Welcome to the Saudi Equity Market - Riyad Capital Report... · 2019. 8. 6. · Savola Group 74.39 10,592 12,432 18.9x 3.9x 1.4x 1.6x 18.1x 2.7 (5%) 90.50 63.50 9.5 0.5 534 1.0 *

Welcome to the Saudi Equity Market

Research Team

[email protected]

+966-11-2036807

Open for QFIs Event Update

June 15, 2015 Source: ibtimes

mailto:[email protected]

At a Glance Saudi equity market opens for Qualified Foreign Investors (QFIs) from

today With a market cap of USD 559bln, it is the largest in the Middle East Avg. trade value of USD 2.3 bln makes Saudi among Top 5 in the EM 67 stocks with market cap > USD 1 bln, only 5 stocks < USD 100mln 170 listed companies, > 90% stocks change hands daily Saudi Mkt Cap/GDP at 75%, plenty of room to grow Rising swap positions indicate growing interest Potential inclusion in the MSCI EM index by 2017 with an estimated

weight of 2% (as per MSCI) could trigger new fund flows Expect a gradual entry of QFIs, leading to higher volumes and

increase in the proportion of institutional investors in the market We view Saudi equities as a theme-based long-term growth play

2


All data as of June 10, 2015

The Saudi Market Opportunity


Market Snapshot

4

Index TASI

Avg. Traded Value (USD bln) 2.3

Trading Hours 11:00 15.30

Top 5 Stocks by Mkt Cap

Company USD bln

SABIC 83

Saudi Telecom Company 36

Listed Companies 170

Market Cap (USD bln) 559

52 week high-low

Forward P/E (x) 16.6

Current Div Yield % 2.8

Forward P/B (x) 2.2

TASI YTD Performance (%) 14.5

Exchange rate USD-SAR 3.75

National Commercial Bank 35

Al Rajhi Bank 28

Kingdom Holding Company 21

Top 5 Stocks by Weight

Company Weight (%)

Al Rajhi Bank 8.5

SABIC 7.1

National Commercial Bank 5.2

Jabal Omar Development 4.6

Savola Group 3.2


Source: Bloomberg

11,159 7,225

QFI Limits

5


5%

20%

49%

10%

Maximum single QFI ownership per Company

Maximum total QFI ownership per Company

Total foreign ownership (QFIs, swaps and expats) per Company

Limit of QFI ownership of the market (based on market cap)

Source: Tadawul

Five stocks excluded from foreign ownership: (1) Jabal Omar Development (2) Taiba Holding (3) Makkah Construction and Development (4) Knowledge Economic City and (5) National Shipping Co.

Current foreign participation at 1.5% (reported by Tadawul as of May 30th )

* QFI clients could be financial institutions such as investment funds without the above AUMs and years of experience threshold restrictions

* Detailed rules and regulations available here

QFI* must be a Foreign Fin. Inst. with a minimum AUM of USD 5bln (potentially relaxable to USD 3bln) and 5 years experience. Must be assessed by an AP and approved by CMA.

http://www.cma.org.sa/En/Documents/Rules for Qualified Foreign Financial Institutions Investment In Listed Shares.pdf

TASI is up +25% in the last 2 years

6


Source: Tadawul, Riyad Capital

Market offers diverse sector exposure

Although Banks (33%) and Petchems (18%) are the largest, 13 other sectors available for investment

7


Sector Weight Listed Market Cap P/E TTM Div Yield YTD Return

Companies USD (bln) (x) (%) (%)

Banks & Financial Services 33% 12 157 14.5 2.3 16.0

Petrochemical Industries 18% 14 133 19.9 4.2 14.0

Real Estate Development 9% 8 35 33.1 1.0 31.2

Cement 7% 14 24 14.5 6.1 1.1

Agriculture & Food Industries 7% 16 35 24.6 2.2 3.3

Retail 6% 15 23 26.6 2.1 13.9

Telecommunication & Information Technology 4% 4 45 153.9 4.3 (9.1)

Industrial Investment 4% 15 22 25.3 1.5 37.8

Insurance 3% 35 14 95.8 0.5 28.4

Building & Construction 2% 17 8 56.2 2.0 12.3

Transport 2% 4 8 23.2 2.3 44.6

Hotel & Tourism 2% 4 8 20.5 1.7 21.2

Energy & Utilities 2% 2 21 26.2 4.1 16.3

Multi-Investment 1% 7 24 47.9 2.2 21.2

Media and Publishing 0% 3 1 NA 0.0 3.7

Source: Bloomberg

Top 15 stocks account for 59% of Market Cap

8


SABIC ranks as one of the world’s biggest petrochemical producers and the largest public company in the Middle East

Almarai is the world’s largest vertically integrated dairy company

Company

Price

(SAR)

Mcap

USD

mln

EV USD

mln P/E (x)

P/B

(x)

P/S

(x)

EV/

Sales

EV/

EBITDA

Div.

