar Senior Financial Analyst sakhtar@globalinv.com.sa Phone No:(966) 1-2199966 Ext.: 950 Table 01: Investment Indicators Net Profit (SRmn) EPS (SR) BVPS (SR) ROA (%) P/E (x) P/BV (x) 2013 (E) 1,863.5 16.2 76.9 15.3 11.22 2.36 2012 (E) 1,766.7 15.4 68.8 14.7 11.83 2.64 2011 (E) 1,642.2 14.3 61.0 14.0 12.73 2.98 2010 (E) 1,468.9 12.8 53.7 13.0 14.23 3.38 2009 (A) 1,096.7 9.5 46.8 11.4 17.30 3.53 Source: Company Annual Reports & Global Research *Historical P/E & P/BV multiples pertain to respective year-end prices, while those for future years are based on closing prices on the Tadawul as of 20 th. 1
Valuation & Recommendation DCF Method We have used discounted cash flow (DCF) methodology to value stock and used Capital Asset Pricing Model (CAPM) to calculate the cost of the equity, which is based on the following assumptions: Risk-free rate of 5.6% Market risk premium of 6.0% Beta of 1.0 Cost of equity of 11.6% Cost of debt of 7.0% The Weighted Average Cost of Capital (WACC) based on the above assumptions is 10.4%. We have assumed a terminal growth rate of 3.5%. We have arrived at the DCF base value of SR185.9 for based on earnings projections till 2013. Table 02: DCF Base Valuation (SR Mn) 2010 (E) 2011 (E) 2012 (E) 2013 (E) FCF 1,298.7 1,470.4 1,691.7 1,760.2 Discounted Cash Flow 1,206.1 1,237.3 1,289.8 1,215.9 Terminal Value 26,532.9 Primary Value 4,949.2 Terminal Value (discounted) 18,329.4 Company s Net Present Value 23,278.6 Long-Term Debt (3,503.4) Add: Investments & Cash Equivalents 1,606.3 Net Worth 21,381.5 Shares Outstanding ('000) 115,000 Fair Value Per Share 185.9 Source: Global Research Sensitivity Analysis A sensitivity analysis for different estimated long-run future growth rates and weighted cost of capital is shown in table below. The table provides estimated DCF based fair values for share based on a range of varying inputs. The shaded area at the center shows the most probable range of alternatives. Table 03: DCF Base Valuation Terminal Growth Rates 1.50% 2.50% 3.50% 4.50% 5.50% 8.37% 195.8 226.2 269.2 334.4 445.2 9.37% 168.6 190.8 220.5 262.4 326.0 10.37% 147.6 164.3 185.9 214.9 255.8 11.37% 130.8 143.8 160.2 181.2 209.5 12.37% 117.2 127.5 140.2 156.2 176.7 Source: Global Research WACC Valuation Based on our valuations, at present, the stock is trading at a prospective 2010 and 2011 P/E of 14.2x and 12.7x, and offering the potential upside of 2.3% from the current market price of SR181.75 as on 20th. We, therefore, recommend HOLD for the stock. 2
Company - Financial Update HADCO & Egyptian JV - Expanding product line & geographical network We expect the acquisition of HADCO and JV with Pepsi Co., under the name of International Diary & Juice Company (IDJ), are expected to play a vital role in the company s future growth. The acquisition and JV also offers ample room for the company to come up with the effective marketing strategies i.e. product bundling, effective distribution and promotional activities. The company is expected to make an investment of SR2.0bn, during 2011-12, in HADCO with the aim to (i) double the production & handling capacity of chicken and (ii) make further improvement in the distribution network of the company. On the other hand, the company is targeting to expand its geographical network through the JV with Pepsi Co., which will cover African, Southeast Asian and Middle East (excluding GCC) markets. Chart 01: Sales Revenue 9,000.0 8,000.0 7,000.0 6,000.0 5,000.0 4,000.0 3,000.0 2,000.0 1,000.0-36.7% 6.3% 3.9% 4.3% 33.4% 25.1% 16.7% Sales Revenue (SR mn) - LHS Growth - RHS 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Source: Company Reports & Global Research We expect the company to record sales revenue of SR7.3bn in 2010 as compared to