Jarir Marketing Company GCC Equities

Consumer Goods
CMP: SAR 15.02, Target Price: SAR 15.00, ESG Rating*: BBB
Company Update
Nishit Lakhotia, CFA, CAIA
+973 1751 5021
NLakhotia@sicobank.com 17 August 2023

Ratings
Short-term Neutral
BNPL driving sales in a weak market Long-term Neutral
Risk Profile High
• Macro Environment is weak – Sales push through financing and discounting hurting
margins
Market Data
Sector Consumer Goods
• Recommendation Neutral – TP SAR 15/Markets; 2H23 could be weak YoY
Market Cap USD 4.81bn
Primary Market Saudi Arabia
Jarir’s BNPL scheme boosting sales mainly through ecommerce at the expense of margins
Other
Reuters 4190.SE
Jarir 2Q23 revenues (preliminary results) were at a record quarterly run rate for 2Q at SAR
Bloomberg JARIR AB Equity
2.44bn (+21.2%YoY) but on a gross margin of less than 10%, which according to our
Free Float 73%
calculation was the lowest margin for the retailer since the past 20 years (data at our end). The
YoY jump in revenues has been a consequence of an attractive financing scheme coupled with
discounts and promotions to push sales in an otherwise weak and competitive market. Jarir’s Relative Price Performance
Buy Now Pay Later (BNPL) has been a success in driving sales, coupled with continuous
Tadawul JARIR
promotion both through its stores and e-commerce portal. In fact, e-commerce has been the 130

primary driver of the YoY doubledigit revenue growth, with sales at the retail store level being 110

rather tepid. 90

70

50

Exhibit 1. Jarir Segment – wise revenues

Oct-22

Jun-23
Apr-23
Dec-22
Aug-22

Feb-23
2,500
Restated to 100

2,000
Relative Price Performance

1,500 (%) 1m 3m 12m

Absolute (8.1) (8.5) (15.5)

1,000 Relative (5.3) (10.2) (6.3)

500 Valuation Ratio

2023E 2024E

- P/E x 19.6 18.1

1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 P/BV x 10.2 10.0

EV/EBITDA x 15.0 14.1
Retail E-commerce Wholesale
Div Yld% 5.2 5.5

Source: Company Data, in SAR mn

Trading Data
Daily Vol (6M Avg) 2.3
Within Ecommerce – sales of smartphone and electronics remains high despite broader
Daily T/o (6M Avg USD) 9.7
market weakness
Issued Shares 1,200.0
52 wk High/Low 18.40/14.16
The YoY jump in sales has come primarily from the smartphones and electronics category
Source: SICO Research, Bloomberg
within e-commerce, indicating customers are buying these products online on instalment /
financing options. This contrasts with the broader decline in PoS within electronics segment,
both in 2Q and YTD, as consumers spending bucket shifts to categories such as hotels, travel,
education, restaurants and food and beverages in FY23.
*Please refer to the disclaimer for details of the ESG Rating
SICO BSC(c) P.O.Box 1331, Bahrain World Trade Center, East Tower, Manama, Kingdom of Bahrain, T: +973 1751 5000, F: +973 1751 4000. Licensed as a conventional wholesale bank by the CBB.
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 GCC Equities | August 2023 2

Exhibit 2. Ecommerce Product-wise sales Exhibit 3. Retail Product-wise sales

500 1,400
450
400 1,200
350 1,000
300
250 800
200 600
150
100 400
50 200
0
-
1Q22 2Q22 3Q22 4Q22 1Q23 2Q23
1Q22 2Q22 3Q22 4Q22 1Q23 2Q23
Smartphones, electronics and accessories Smartphones, electronics and accessories
Other IT and digital products and services Other IT and digital products and services
Books and office, school and arts supplies Books and office, school and arts supplies

Source: SICO Research, Company Data, in SAR mn Source: SICO Research, Company Data, in SAR mn

Increasing contribution of Ecommerce to overall revenues – the key driver

Exhibit 4. Contribution Breakdown - 1H22 Exhibit 5. Contribution Breakdown - 1H23