Yld

YTD

Return

52 Wk-

Hi

(SAR)

52 Wk-

Lo

(SAR)

6M

ADTV

(US$

6M

Avg

Vol

Shares

O/S

(Mln) Beta

SABIC 103.58 82,855 96,710 14.9x 1.9x 1.8x 1.7x 6.0x 5.8 24% 136.50 70.25 126.8 5.2 3,000 1.2

Saudi Telecom Co 67.99 36,257 32,610 12.3x 2.3x 2.9x 2.4x 5.5x 5.9 3% 76.50 55.00 17.2 1.0 2,000 0.9

National Commercial Bank 66.35 35,383 NM 15.1x 2.8x 6.8x NM NM 1.0 21% 72.75 45.00 37.6 2.3 2,000 0.8

Al Rajhi Bank 65.63 28,437 NM 16.0x 2.5x 7.2x NM NM 2.3 28% 79.50 48.40 61.2 3.9 1,625 1.0

Kingdom Holding Co 21.66 21,403 20,414 90.2x 2.6x 38.8x 34.5x 287.1x 2.3 20% 25.90 14.55 5.5 1.0 3,706 0.9

Saudi Electricity Co 17.91 19,898 42,629 28.9x 1.3x 1.9x 4.1x 9.1x 3.9 20% 21.00 13.80 19.0 4.0 4,167 0.9

Jabal Omar Development Co* 75.55 18,722 20,723 166.4x 7.5x 94.9x 75.6x 116.8x NM 44% 88.75 44.00 47.8 2.6 929 0.8

Samba Financial Group 28.20 15,038 NM 11.2x 1.5x 6.9x NM NM 3.0 22% 31.20 20.88 12.2 1.7 2,000 1.1

Almarai Co 91.89 14,701 17,195 32.8x 5.0x 4.2x 4.8x 17.7x 1.1 20% 96.50 67.00 7.9 0.4 600 0.7

Saudi British Bank 35.07 14,027 NM 12.2x 2.0x 7.1x NM NM 2.0 (10%) 44.67 31.33 4.0 0.4 1,500 0.9

Riyad Bank 17.58 14,062 NM 11.9x 1.4x 5.6x NM NM 4.0 3% 24.30 14.75 12.8 2.7 3,000 0.9

Saudi Arabian Mining Co 44.88 13,983 24,873 30.9x 1.9x 3.9x 7.2x 21.2x NM 47% 48.40 23.20 101.8 10.0 1,168 1.3

Saudi Arabian Fertilizer Co 121.29 13,475 12,782 17.3x 6.0x 11.9x 11.2x 15.3x 4.0 8% 135.60 100.80 12.2 0.4 417 0.7

Banque Saudi Fransi 37.82 12,155 NM 12.3x 1.6x 6.7x NM NM 2.6 21% 42.50 28.90 3.4 0.4 1,205 0.9

Savola Group 74.39 10,592 12,432 18.9x 3.9x 1.4x 1.6x 18.1x 2.7 (5%) 90.50 63.50 9.5 0.5 534 1.0

* Prohibited for foreign ownership

Source: Bloomberg

Top 15 investible stocks by free float

All foreign investors combined can invest up to a maximum of 49% shares of a Company

Updated FOL limits can be found here

9


CompanyOutstanding Shares

(mln)Free float (%)

Free Float (mln

shares)

Current Foreign

Ownership

Price

(SAR)

Market Cap

(SAR mln)