SR5.9bn recorded in 2009. The growth in the company s sales revenue is mainly based on the expected increase in production by 7.7% during 2010 on account of additional sales revenue from HADCO acquisition and the weighted average impact of 16.0% based on the expected average improvement in the product prices by 19.6% during 2010. Going forward, the company s sales revenue is expected to increase at a CAGR of 9.5% during 2009-13 to SR8.4bn in 2013, which is mainly based on (i) the expected increase in production at a CAGR of 3.1% during 2009-13 on the back of effective implementation of the company s marketing and expansion strategies, (ii) weighted average impact of 6.0% on the back of the expected increase in product prices at a CAGR of 6.9% during 2009-13 and (iii) local & regional population growth at a CAGR of 2.0% and 2.3% during 2009-13, respectively. Chart 02: Sales Revenue Composition 2009 Chart 03: Sales Revenue Composition 2013 Bakery Products 10.5% Others HADCO 0.6% 1.2% Bakery Products 10.2% Others 0.5% HADCO 4.5% Chesse & Butter 19.5% Fresh Dairy 48.0% Chesse & Butter 21.2% Fresh Dairy 43.6% Fruit Juice 10.6% Fruit Juice 10.3% Long Life Dairy 9.6% Source: Company Reports & Global Research Long Life Dairy 9.8% Source: Company Reports & Global Research 3
The company s sales revenue during 2009 remained highly concentrated on fresh dairy products, contributing 48.0% of the company s total sales revenue. We expect the fresh dairy products to remain the major component of the revenue pie. However, the addition of poultry products in the company s existing production line is expected to dilute contribution from fresh dairy product to 43.6% in 2013. Infant food segment- Expanding target market The incorporation of Baby Food Company in July 2009 is among one of the major milestones that the company has achieved during 2009. The expected commencement of commercial production from Baby Food Company in 1H2011 will make the addition of infant products in the company s existing product profile. Hence, this will lead the company to expand its target market from dairy, poultry, bakery and other products to infant market. Furthermore, we cannot rule out the possibility to adopt product bundling strategy i.e. promotion of baby food along with dairy products or vice versa. Cattle stock - In house milk production The company has ended the year 2009 with the capacity to handle around 52,000 milk producing cattle stock with the per cattle production capacity of 13.0tons of milk per year (365 days). Accordingly, the company s total raw milk production is 676,000 tons. Besides 52,000 milk producing cattle, the company also has the capacity to handle around 55,000 of young cattle stocks, which indicates 100.0% cattle stock replacement ratio. Improving gross margins - Higher economies of scale The company has posted gross profit of SR2.4bn, during 2009, as compared to SR1.9bn in 2008. The gross margin was recorded at 40.3% as compared to previous year s gross margin of 39.7%. This indicates the company, during 2009, has successfully utilized the benefit of (i) well integrated production structure i.e. in house milk production and (ii) strong brand image to increase the sales revenue. We believe these factors have allowed the company to restrict the increase in cost of sales to 15.6% in 2009 over cost of sales of SR3.0bn recorded in 2008. Furthermore, the company has posted EBIT margin of 21.8% during 2009 as compared to 21.1% in 2008. Chart 04: - Gross Margins Chart 05: - EBIT Margin Growth 4,000.0 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0-42.5% 41.5% 41.9% 41.8% 42.0% 40.8% 41.5% 40.3% 41.0% 39.7% 40.5% 39.6% 40.0% 39.5% 39.0% 38.5% 38.0% Gross Profit (SR mn) - LHS Gross Profit Margin - RHS 