Wholesale Others Wholesale Others
3% 1% 2% 1%
e-Commerce
8%
e-
Commerce
21%

Retail
Retail
76%
88%

Source: SICO Research, Company Data Source: SICO Research, Company Data

Store launches going slow, outside Saudi expansion still contributes a small portion of
business

Jarir has reduced its FY23 target of opening 4-5 stores this year to 3-4 stores as per its 2Q
presentation. The retailer has opened one store in Sharjah, one in Kuwait, and recently in
Jeddah, YTD while replacing a store in al Khobar (KSA) with a larger format. However, despite
more than 15% of the stores being outside KSA, total revenues from these stores are less than
4.6% of Jarir’s overall revenues (1H23) - one reason being that consumers outside KSA prefer
to buy smartphones directly from telecom providers under packages and not from retailers
such as Jarir.

Accordingly, we believe Jarir’s future growth is largely KSA-driven, where brand recall and
loyalty remain strong. However, Jarir will see increasing competition from telecom providers
offering handsets as bundled packages in KSA as well. Accordingly, the retailer not only has to

SICO BSC(c) P.O.Box 1331, Bahrain World Trade Center, East Tower, Manama, Kingdom of Bahrain, T: +973 1751 5000, F: +973 1751 4000. Licensed as a conventional wholesale bank by the CBB.
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 GCC Equities | August 2023 3

offer much better after sales service, financing, better promotions and customer service
experiences but also needs to continuously revamp its product offering.
Jarir’s stationary and traditional book business is already on a structural decline trajectory. The
after-sales service (Jarir Care) is surely an advantage to customers buying from Jarir, and the
retailer is now also offering this service to outside customers as it is a high margin business.

Electronics segment in KSA is struggling – Jarir sales push is due to financing and discounting

Exhibit 6. Macro environment remains weak for PoS data shows decline in electronic sales YTD
30% 23% 24% 22%
25%
18% 17%
20% 14% 14%14%
15% 10% 12% 11%10%
10% 6%7%
5% 0%
0%
-5% 0% -1% -1%
-10% -6%
-7%
-15% -9% -8% -10%-10%
Hotels

Clothing and

Jewellery
Beverage and Food

Gas Stations

Electric and Electronic

Telecom
Education

Restaurants and Café

Furniture

Building material
Transportation

Construction &
Footwear

Devices
2Q23 % change PoS - KSA
YTD % change PoS - KSA

Source: SICO Research, SAMA

Valuation – TP SAR 15/sh, Recommendation Neutral

We do not see any upside for Jarir in the near term. The YoY growth is mainly due to attractive
financing schemes, discounts and sales through ecommerce. This is expected to slowdown in
the coming quarters and we remain concerned on Jarir’s margins as a result of this push
through financing and discounts. Overall, electronic market is weak and Jarir’s significant
dependence on smartphones, tablets and laptops as its other business remains on structurally
decline (stationary, books) is a concern. While more stores will drive revenues, but incremental
ROIC can be minimal and risk of cannibalization remains. Jarir also has struggled in general on
outside KSA business. The stock is priced in, infact risk of 2H23 being weak on YoY basis is
high.

SICO BSC(c) P.O.Box 1331, Bahrain World Trade Center, East Tower, Manama, Kingdom of Bahrain, T: +973 1751 5000, F: +973 1751 4000. Licensed as a conventional wholesale bank by the CBB.
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 GCC Equities | August 2023 4

Financials
Income Statement (Consolidated)
Year ending 31 Dec (SAR mn) 2022A 2023E 2024E 2025E

Revenue 9,392 10,576 11,168 11,685

Cost of Goods Sold 8,104 9,313 9,829 10,263

Gross Profit 1,287 1,263 1,339 1,423

Selling, General and Admin. Expenses 326 331 337 353

EBITDA 1,186 1,168 1,242 1,321

Rental Income 57 60 63 70

Operating Profit 1,019 992 1,064 1,140

Net Interest Income (41) (53) (48) (43)

