August 2022

Jarir Marketing Co.

Investment Update

Remain Overweight with revised TP of SAR 194/share; current headwinds in

Overweight
supply chain and competitions issues to remain in ST
Our LT positive outlook on Jarir is based on a foreseeable increase in market Target Price (SAR) 194.0
share through store expansions, margin improvement in LT, strong return profile
Upside / (Downside)* 12.8%
and ability to navigate through current challenges. We revise our TP for Jarir to
SAR 194.0/share and maintain our “Overweight” rating on the stock. Source: Tadawul *prices as of 02 August 2022
nd

Key Financials
• Electronics segment expected to face headwinds in near term; while Stationery
SARmn
segment returned to normalcy: Jarir’s revenue edged lower by 0.2% Y/Y to SAR (unless specified)
FY20 FY21 FY22E FY23E
2,010.5mn while the net profit declined 6.3% Y/Y in Q2-22 to SAR 177.2mn. The Revenue 9,306 9,088 9,117 9,828
decline in net profit was a result of lower GP margin (lower by 64bps Y/Y to 12.4%) Growth % 10.5% -2.3% 0.3% 7.8%
impacted by unfavorable sales mix and promotional activities conducted to boost Gross Profit 1,329 1,229 1,256 1,376
sale of smartphones. The electronics segment depicted steady growth during FY16- Net Profit 1,003 992 977 1,104
FY21 (revenue CAGR 13.2%) but started to face the brunt of supply chain issues. Growth % 1.9% -1.1% -1.5% 13.0%
We believe the segment will continue to face inflationary and supply side pressures EPS 8.36 8.27 8.14 9.20
in H2-22 but regain impetus in the LT. The stationery segment witnessed a rebound Source: Company reports, Aljazira Capital

owing to resumption of offline mode of education. We expect the segment to support Revenue (SAR mn) and GP Margin
the increase in profits given its relatively higher margins. 10,000 16%

• The company’s plans to add stores will support in expanding market share,
9,000 15%
while online sales will be essential to complement expansion plans: In FY21,
the company opened net 4 stores (4 new stores, 2 replacement stores while 2 stores
8,000 14%
were closed) taking the total store count to 67. We have modelled an addition of 4
stores per year on an average driven by the company’s store expansion plan. We
expect total number of stores to reach up to 78 by FY24E. E-commerce sales as 7,000
FY18 FY19 FY20 FY21 FY22E FY23E
13%

a percentage of total sales increased in FY21 to 8.7% from 4.7% in FY19. Sales Revenue (LHS) GP Margin (RHS)
through online medium increased 206.5% Y/Y in FY20 due to restricted movement, Source: AlJazira Capital, Company reports
however, the segment started to lose traction in FY21 and segment’s share of total Key Ratios
revenue declined to 8.7% in FY21 (13.1% in FY20). We believe the improvement in
online sales will support expansion plans. FY20 FY21 FY22E FY23E

GP Margin 14.3% 13.5% 13.8% 14.0%

• Margins are likely to be under pressure in near term; expected to improve
steadily in LT: We believe the company’s plans to expand the purchase installment Net Margin 10.8% 10.9% 10.7% 11.2%
program and other promotional campaigns will support the rise in revenue but P/E (x) 20.7 23.8 21.1 18.7
would come at the cost of margins in near term (FY22E, 13.8% and FY23E, 14.0%). P/B (x) 12.1 13.3 11.1 10.4
However, we expect steady improvement in margins in LT with GP margin and NP EV/EBITDA (x) 17.1 19.6 17.7 15.8
margin to expand by c.31bps and c.43bps on an average every year till FY26E
Div Yield (%) 4.4% 4.0% 4.3% 4.8%
supported by improved contribution of stationery segment to total sales. Source: Company reports, Aljazira Capital

• Healthy working capital management, solid dividend payout and strong return Key Market Data
profile justify robust business prospects: Jarir’s cash generation remains strong Market Cap (SAR bn) 20.6
with 5-year historical average FCF yield at 5.6%. We expect total FCF of SAR 5.8bn YTD% -13.1%
during FY22E-FY26E. Our assumptions translate into ROE of 57% in FY23E and 52 weeks (High)/(Low) 143.6/216.6
ROA of 26% in FY23E. Based on Jarir’s history of consistent and healthy dividend Share Outstanding (mn) 120.0
payment we expect a dividend yield at 4.3% during FY22E. Source: Company reports, Aljazira Capital

AJC view and valuation: We expect revenue and net income to increase at Price Performance

CAGR of 5.8% and 8.7%, respectively, during FY21-FY26E. Our positive view 13,750
220

on Jarir is underpinned by company’s plans to add stores, strategies to expand 200

market share, healthy return profile and strong dividend yields. Product shortages 12,750
180
amid prolonged supply chain issues, and competition remain key risks. 11,750
160
We value Jarir assigning 50% weight to DCF (2.5% terminal growth and 7.3% 10,750 140
average WACC), while we assign 25% weight each to PE (20.5x based in FY23E)
Oct-21