2,500.0 2,000.0 1,500.0 1,000.0 500.0-22.8% 23.2% 23.2% 22.1% 21.8% 21.1% 20.7% EBIT (SR mn) - LHS EBIT Margins - RHS 23.5% 23.0% 22.5% 22.0% 21.5% 21.0% 20.5% 20.0% 19.5% Source: Company Reports & Global Research Source: Company Reports & Global Research Based on the recent acquisition, product expansion and JV, we believe the company s diversification strategy is mainly based on the expansion in the related market, which will lead the company s ability to run its operation with well-integrated production process. Consequently, the company s gross margins is expected to remain on higher level at the average of 41.5% during 2010-13, which will help the company to manage its marketing 4
and administrative costs to keep its EBIT margin at the average of 22.8% during 2010-13 as compared to the 4-years historical average of 20.7% during 2006-09. Profitability Growth-Relatively immune to economic downturn Despite facing lot of challenges during 2009, including the world economic recession and swine flu, the company managed to post after tax profit of SR1.1bn, an increase of 20.5% YoY. The net profit margin also improved to 18.7% as compared to 18.1% recorded in 2008. Chart 06: Profitability & ROAA Chart 07: Profitability & ROAE 2,000.0 1,800.0 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 13.2% 12.5% 13.0% 11.4% 14.0% 14.7% 15.3% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 2,000.0 1,800.0 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 27.0% 27.3% 24.4% 25.4% 24.9% 23.7% 22.3% 28.5% 27.5% 26.5% 25.5% 24.5% 23.5% 22.5% 21.5% 20.5% - 10.0% - 19.5% Profit after tax (SR mn) - LHS ROAA - RHS Profit after tax (SR mn) - LHS ROAE - RHS Source: Company Reports & Global Research Source: Company Reports & Global Research Going forward, the company s profitability is expected to show a growth of 33.9% during 2010, while in terms of CAGR the bottom line is expected to increase at a CAGR of 14.2% during 2009-13. On the other hand, the company s ROAA and ROAE are expected to remain at the average of 14.3% and 24.1% during 2010-2013, respectively. 5
Food & Agriculture Sector World Milk & Dairy Sector Based on the Food & Agriculture Policy Research 2009 (FAPRI), the overall production of milk & dairy products (including butter, cheese, whole milk powder & skim milk) around the globe by the end of 2009 was recorded at 742.3mn tons, which is expected to increase by 1.9% in 2010. Going forward, the world production is expected to increase at a 2009-13 CAGR of 1.7% to 794.3mn tons. We believe the growth in the milk and dairy products is mainly associated with the forecasted increase in the world s population at a CAGR of 1.8% during 2009-13. Chart 08: World Milk & Dairy Production 820,000.0 800,000.0 780,000.0 760,000.0 2.3% 2.1% 1.9% 1.6% 1.6% 1.7% 2.5% 2.0% 1.5% 740,000.0 720,000.0 1.3% 1.0% 700,000.0 680,000.0 0.5% 660,000.0 0.0% Milk & Dairy Products ('000' tons) - LHS Growth - RHS Source: FAO & Global Research Based on FAPRI 2009, majority of the milk and dairy production is directed from European Union (EU) and India, where the production has recorded at 147.0mn tons and 111.6mn tons, respectively, during 2009. Furthermore, the production from EU and India is expected to reach 149.3mn tons and 115.2mn tons during 2010, respectively, followed by US where the production is forecasted to reach 91.8mn tons. Table 04: Country-Wise Contribution to World Milk & Dairy Production Argentine 1.4% 1.5% 1.6% 1.6% 1.6% 1.6% 1.7% Australia 1.5% 1.4% 1.4% 1.4% 1.4% 1.4% 1.5% Brazil 3.9% 4.2% 4.3% 4.4% 4.5% 4.7% 4.8% Canada 1.2% 1.2% 1.2% 1.2% 1.2% 1.1% 1.1% China 5.7% 5.4% 5.8% 6.0% 6.3% 6.4% 6.6% Colombia 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Egypt 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% European