SICO remains ‘neutral,’ raises TP on Jarir, Al Othaim

SICO Investment Bank has maintained a ‘neutral’ rating on Jarir Marketing Co. and Al Othaim Markets Co., while raising the target prices on both stocks

Jarir’s target price was increased to SAR 130 per share from SAR 124, on better-than-expected Q416 numbers, and higher store openings forecast for this year and 2018.

The firm’s sales rose 18 percent year-on-year (YoY) in Q4, beating SICO’s estimates, mainly due to higher mobile sales, the brokerage said in a report.

Looking forward, SICO forecasts a 5 percent growth for Jarir, to be driven by the shift from non-organized to organized retail as a result of the 100 percent Saudization on mobile retailers.

New stores will also contribute to revenue growth, while the contribution of higher margin products is expected to decline as a result of lower office supplies purchases by corporate and government entities.

The target price on Al Othaim Markets, meanwhile, was raised to SAR 113 per share from SAR 97.

The firm’s sales rose 17 percent YoY for fiscal year 2016, due to new store openings, while rental income was 13 percent higher YoY.

On the other hand, operating margins declined to 2.2 percent from 2.4 percent a year earlier, due to higher marketing expenses, staff costs, and expenses associated with opening new stores.

SICO said it expects an 18 percent revenue increase in 2017, driven by lower revenue from mature stores and aggressive expansion plans in Saudi Arabia and Egypt.

“Al Othaim’s ability to generate double-digit growth allows management to achieve better terms with suppliers and higher rebates,” the brokerage said, adding that operating margins, however, are expected to decline due to the higher expatriate levy and other regulatory changes in the kingdom.  

Saudi Arabia’s retail market is undergoing dynamic changes, such as lower available disposable income and higher business running costs, in addition to the expected impact of value-added tax (VAT) on both consumers and retailers starting 2018, the report said.

“It will take time for market players to adopt to these changes, and for nationals to adhere to a lower disposable income,” SICO added.