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Jarir Marketing -Equity Report -22-12-2016

Source: Riyad Bank

Smartphone Sales Help Topline

We expect revenues to drop marginally by -1.8% Y/Y to SAR 1.49 billion in 4Q2016. Most of the back to school boost in revenues has already occurred in 3Q but higher smartphones and other electronic item sales will likely enhance topline as Jarir has particularly benefitted from closure/understaffing of telecom shops on the high street post Saudization drive. In every 4Q witnesses higher selling and distribution expenses, which we believe is a result of giving greater discounts; this is expected to occur this quarter. We anticipate lower margins and net profits Q/Q but an improvement on a Y/Y basis. While points of sales transactions and ATM withdrawals have ticked up in October, they are still weak indicating a slowing economy. Jarir currently trades at a 2017E P/E of 13.7x lower than TASI’s P/E of 15.2x and sector’s P/E of 15.0x. We continue to recommend a Neutral but may look at revising target price.

-1.8% Y/Y rise in revenues likely

Following 2016 trend, we believe revenues will decrease by -1.8% Y/Y to SAR 1.49 billion for the quarter, amid robust smartphone sales and some extended promotion as part of the back to school season. Computers and computer supplies sales are likely to have shrunk while office supplies segment is also expected to have been anemic. Retail spending is under pressure as government employees allowances have been cut, reflected in POS and ATM withdrawals data. Jarir has benefitted from the Saudization
campaign by the Labor Ministry aimed at mobile and other telecom shops resulting in a closure of many of them and subsequent shifting of business to more established retailers such as a Jarir.

Huge volatility in the stock this year

After a massive drop in stock price in the bear market, Jarir’s stock has rallied smartly by +55%, outperforming the TASI in the current rally. However, we are cautious on the outlook for the retail sector and believe the stock has run up too much too soon. With an expected SAR 2.00 DPS in 4Q, full year payout of SAR 7.15 is expected (dividend yield of 6.3%).

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