Welcome to the Saudi Equity Market - Riyad Capital Report... · 2019. 8. 6. · Savola Group 74.39...
Transcript of Welcome to the Saudi Equity Market - Riyad Capital Report... · 2019. 8. 6. · Savola Group 74.39...
Welcome to the Saudi Equity Market
Research Team
+966-11-2036807
Open for QFIs Event Update
June 15, 2015 Source: ibtimes
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
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All data as of June 10, 2015
The Saudi Market Opportunity
Open for QFIs Event Update
Market Snapshot
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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
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Source: Bloomberg
11,159 7,225
QFI Limits
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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.
TASI is up +25% in the last 2 years
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Source: Tadawul, Riyad Capital
Market offers diverse sector exposure
Although Banks (33%) and Petchems (18%) are the largest, 13 other sectors available for investment
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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
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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
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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
Steady IPO flow to the market
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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
Open for QFIs Event Update
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
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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
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Expansionary policy intact despite oil correction
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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
Open for QFIs Event Update
Saudi’s core sectors are GCC heavy weights (by mkt cap) and portray its market depth
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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
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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
Open for QFIs Event Update
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
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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
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Source: Bloomberg
P/B is reasonable considering relative ROEs
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Source: Bloomberg
Valuations could expand further on QFI interest
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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%
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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
[email protected] [email protected]
Ahmed Al-Fozan Sultan Alabdulkarim
[email protected] [email protected]
Khalid Al-Madhyan
Open for QFIs Event Update
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable, Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and do not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader’s may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information; opinions, forecasts and projections contained in it are protected by the copyright rules and regulations. Riyad Capital is a Saudi limited liability company , with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia (“KSA”). Website: www.riyadcapital.com For feedback, please contact [email protected]