Tax 0 0 0 0

Minority Interest 0 0 0 0

Net Profit 970 918 994 1,073

Balance Sheet (Consolidated)

Year ending 31 Dec (SAR mn) 2022A 2023E 2024E 2025E

Cash & Short Term Deposits 526 419 412 417

Other Current Assets 1,808 2,066 2,154 2,224

Investments 317 305 293 282

Net Fixed Assets 1,015 1,011 1,007 1,006

Rights of Use 591 535 479 424

Total Non-Current Assets 1,924 1,851 1,780 1,712

Total Assets 4,257 4,336 4,345 4,353

Current Liabilities 1,696 1,823 1,825 1,814

Total Debt and lease liabilities 583 770 708 647

Total non current Liabilities 760 741 726 712

Total Liabilities 2,456 2,564 2,550 2,526

Minority Interest 0 0 0 0

Share Capital 1,200 1,200 1,200 1,200

Reserves & Surplus 602 572 595 627

Shareholders Funds 1,802 1,772 1,795 1,827

Total Equity & Liabilities 4,257 4,336 4,345 4,353

SICO BSC(c) P.O.Box 1331, Bahrain World Trade Center, East Tower, Manama, Kingdom of Bahrain, T: +973 1751 5000, F: +973 1751 4000. Licensed as a conventional wholesale bank by the CBB.
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Cash Flow Statement (Consolidated)

Year ending 31 Dec (SAR mn) 2022A 2023E 2024E 2025E

Net profit before minority 970 918 994 1,073

Depreciation 167 175 178 180

Other Adjustments (11) (7) (5) (5)

Working Capital Changes (109) (331) (36) (30)

Cashflow from Operations 999 768 1,143 1,229

Capital Expenditure (57) (56) (60) (64)

Other Investing Activities 179 (3) (3) (3)

Cashflow from Investing 122 (59) (63) (68)

Debt Raised/Repaid 0 200 (50) (50)

Dividend (924) (948) (971) (1,041)

Other Financing Activities (103) (71) (69) (68)

Cashflow from Financing (1,027) (819) (1,090) (1,159)

Net Chg in Cash 94 (110) (11) 2

Key Ratios (Consolidated)

Year ending 31 Dec (SAR mn) 2022A 2023E 2024E 2025E

EPS 0.81 0.77 0.83 0.89

EPS Growth (%) (2.2) (5.3) 8.2 8.0

Gross Margin (%) 13.7 11.9 12.0 12.2

EBITDA Margin (%) 12.6 11.0 11.1 11.3

EBITDA Growth (%) (2.5) (1.5) 6.4 6.3

Net Margin (%) 10.3 8.7 8.9 9.2

ROAE (%) 54.3 51.4 55.7 59.3

ROAA (%) 23.2 21.4 22.9 24.7

Debt/Equity (%) 0.3 0.3 0.3 0.3

Valuation Ratios

PER (x) 18.6 19.6 18.1 16.8

PBV (x) 10.0 10.2 10.0 9.9

Dividend Yield (%) 5.3 5.2 5.5 5.9

EV/EBITDA (x) 14.5 15.0 14.1 13.2

Source: SICO Research, Company Data

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Price, Target Price* and Rating Change History Chart of (JARIR AB)
Date Closing Price Target Price Rating Initiation