Riyad Bank 3,000 48% 1,426 1% 17.58 52,740

Al Rajhi Bank 1,625 73% 1,185 1% 65.63 106,649

Dar Al Arkan 1,080 100% 1,078 7% 9.04 9,763

Alinma Bank 1,500 69% 1,036 2% 23.83 35,745

Samba Financial Group 2,000 50% 1,005 7% 28.2 56,400

Saudi Kayan 1,500 65% 975 1% 11.55 17,325

Saudi Electricity 4,167 17% 716 0% 17.91 74,624

National Commercial Bank 2,000 36% 713 1% 66.35 132,700

Banque Saudi Fransi 1,205 54% 648 32% 37.82 45,573

SABIC 3,000 21% 632 1% 103.58 310,740

National Industrialization Co 669 87% 583 1% 23.62 15,799

Saudi British Bank 1,500 33% 488 42% 35.07 52,605

Arab National Bank 1,000 49% 486 41% 34.06 34,060

Etihad Etisalat 770 58% 444 1% 33.8 26,026

Saudi Arabian Mining 1,169 34% 394 0% 44.8 52,349

Source: Tadawul

http://www.tadawul.com.sa/wps/portal/!ut/p/c0/04_SB8K8xLLM9MSSzPy8xBz9CP0os3hLswCXUE8TIwMDFwtXA0ffAFcjDyMjIwMTc_3g1Dz9gmxHRQDfIIqh/

Steady IPO flow to the market

10

20 companies listed since 2012. USD 8.5 bln raised

NCB was the 2nd largest IPO globally in 2014

8 new IPO funds launched in 2015 as CMA looks to increase institutional allocation


Company Issue dateOffer Size

(mln shares)

Issue Price

(SAR)

Current

Price (SAR)

Price Change

(Issuance to Date)

Alinma Tokio Marine Mar-12 6.00 10.00 51.26 413%

Najran Cement Apr-12 85.00 10.00 27.9 179%

Al-Tayyar Travel Group* May-12 24.00 19.16 104.07 443%

Saudi Airlines Catering Jun-12 24.60 54.00 158.04 193%

City Cement Sep-12 94.60 10.00 24.98 150%

Dallah Healthcare Nov-12 14.20 38.00 143.75 278%

Northern Region Cement Jan-13 90.00 10.00 22.38 124%

National Medical Care Feb-13 13.50 27.00 66.7 147%

Aljazira Takaful May-13 10.50 10.00 53.41 434%

AIG-ANB Cooperative Insurance May-13 5.25 10.00 54.23 442%

Bawan Nov-13 15.00 36.00 50.92 41%

Saudi Marketing* Jan-14 7.50 28.29 74.89 165%

Umm Al-Qura Cement Apr-14 27.50 10.00 39.23 292%

Abdul Mohsen Al-Hokair Group May-14 16.50 50.00 91.05 82%

Al Hammadi* Jun-14 22.50 19.25 62.95 227%

National Commercial Bank Oct-14 500.00 45.00 66.35 47%

Electrical Industries Nov-14 13.50 54.00 57.75 7%

Middle East Paper May-15 15.00 30.00 44.4 48%

Saudi Company for Hardware May-15 7.20 70.00 135.89 94%

Saudi Ground Services Jun-15 56.40 50.00

Source: Tadawul

* Issue price adjusted for capital increase

Ongoing

Rising swap positions indicates greater interest

11


Source: Tadawul

MSCI inclusion could be a trigger for TASI

Inclusion in MSCI EM index would likely be a trigger for fund flow into the market

According to MSCI, Saudi market would have to wait until June 2017 for addition to the EM index

MSCI initial estimates for Saudi weight in MSCI EM index is 2%

USD 27 bln likely to flow in as per MSCI estimates

With 10% max cap and at current market capitalization, quantum of QFI opportunity stands at USD 56 bln

12


Expansionary policy intact despite oil correction

13


Source: IMF, World Bank

67

159 165

133

106

(7)

26

2010 2011 2012 2013 2014 2015 2016

Current Account Surplus/(Deficit) USD bln

C/A deficit expected in 2015

192

238 261

283

322 325 318

2010 2011 2012 2013 2014 2015 2016

Government Spending, (USD bln)

Government spending totaled USD 1.2 trln during 2010-2014, expected to remain healthy

445

541

657

726 732

2010 2011 2012 2013 2014

Forex Reserves (USD bln)

Forex reserves may decline, but still formidable

527

670

734

744

752

649

706

7.4%

8.6%

5.8%

4.0%4.6%

3.5%

2.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2010 2011 2012 2013 2014 2015 2016

Real GDP growth may dip in the short term but likely to maintain long term steady growth

GDP (USD bln) Real growth

Comparison to Regional and Global Peers


Saudi’s core sectors are GCC heavy weights (by mkt cap) and portray its market depth