Union 20.0% 19.9% 19.8% 19.7% 19.4% 19.1% 18.7% India 14.2% 14.9% 15.0% 15.2% 15.3% 15.4% 15.5% Japan 1.2% 1.1% 1.1% 1.1% 1.1% 1.1% 1.0% Mexico 1.5% 1.5% 1.5% 1.6% 1.6% 1.6% 1.6% New Zealand 2.4% 2.4% 2.4% 2.4% 2.4% 2.5% 2.5% Peru 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.3% Romania 0.7% 0.6% 0.6% 0.5% 0.5% 0.4% 0.4% Russia 4.6% 4.6% 4.6% 4.5% 4.5% 4.5% 4.5% South Korean 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% Switzerland 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% Ukraine 1.9% 1.6% 1.4% 1.3% 1.3% 1.2% 1.2% Uruguay 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% United States 12.5% 12.7% 12.4% 12.1% 12.0% 12.0% 11.9% Production From Other Countries 24.8% 24.3% 24.3% 24.3% 24.3% 24.3% 24.4% Source: FAPRI & Global Research 6
Furthermore, the weighted average per capita consumption of the world s dairy products, as per FAPRI 2009, has shown improvement during 2009 and recorded at 58.8Kg as compared to 57.6Kg in 2008. Going forward, the weighted average per capita consumption of dairy products is expected to continue its upward trend and reach at 60.0Kg by the end of 2013. We believe the increase in per capita is mainly based on the expected massive marketing alliance and promotion campaigns coupled with the expansions of retail outlets in major consuming areas of the world, which will lead to the easy availability of these products in the market. Milk & Dairy Product Prices The main feedstock price in dairy food industry is the price of corns and grains, which are used to feed the cow. Moreover, prices of these products have a major impact on the cost of producing raw milk, which consequently have an impact of the prices of end of products. In addition, the price of corns is correlated with the price of crude oil, since corn is also use to make ethanol fuel (alternative fuel). Hence, higher the price of crude oil the higher the demand for ethanol, which requires corn as a feedstock. Consequently, this creates shortage of corns for cow feeding thus leading to an increase in prices. We expect the average price of corn to remain in the range of US$100.0 to US$105.0 per ton during 2010, while we have updated the average long-term prices of corn to remain in range of US$100.0-US$120.0 per ton during 2010-13. Chart 09: Feedstock & Crude Oil Prices Chart 10: Raw Milk Price (US$ per ton) 140.0 100.0 135.0 95.0 130.0 90.0 125.0 85.0 120.0 80.0 115.0 75.0 110.0 105.0 70.0 100.0 65.0 95.0 60.0 90.0 55.0 Corn Price (US$ per ton) - LHS Crude Oil Pirces (US$ per barrel) - RHS 525.0 475.0 425.0 375.0 325.0 275.0 Source: USDA & Global Research Source: Agriculture & Applied Economics & Global research According to California Department of Food & Agriculture (CFDA) pricing mechanism the price of raw milk is differentiated on the basis of end use, which provides the basis to classify raw milk into different classes. Moreover, the prices of each class of milk are different and again based on the end use of that particular milk class and hence represent as the feedstock for dairy products. Chart 11: Dairy Product Prices 6,090.0 5,090.0 4,090.0 3,090.0 2,090.0 1,090.0 90.0 5,055.0 4,555.0 4,055.0 3,555.0 3,055.0 2,555.0 2,055.0 1,555.0 1,055.0 555.0 55.0 Butter (US$ per ton) - LHS Skim Milk (US$ per ton) - RHS Cheese (US$ per ton) - RHS Dry Whey (US$ per ton) - RHS Dry Milk Powder (US$ per ton) - RHS Source: Bloomberg, Agriculture & Applied Economics & Global research 7
