First Look Note | 3Q23

Sector: Consumer
Saudi Equity Research Market: Tadawul
Discretionary

Jarir Marketing Company

Lower expenses on advertisement and promotional offers boosted profit
Current Price Target Price Upside/Downside (%) Rating
SAR 14.96 SAR 17.50 +17% BUY

• Jarir’s revenue grew 4.8% YOY to SAR 2,639 Mn in 3Q23 attributable

to growth in all the segments, particularly in computer and video
game sections
• Operating profit margin declined from 11.6% in 3Q22 to 12.0%
in 3Q23 due to decline in selling and marketing expense as a
result of decline in expenditure on advertisement and
promotional offers
• The Company opened new store in Jeddah with a total area of
4,340 sq mt after which its total store count reached to total of
Stock Information
71 stores of which 61 store are located in KSA
Market Cap (SAR, mm) 17,952.00
Paid Up Capital (mm) 1,200.00
52 Week High 17.62
3Q23 Net Profit higher than our estimate 52 Week Low 14.00
Jarir Marketing Co (“JARIR”, “The Company”) reported 8.2% YOY 3M Avg. daily value (SAR) 27,113,060
growth in net profit to SAR 296 Mn in 3Q23, higher than our estimate
of SAR 275 Mn. The rise in net profit was primarily attributable to 3Q23 Result Review (SAR, mm)
4.8% YOY growth in revenue, which can be attributed to heightened Revenue 2,639
sales of computer and video games sections. In addition, the rise in Operating Profit 316
profitability was also fueled by an increase in other income and decline Net Profit 296
in selling and marketing expenses. EPS (SAR) 0.24

P&L Highlights
The Company’s revenue grew 4.8% YOY to SAR 2,639 Mn in 3Q23
Financial Ratios
attributable to growth in all segments, particularly in computer and
video game sections. On the other hand, the cost of sales rose 5.1% Dividend Yield (12m) 5.35
YOY to SAR 2,255 Mn in 3Q23. Thus, gross profit grew 3.2% YOY to Dividend Pay-out (%) 95.28
SAR 384 Mn in 3Q23. However, gross profit margin declined 24 bps Price-Earnings Ratio(x) 19.01
YOY to 14.6% in 3Q23. Furthermore, the Company’s operating profit Price-to-Book Ratio (x) 10.66
rose 8.2% YOY to SAR 316 Mn in 3Q23 owing to a decline in selling Book Value (SAR) 1.40
and marketing (S&M) expenses. S&M expenses fell due to higher Return-on Equity (%) 55.75
expenditure on advertisement expenses and promotional offers in
previous quarter as compared to this quarter. Thus, the Company’s Stock Performance
operating margin grew from 11.6% in 3Q22 to 12.0% in 3Q23. 5 Days 5.35%
1 Months 3.60%
Balance Sheet Highlights 3 Months -9.88%
Jarir’s total equity rose from SAR 1,685 Mn in 2Q23 to SAR 1,799 Mn 6 Months -9.77%
in 3Q23. The company’s borrowings stood at SAR 370 Mn in 2Q23 as 1 Year -8.89%
compared to SAR 235 Mn in 1Q23. Jarir’s cash flow from operating
Month to Date (MTD%) 3.17%
activities stood negative at SAR 87 Mn in 1H23 as compared to a
Quarter to Date (QTD%) 3.17%
positive operating cash flow of SAR 168 Mn in 1H22.
Year to Date (YTD%) -0.27%

Friday, October 13, 2023 Jarir 3Q23 1

Target Price and Rating
We revised our rating on JARIR from HOLD to BUY with an unchanged target price of SAR 17.50. The Company
share price declined 7.7%since our last rating on 17 July 2023. Jarir witnessed a growth in profitability owing
to a rise in top line, operating income and a decline in selling and marketing expenses in 3Q23. The Company
recorded a 4.8% YOY growth in revenue in 3Q23 mainly driven by a strong growth in sales of computer and
video games sections. Jarir reported highest quarterly operating margin since 1Q22 and reported an operating
margin of 12.0% in 3Q23 due to lower advertisement expense and promotional offers. Jarir opened three new
stores in 2023 1 each in UAE, Kuwait and KSA. In KSA, it also replaced the existing store with a bigger area in
the same locality. The company replaced a store in Al-Rashid Mall with another store in the same complex with
a larger area. In addition, the Company further opened its new store in Jeddah with a total area of 4,340 sq
mt. After opening the third store in 3Q23, the Company’s total store count reached to total of 71 stores of
which 61 store are located in KSA. Furthermore, it aims to reach a total store count of 80 showrooms until the
year 2025. Jarir expects smart TVs segment revenue to grow 20.0- 25.0% and electronic games sales to rise
5.0-10.0% in 2023 which will support the revenue. The Company is also utilizing various marketing strategies
to enhance sales within its e-commerce division, with the aim of increasing online sales and strengthening its
market position. Moreover, the company announced to distribute a dividend of SAR 0.15 per share for three
months ending June 2023 and paid a cumulative dividend of SAR 0.355 for 1H23. Additionally, the Company is
trading at an attractive yield of 5.1% in 2023. Considering all these factors, we assign a BUY rating on the
stock.