15


Source: Bloomberg

Saudi42%

UAE31%

Qatar11%

Oman 4%

Bahrain 2%

Kuwait10%

Telecoms

Saudi85%

Qatar14%

Kuwait1%

Petrochemicals

Saudi40%

UAE26%

Qatar17%

Oman 2%

Bahrain 3%

Kuwait11%

Banks

Saudi82%

UAE5%

Qatar6%

Oman 4%

Kuwait3%

Cement

Saudi65%

UAE7%

Qatar21%

Oman 8%

Utilities

Saudi86%

Qatar4%

Kuwait11%

Retail

Valuations are not at large spreads to EM peers

16

Saudi commands better valuations due to its high ROE generation amid low leverage adding

further scope for value creation

Saudi’s 16% earnings growth is attractive versus DM, EM and GCC peers when growth

in most regions are in low double digits


Source: Bloomberg

*All regional indices are MSCI based. EM refers to MSCI Emerging markets Index, DM refers to Pan Developed Market Indices

Market cap to GDP ratio implies its growing efficiency which is nearing DM peers

17


Source: Bloomberg

Plenty of room for Market Cap/GDP ratio to expand

Favorable valuations for Saudi equities as consensus argues a 16% earnings growth for 2015-17E

18


Source: Bloomberg

P/B is reasonable considering relative ROEs

19


Source: Bloomberg

Valuations could expand further on QFI interest

20


Source: Bloomberg

1.5

1.7

1.9

2.1

2.3

2.5

2.7

Jun

-11

Oct

-11

Feb

-12

Jun

-12

Oct

-12

Feb

-13

Jun

-13

Oct

-13

Feb

-14

Jun

-14

Oct

-14

Feb

-15

Jun

-15

P/B Ratio

P/B 3 Yr Avg 5Yr Avg 12M Avg

2.0

2.5

3.0

3.5

4.0

Jun

-11

Oct

-11

Feb

-12

Jun

-12

Oct

-12

Feb

-13

Jun

-13

Oct

-13

Feb

-14

Jun

-14

Oct

-14

Feb

-15

Jun

-15

P/S Ratio

P/S 3 Yr Avg 5Yr Avg 12M Avg

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

Jun

-11

Oct

-11

Feb

-12

Jun

-12

Oct

-12

Feb

-13

Jun

-13

Oct

-13

Feb

-14

Jun

-14

Oct

-14

Feb

-15

Jun

-15

EV/EBITDA Ratio

EV/EBITDA 3 Yr Avg 5Yr Avg 12M Avg

3.0

3.5

4.0

4.5

5.0

Jun

-11

Oct

-11

Feb

-12

Jun

-12

Oct

-12

Feb

-13

Jun

-13

Oct

-13

Feb

-14

Jun

-14

Oct

-14

Feb

-15

Jun

-15

EV/Sales Ratio

EV/Sales 3 Yr Avg 5Yr Avg 12M Avg

From market opening announcement, Saudi P/E has expanded <50% versus UAE & Qatar >70%

21


10.0

12.0

14.0

16.0

18.0

20.0

22.0

Jun

-12

Oct

-12

Feb

-13

Jun

-13

Oct

-13

Feb

-14

Jun

-14

Oct

-14

Feb

-15

Jun

-15

Saudi Arabia P/E Ratio

TASI 3 Yr Avg 12M Avg

7.0

9.0

11.0

13.0

15.0

17.0

19.0

21.0

Jun-

12

Oct

-12

Feb

-13

Jun-

13

Oct

-13

Feb

-14

Jun-

14

Oct

-14

Feb

-15

Jun-

15

Dubai P/E Ratio

DFM 3 Yr Avg 12M Avg

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

Jun-

12

Oct

-12

Feb

-13

Jun-

13

Oct

-13

Feb

-14

Jun-

14

Oct

-14

Feb

-15

Jun-

15Qatar P/E Ratio

DSM 3 Yr Avg 12M Avg

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

Jun-

12

Oct

-12

Feb

-13

Jun-

13

Oct

-13

Feb

-14

Jun-

14

Oct

-14

Feb

-15

Jun-

15

Qatar vs Dubai P/E Ratio

DSM DFM

Source: Bloomberg

Thank You

Muhammad Faisal Potrik Santhosh Balakrishnan

[email protected] [email protected]

+966-112036807

Aiyaz Hasan Yasser bin Ahmed


Ahmed Al-Fozan Sultan Alabdulkarim


Khalid Al-Madhyan

[email protected]











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