Middle East Milk & Dairy Sector - High Potential We expect the regional milk and dairy market to increase at a 2009-13 CAGR of 2.6% to 7.7mn tons, which is mainly based on the (i) expected increase in the Middle East population at a CAGR of 2.6% during 2009-13 to 115.5mn and (ii) strong spending power in the regional countries, particularly in GCC member countries. Table 05: Regional Milk & Dairy Consumption 000 tons 2007 2008 2009* 2010E 2011E 2012E 2013E Saudi Arabia 3,950 4,029 4,110 4,193 4,277 4,363 4,451 Kuwait 434 450 462 473 485 497 510 Bahrain 154 156 160 164 168 173 177 Qatar 164 166 171 176 181 187 192 UAE 711 739 765 792 819 848 878 Oman 474 489 501 514 527 540 554 Iraq 284 290 305 321 337 355 373 Yemen 103 106 113 121 129 139 148 Jordan 239 244 256 268 280 294 307 Lebanon 127 129 131 135 138 141 144 Total 6,641 6,798 6,974 7,156 7,343 7,536 7,734 Source: Prospectus & Global Research *Based on our calculations It is worth mentioning that Saudi Arabia is expected to remain the leading consumer of the milk and dairy products in the region followed by UAE, which is mainly due to the population size in these two countries. However, the lower spending power in the other regional countries like Yemen and Iraq is the major factor of low consumption though the population is high in these areas. Chart 12: Regional Product Wise Consumption Composition Butter Ghee, 12.9% Condensed, 0.3% Evaporated Mike, 7.0% Other Cheese, 10.8% Milk-Short, 5.7% Milk-Long, 19.7% Laban, 8.9% Natural Cheese, 25.0% Yoghurt, 3.8% Labneh, 0.5% Cream, 5.3% Dairy Desert, 0.3% Source: Company Reports & Global Research Based on our calculations, by the end of 2009, the regional milk & dairy product consumption is mainly based on the long-life products i.e. cheese, milk-long and butter. Since the taste preference & demographic factors are rigid to change, we are expecting constant product wise composition during 2009-13. 8
Saudi Arabia Milk & Dairy Sector - Leading Regional Market Among the regional countries Saudi Arabia has the largest in-house milk production facility. Based on our calculations, Saudi Arabia has a capacity to handle cattle stock of more than 138,000 by the end of 2009 with the annual capacity to produce 7.8 tons of per head. Going forward, the Kingdom s cattle stock is expected to increase at a CAGR of 3.1% during 2009-13, while the per head annual production is expected to remain constant at 7.8 tons per head during 2010-13. Table 06: Regional Milk & Dairy Consumption 2007 2008 2009* 2010E 2011E 2012E 2013E Milk - Short 171 175 178 182 185 189 193 Milk - Long 803 819 835 852 869 887 904 Laban 439 448 456 466 475 484 494 Yoghurt 127 129 132 135 137 140 143 Labneh 19 20 20 20 21 21 22 Cream 226 231 235 240 245 250 255 Dairy Desert 11 11 11 12 12 12 12 Natural Cheese 1,038 1,058 1,079 1,101 1,123 1,146 1,168 Evaporated Milk 218 222 227 231 236 241 246 Condensate Milk 11 11 11 12 12 12 12 Butter Ghee 411 419 428 436 445 454 463 Other Cheese 411 419 428 436 445 454 463 Ice Cream 64 66 68 70 71 73 76 Total 3,950 4,029 4,110 4,193 4,277 4,363 4,451 Source: Prospectus & Global Research *Based on our calculations We believe the consumption in Saudi dairy market is expected to increase at a CAGR of 2.0% during 2009-13, which is proportionately linked with expected growth in the domestic population. It is worth mentioning that majority of the consumption inside the Kingdom is associated with fat rich and long life dairy products i.e. butter and cheese. 9