22-Apr-21 19.20 22.00 B

9-Feb-22 19.86 22.00 N

7-Apr-22 20.06 22.00 B

21-Jul-22 15.10 15.50 N

16-Aug-23 15.02 15.00 N

B=Buy, A=Add, N=Neutral, R=Reduce, S=Sell, U/R= Under Review

26.00

22.00
B
B

N
18.00

14.00 N N

10.00
Feb-21

Feb-22

Feb-23
Aug-20

Nov-20

Aug-21

Nov-21

Aug-22

Nov-22
May-21

May-22

May-23

Closing Price Target Price Rating Initiation

B=Buy, A=Add, N=Neutral, R=Reduce, S=Sell, U/R = Under Review

ESG Rating

Rating Total Score Environment Social Governance

BBB 194 81 52 61

Each pillar (E,S,G) has a maximum score of 100, and the weight each KPI contributes to a
company’s overall pillar score is based on IdealRatings’ industry materiality assessment.
Idealratings ESG Rating Scale CC – 0-89.99, CCC – 90-119.99, B – 120-149.99, BB – 150-
179.99, BBB – 180-209.99, A – 210-239.99, AA – 240-269.99, AAA – 270-300.

* Please note that historical Stock price and target price is adjusted for all corporate actions including cash
dividends and accordingly may have some differences than what has been published previously.
Analyst Stock Rating Definitions on next page

SICO BSC(c) P.O.Box 1331, Bahrain World Trade Center, East Tower, Manama, Kingdom of Bahrain, T: +973 1751 5000, F: +973 1751 4000. Licensed as a conventional wholesale bank by the CBB.
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Time Horizon

• SICO Research issues a short-term outlook if the analyst feels that there
are factors which might affect the

• short-term performance of the stock during the immediate six months

Short term after issuing a rating.

• This might be due to both quantitative and qualitative factors which the
analyst think can affect the stock price.

• SICO Research’s Long-term rating is based on the Target Price

calculated by the analyst.

• The Target Price is arrived at using both fundamental and/or

comparative valuation methods based on the detailed financial models
Long term developed by analysts incorporating current expectations and analyst’s
assumptions.

• Target price for a stock is calculated one year forward from the valuation
date

Recommendation (Short term)

• Analysts expect positive triggers in the short term which might affect
Positive current price positively (> 10%)

Neutral • Analyst does not expect any short-term triggers/events (+/- 10%)

• Analysts expect negative triggers in the short term which might affect
Negative current price adversely (< 10%)

Recommendation (Long term)

• If Risk profile is “High” Target price estimate offers 20%+ return from
the current share price.
Buy
• If Risk profile is “Normal” Target price estimate offers 15%+ return from
the current share price.

• If Risk profile is “High” Target Price estimate offers 0% to 20% return

from the current share price.
Neutral
• If Risk profile is “Normal” Target Price estimate offers 5% to 15% return
from the current share price

• If Risk profile is “High” Target price estimate offers less than 0% return
from the current share price.
Sell
• If Risk profile is “Normal” Target price estimate offers less than 5%
return from the current share price.

Risk

• Stock volatility (360 days standard deviation) exceeds 2x of S&P GCC

High market volatility

• Stock volatility (360 days standard deviation) lower than 2x of S&P GCC
Market market volatility

SICO BSC(c) P.O.Box 1331, Bahrain World Trade Center, East Tower, Manama, Kingdom of Bahrain, T: +973 1751 5000, F: +973 1751 4000. Licensed as a conventional wholesale bank by the CBB.
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 GCC Equities | August 2023 8

Contact Details
P.O Box 1331,
Bahrain World Trade Center East Tower
Manama, Kingdom of Bahrain

Investment Research
research@sicobank.com

Head of Research
Nishit Lakhotia, CFA, CAIA
T: (Direct) +973 1751 5021

Head of Brokerage
Mariam Isa
Tel: (Direct): +973 – 17515210

KSA – SICO Capital

Brokerage - brokerage@sicocapital.com Tel: +966 11 2799811
Chief Capital Markets Officer
Fadhel Makhlooq
Tel: (Direct): +973 – 17515202

Visit us at
sicobank.com (Head Office) / sicocapital.com (KSA)
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any related Investments. Additional information on the contents of this report is available on request.

Among stocks under our coverage, Ahli United Bank, Bank Muscat, BBK and National Bank of Bahrain owns 8.56%, 13.14%, 7.91% and 12.51%
respectively in SICO. SICO does market making in Aluminum Bahrain (ALBA), Al Baraka Banking Group, Eskan REIT and Batelco.

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