Apr-22

Jun-22
Aug-21

Dec-21

Feb-22

Aug-22

and EV/EBITDA (17.0x based on FY23E EBITDA). These yield a target price of
SAR 194.0/share, implying 12.8% upside from the current levels. The stock is TASI(LHS) Jarir (RHS)

currently trading at a P/E of 21.1x as per our FY22E EPS. We remain “Overweight” Source: Tadawul, Aljazira Capital

on Jarir with a revised TP of SAR 194.0/share. Head of Sell-Side Research

Jassim Al-Jubran
+966 11 2256248

1
[email protected]

© All rights reserved

 August 2022
Jarir Marketing Co.
Investment Update

Key Financial Data

Amount in SAR mn, unless otherwise specified FY19 FY20 FY21 FY22E FY23E FY24E
Income statement
Revenues 8,425 9,305.8 9,088.3 9,117 9,828 10,503
Y/Y 14.4% 10.5% -2.3% 0.3% 7.8% 6.9%
Cost of Sales (7,151) (7,977) (7,859) (7,861) (8,451) (9,005)
Gross profit 1,273 1,329 1,229 1,256 1,376 1,498
General and Administrative exp (119) (148) (127) (130) (131) (133)
Selling and marketing expenses (133) (128) (141) (146) (153) (155)
Other income 49 48 100 62 79 84
Operating profit 1,071 1,101 1,061 1,043 1,171 1,293
Y/Y 9.5% 2.8% -3.6% -1.7% 12.3% 10.5%
Financial charges (61) (48) (42) (40) (38) (37)
Profit before zakat 1,010 1,052 1,019 1,003 1,133 1,257
Zakat (25) (49) (27) (25) (28) (31)
Net income 984.7 1,003.0 991.9 977 1,104 1,225
Y/Y 2.6% 1.9% -1.1% -1.5% 13.0% 11.0%
Balance sheet
Assets
Cash & bank balance 29 97 432 219 250 376
Other current assets 1,760 1,743 1,636 1,742 1,874 1,949
Property & Equipment 1,102 1,125 1,083 1,119 1,159 1,208
Other non-current assets 1,110 1,034 961 994 994 988
Total assets 4,002 3,999 4,112 4,074 4,276 4,521
Liabilities & owners' equity
Total current liabilities 1,551 1,515 1,633 1,528 1,634 1,760
Total non-current liabilities 805 759 711 680 665 661
Paid -up capital 1,200 1,200 1,200 1,200 1,200 1,200
Statutory reserves 194 295 394 492 602 602
Other reserve (66.6) (64.2) (64.9) (64.9) (64.9) (64.9)
Retained earnings 317 295 240 240 240 362
Total owners' equity 1,645 1,725 1,769 1,867 1,977 2,100
Total equity & liabilities 4,002 3,999 4,112 4,074 4,276 4,521
Cashflow statement
Operating activities 973 1,397 1,428 923 1,240 1,450
Investing activities (105) (94) 24 (187) (199) (215)
Financing activities (984) (1,235) (1,116) (949) (1,011) (1,108)
Change in cash (116) 67 336 (213) 30 126
Ending cash balance 29 97 432 219 250 376
Key fundamental ratios
Liquidity ratios
Current ratio (x) 1.2 1.2 1.3 1.3 1.3 1.3
Quick ratio (x) 0.3 0.4 0.5 0.4 0.4 0.5
Profitability ratios
GP Margin 15.1% 14.3% 13.5% 13.8% 14.0% 14.3%
Operating Margins 12.7% 11.8% 11.7% 11.4% 11.9% 12.3%
EBITDA margin 14.4% 13.5% 13.4% 13.0% 13.5% 14.0%
Net Margins 11.7% 10.8% 10.9% 10.7% 11.2% 11.7%
Return on assets 27.3% 25.1% 24.5% 23.9% 26.4% 27.9%
Return on equity 66.4% 58.1% 56.9% 52.1% 57.2% 60.0%
Market/valuation ratios
EV/sales (x) 2.5 2.3 2.6 2.3 2.1 2.0
EV/EBITDA (x) 17.2 17.1 19.6 17.7 15.8 14.2
EPS (SAR) 8.2 8.4 8.3 8.1 9.2 10.2
BVPS (SAR) 13.7 14.4 14.7 15.6 16.5 17.5
Market price (SAR)* 165.6 173.4 196.8 172.0 172.0 172.0
Market-Cap (SAR mn) 19,872.0 20,808.0 23,616.0 20,640.0 20,640.0 20,640.0
Dividend yield 4.9% 4.4% 4.0% 4.3% 4.8% 5.3%
P/E ratio (x) 20.2 20.7 23.8 21.1 18.7 16.8
P/BV ratio (x) 12.1 12.1 13.3 11.1 10.4 9.8
Source: Company financials, AlJazira research

2 © All rights reserved

 RESEARCH DIVISION

Head of Sell-Side Research - AGM

Jassim Al-Jubran
+966 11 2256248
[email protected]

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RESEARCH
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1. Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target.
Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels
over next twelve months.
TERMINOLOGY

2. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target.
Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve
RATING

months.
3. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks
rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve
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4. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further
analysis of a material change in the fundamentals of the company.

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