Balance Sheet Company- (SR 000 ) Current Assets Cash & Bank Balances 137,975 246,585 507,666 623,939 653,886 679,185 764,841 Derivates Financial Instruments 938 6,648 - - - - - Receivable & Prepayments 367,810 409,777 455,492 577,531 611,647 593,522 598,021 Inventories 733,573 1,096,723 1,218,575 1,230,761 1,243,068 1,255,499 1,268,054 Total Current Assets 1,240,296 1,759,733 2,181,733 2,432,231 2,508,601 2,528,206 2,630,916 Non-Current Assets Investment & Financial Assets 471,074 489,337 963,131 982,394 992,218 1,002,140 1,012,161 Property, Plant & Equipment 4,041,132 5,343,308 6,282,208 6,502,404 6,696,206 6,752,740 6,785,795 Intangible Assets-Goodwill 548,636 548,636 1,528,157 1,604,565 1,684,793 1,769,033 1,857,484 Deferred Charges 34,692 40,270 31,766 33,354 35,022 36,773 38,612 Total Non-Current Assets 5,095,534 6,421,551 8,805,262 9,122,716 9,408,239 9,560,686 9,694,052 Total Assets 6,335,830 8,181,284 10,986,995 11,554,948 11,916,840 12,088,891 12,324,968 Current Liabilities Short-Term Loans 182,348 511,165 395,534 355,981 338,182 405,818 385,527 Payables & Accruals 575,337 669,558 962,585 1,218,392 1,385,799 1,493,481 1,600,875 Derivative Financial instruments 10,033 108,072 82,153 90,368 99,405 109,346 120,280 Total Current Liabilities 767,718 1,288,795 1,440,272 1,664,741 1,823,386 2,008,644 2,106,683 Non-Current Liabilities Long-Term Loans 2,409,428 3,132,956 3,981,193 3,503,450 2,837,794 1,901,322 1,064,740 Employees Termination Benefits 104,903 128,041 165,814 190,686 219,289 252,182 290,010 Total Non-Current Liabilities 2,514,331 3,260,997 4,147,007 3,694,136 3,057,083 2,153,505 1,354,750 Total Liabilities 3,282,049 4,549,792 5,587,279 5,358,877 4,880,469 4,162,149 3,461,433 Share Capital 1,090,000 1,090,000 1,150,000 1,150,000 1,150,000 1,150,000 1,150,000 Share Premium 612,000 612,000 1,600,500 1,600,500 1,600,500 1,600,500 1,600,500 Statutory Reserves 325,663 416,689 526,361 673,253 673,253 673,253 673,253 Other Reserves (9,095) (83,161) (81,390) (20,348) (2,035) 4,070 8,139 Retained Earnings 1,034,878 1,581,614 2,187,164 2,774,730 3,595,821 4,479,147 5,410,881 Total Shareholders' Equity 3,053,446 3,617,142 5,382,635 6,178,136 7,017,539 7,906,969 8,842,773 Minority Interest 335 14,350 17,081 17,935 18,832 19,773 20,762 Total Liabilities & Shareholders' Equity 6,335,830 8,181,284 10,986,995 11,554,948 11,916,840 12,088,891 12,324,968 Source: Company Reports, Global Research 10
Income Statement Company - (SR 000 ) Sales 3,769,833 5,029,904 5,868,805 7,339,465 7,800,499 8,102,618 8,448,466 Cost of Sales (2,276,495) (3,030,947) (3,503,013) (4,346,506) (4,565,478) (4,709,780) (4,917,964) 15.6% Gross Profit 1,493,338 1,998,957 2,365,792 2,992,959 3,235,021 3,392,838 3,530,502 Selling & Distribution Expenses (570,149) (750,878) (887,147) (1,100,920) (1,170,075) (1,215,393) (1,267,270) General & Administrative Expenses (142,451) (187,108) (199,735) (268,167) (283,693) (294,467) (306,560) Income Before Bank Charges, Zakat & Minority Interest 780,738 1,060,971 1,278,910 1,623,872 1,781,253 1,882,979 1,956,672 Bank Charges (94,860) (125,489) (147,518) (115,783) (95,279) (69,214) (43,508) Loss from Associate (2,003) Income Before Bank Zakat & Minority Interest 685,878 935,482 1,129,389 1,508,089 1,685,974 1,813,764 1,913,164 Zakat (18,079) (24,662) (29,229) (37,702) (42,149) (45,344) (47,829) Income Before Minority Interest 667,799 910,820 1,100,160 1,470,387 1,643,824 1,768,420 1,865,335 Minority Interests (530) (558) (3,438) (1,470) (1,644) (1,768) (1,865) Net Income 667,269 910,262 1,096,722 1,468,917 1,642,180 1,766,652 1,863,470 Appropriation Account Opening Balance 634,336 1,034,878 1,581,614 2,187,164 2,774,730 3,595,821 4,479,147 Transfer to Share Capital - - - - - - - Transfer to Statutory Reserves (66,727) (91,026) (109,672) (146,892) - - - Dividend Paid (200,000) (272,500) (381,500) (734,458) (821,090) (883,326) (931,735) Retained Earnings 1,034,878 1,581,614 2,187,164 2,774,730 3,595,821 4,479,147 5,410,881 Source: Company Reports, Global Research 11
Cash Flow Statement Company- (SR 000 ) Profit for the year 667,269 910,262 1,096,722 1,468,917 1,642,180 1,766,652 1,863,470 Depreciation 227,684 378,968 505,201 657,814 717,018 770,794 826,677 Other Operating Activities 114,899 40,129 37,169 (71,637) (98,914) (131,830) (160,541) Change in Working Capital (284,653) (313,223) 163,064 121,582 120,984 113,375 90,341 Net Cash from operating activities 725,199 1,016,136 1,802,156 2,176,676 2,381,269 2,518,991 2,619,946 Investing Activities Plant & Property (1,099,196) (1,655,619) (1,334,987) (878,010) (910,820) (827,328) (859,732) Derivates Financial Instruments - (5,710) 6,648 - - - - Investment & Financial Assets - (18,263) (473,794) (19,263) (9,824) (9,922) (10,021) Intangible Assets-Goodwill - - (979,521) (76,408) (80,228) (84,240) (88,452) Derivative Financial instruments - 98,039 (25,919) 8,215 9,037 9,941 10,935 Other Investment Activities (389,007) 83,531 (376,015) 164,418 184,156 194,983 196,580 Cash Flows from Investing Activities (1,488,203) (1,572,088) (1,711,002) (713,592) (726,664) (632,345) (663,151) Financing Activities Increase in Loan 1,127,596 1,052,345 689,625 (517,297) (683,454) (868,836) (856,873) Bank Charges (94,860) (125,489) (147,518) (115,783) (95,279) (69,214) (43,508) Dividend Paid (199,396) (270,173) (379,977) (734,458) (821,090) (883,326) (931,735) Other Financing Activities (387) 7,879 7,797 20,727 (24,834) (39,971) (39,023) Cash Flows from Financing Activities 832,953 664,562 169,927 (1,346,811) (1,624,657) (1,861,347) (1,871,138) Increase/Decrease in Cash 69,949 108,610 261,081 116,273 29,947 25,298 85,656 Cash Beginning Balance 68,026 137,975 246,585 507,666 623,939 653,886 679,185 Cash Ending Balance 137,975 246,585 507,666 623,939 653,886 679,185 764,841 Source: Company Reports, Global Research 12
Fact Sheet Company- Liquidity Ratios Current Ratio 1.62 1.37 1.51 1.46 1.38 1.26 1.25 Cash Ratio 0.18 0.19 0.35 0.37 0.36 0.34 0.36 Profitability Ratios Gross Margin 39.6% 39.7% 40.3% 40.8% 41.5% 41.9% 41.8% EBITDA Margin 30.4% 30.7% 30.4% 31.1% 32.0% 32.8% 32.9% EBIT Margin 20.7% 21.1% 21.8% 22.1% 22.8% 23.2% 23.2% Net Profit Margin 17.7% 18.1% 18.7% 20.0% 21.1% 21.8% 22.1% ROAE 27.0% 27.3% 24.4% 25.4% 24.9% 23.7% 22.3% ROAA 13.2% 12.5% 11.4% 13.0% 14.0% 14.7% 15.3% Leverage Ratios Debt to Equity 0.44 0.46 0.43 0.36 0.29 0.19 0.11 Debt to Asset 40.9% 44.5% 39.8% 33.4% 26.7% 19.1% 11.8% Liabilities/Total Assets (x) 0.52 0.56 0.51 0.46 0.41 0.34 0.28 Growth Rates Revenue Growth Rate 36.7% 33.4% 16.7% 25.1% 6.3% 3.9% 4.3% Net Income Growth Rate 43.6% 36.4% 20.5% 33.9% 11.8% 7.6% 5.5% Equity Growth Rate 60.9% 18.5% 48.8% 14.8% 13.6% 12.7% 11.8% Total Asset Growth Rate 68.0% 29.1% 34.3% 5.2% 3.1% 1.4% 2.0% Ratios Use for Valuation Number of Shares (mn) 109 109 115 115 115 115 115 Par value per share (SR) 10 10 10 10 10 10 10 BV per share (SR) 28.0 33.2 46.8 53.7 61.0 68.8 76.9 EPS (SR) 6.1 8.4 9.5 12.8 14.3 15.4 16.2 Market Price (SR) 118 135 165 181.75 181.75 181.75 181.75 Market Cap in (SR mn) 12,862 14,715 18,975 20,901 20,901 20,901 20,901 EV (SR mn) 15,841 18,411 22,449 23,781 23,085 22,123 21,201 EV/EBITDA 13.81 11.91 12.58 10.42 9.24 8.34 7.62 P/E Ratio (x) 19.28 16.17 17.30 14.23 12.73 11.83 11.22 P/BV Ratio (x) 4.21 4.07 3.53 3.38 2.98 2.64 2.36 Source: Company Reports, Global Research *Historical P/E & P/BV multiples pertain to respective year end prices, while those for future years are based on closing prices on the Tadawul as of 20th. 13
This Page is Intentionally Left Blank (For Printing Purpose Only) 14
This Page is Intentionally Left Blank (For Printing Purpose Only) 15
The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure. Disclosure Checklist Company Recommendation Ticker Price Disclosure Company () Hold ALMARAI AB 2280.SE SR181.75 1, 10 1. did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in. 3. makes a market in securities issued by this company. 4. acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of serves on the board of directors of this company. 7. Within the past year, has managed or co-managed a public offering for this company, for which it received fees. 8. has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. expects to receive or intends to seek compensation for investment banking services from this company in the next three month. 10. Please see special footnote below for other relevant disclosures. Global Research: Equity Ratings Definitions Global Rating Definition Buy Hold Reduce Sell Fair value of the stock is >10% from the current market price Fair value of the stock is between +10% and -10% from the current market price Fair value of the stock is between -10% and -20% from the current market price Fair value of the stock is < -20% from the current market price This material was produced by - Saudia, a firm regulated by the Capital Market Authority of KSA. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities Information and opinions contained herein have been compiled or arrived by Global -Saudia from sources believed to be reliable, but Global- Saudia has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global - Saudia accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global- Saudia for, or sent by Global- Saudia to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Global investment house- Saudia is authorized and regulated by the Capital Market Authority (CMA) in the Kingdom of Saudi Arabia. License Number 07067-37. 16
Website: www.globalinv.net Global Tower Sharq, Al-Shuhada Str. Tel. + (965) 2 295 1000 Fax. + (965) 2 295 1005 P.O. Box: 28807 Safat, 13149 Kuwait Brokerage Yousef S. Fahed Alebrahim (965) 2295-1702 yalebrahim@global.com.kw Research Faisal Hasan, CFA (965) 2295-1270 fhasan@global.com.kw Index Rasha Al-Huneidi (965) 2295-1285 huneidi@global.com.kw Wealth Management - Kuwait Rasha Al-Qenaei (965) 2295-1380 alqenaei@global.com.kw Wealth Management - International Fahad Al-Ibrahim (965) 2295-1400 fahad@global.com.kw Global Kuwait Tel: (965) 2 295 1000 Fax: (965) 2 295 1005 P.O.Box 28807 Safat, 13149 Kuwait Global Abu Dhabi Tel: (971) 2 6744446 Fax: (971) 2 6725263/4 P.O.Box 127373 Abu Dhabi, UAE Global Bahrain Tel: (973) 17 210011 Fax: (973) 17 210222 P.O.Box 855 Manama, Bahrain Global Saudi Arabia Tel: (966) 1 2199966 Fax: (966) 1 2178481 P.O. Box 66930 Riyadh 11586, Kingdom of Saudi Arabia Global Dubai Tel: (971) 4 257977 Fax: (971) 4 257960/1/2 P.O.Box 121227 Dubai, UAE Global Qatar Tel: (974) 4967305 Fax: (974) 4967307 P.O.Box 18126 Doha, Qatar Global Egypt Tel: 20 (2) 37609526 Fax: 20 (2) 37609506 P.O.Box 7 Abdel Hadi Saleh St., El-Nasr Tower, Giza Global Jordan Tel: (962) 6 5005060 Fax: (962) 6 5005066 P.O.Box 3268 Amman 11180, Jordan Global Wealth Manager E-mail: contactus@global.com.kw Tel.: (965) 180 42 42 Disclaimer This document and its contents are prepared for your personal use for information purposes only and is not an offer, or the solicitation of an offer, to buy or sell a security or enter into any other agreement. Projections of potential risk or return are illustrative, and should not be taken as limitations of the maximum possible loss or gain. The information and any views expressed are given as at the date of writing and subject to change. While the information has been obtained from sources believed to be reliable we do not represent that it is accurate or complete and it should not be relied on as such., its affiliates and subsidiaries can accept no liability for any direct or consequential loss arising from use of this document or its contents. At any time, or its employees may have a position, subject to change, in any securities or instruments referred to, or provide services to the issuer of those securities or instruments.