Jarir - Relative valuation

(at CMP) 2018 2019 2020 2021 2022 2023F
PE 18.70 18.23 17.90 18.10 18.51 17.60
PB 10.56 10.91 10.41 10.15 9.96 9.70
EV/EBITDA 17.47 15.02 14.28 14.40 14.70 14.04
Dividend yield 6.1% 5.4% 5.1% 5.3% 5.1% 5.1%
FABS Estimates & Co Data

Jarir – P&L
SAR mm 3Q22 2Q23 3Q23A 3Q23F Var. YOY Ch QOQ Ch 2022 2023F Change
Sales 2,517 2,436 2,639 2,621 4.8% 8.3% 9,392 10,329 10.0% 2,517
Cost of Sales -2,145 -2,196 -2,255 -2,254 5.1% 2.7% -8,104 -9,027 11.4% -2,145
Gross profit 372 240 384 367 3.2% 60.3% 1,287 1,301 1.1% 372
Operating expenses -89 -77 -68 -84 -23.6% -11.7% -326 -300 -8.0% -89
Operating profit 291 175 316 292 8.5% 80.8% 1,019 1,052 3.3% 291
Profit attributable 274 156 296 275 8.2% 90.2% 970 979 1.0% 274
FABS estimate & Co Data

Jarir - Margins
3Q22 2Q23 3Q23 YOY Ch QOQ Ch 2022 2023F Change
Gross Profit 14.8% 9.8% 14.6% -24 472 13.7% 12.6% -111
Operating Profit 11.6% 7.2% 12.0% 40 480 10.8% 10.2% -66
Net Profit 10.9% 6.4% 11.2% 35 483 10.3% 9.5% -84
FABS estimate & Co Data

Friday, October 13, 2023 Jarir 3Q23 2

Valuation:
We use Discounted Free Cash flow (DCF), Dividend Discount (DDM) and Relative Valuation (RV) to value Jarir.
We have assigned 50% weight to DCF, and 25% weight to DDM and RV valuation method.

Valuation Method Target Weight Weighted Value

DCF Method 19.67 50.0% 9.83

Dividend Discount Model (DDM) 17.55 25.0% 4.39
Relative Valuation (RV) 13.10 25.0% 3.28

Weighted Average Valuation (SAR) 17.50

Current market price (SAR) 14.96
Upside/Downside (%) 17.0%

1) DCF Method:
Jarir is valued using free cash flow to equity. We have discounted the cash flow using the cost of equity of
8.4%. Cost of equity is calculated by using a 10-year government bond yield of 4.5%, a beta of 0.77 and
equity risk premium of 4.0%. Government bond yield is calculated after adding KSA 10-year spread over a
10-year US risk-free rate. Also, assumed a terminal growth rate of 2.5%.

Sum of PV (SAR, Mn) 5,287

Terminal value (SAR, Mn) 18,317

FV to Common shareholders (SAR,

23,603
Mn)
No. of share (Mn) 1,200
Current Market Price (SAR) 14.96
Fair Value per share (SAR) 19.67

DCF Method
(All Figures in SAR Mn) FY 2023E FY 2024E FY 2025E FY 2026E FY 2027E
Cash Flow from Operations 1,274 1,198 1,302 1,493 1,569
CAPEX -116 -125 -136 -136 -136
Net Change in Lease 26 29 32 34 36
Free Cash Flow to Equity (FCFE) 1,184 1,102 1,198 1,390 1,469
Discounting Factor 0.98 0.91 0.84 0.77 0.71
Discounted FCFE 1,164 1,000 1,002 1,074 1,047
Source: FAB Securities

Friday, October 13, 2023 Jarir 3Q23 3

2) DDM Method:
Jarir’s dividend grew in line with profit and pays regular dividends to its shareholders. Thus, we have valued
Jarir using the DDM valuation method. Dividend is discounted at the cost of equity of 8.4%.

Sum of PV (SAR, Mn) 4,583

Terminal value (SAR, Mn) 16,481

FV to Common shareholders (SAR,

21,064
Mn)
No. of share (Mn) 1,200
Current Market Price (SAR) 15.80
Fair Value per share (SAR) 17.55

DDM Method
(All Figures in SAR Mn) FY 2023E FY 2024E FY 2025E FY 2026E FY 2027E
Dividend Paid
1Q 246 242 271 306 332
2Q 180 185 209 224 248
3Q 269 278 304 337 374
4Q 242 272 304 329 368
Total Dividend 938 977 1,088 1,196 1,322
Discounting Factor 0.98 0.91 0.84 0.77 0.71
Present Value of Dividend 921 886 910 924 942
Source: FAB Securities

3) Relative Valuation:
We have used local peers to value Jarir and it is valued using the EV/EBITDA multiple. Jarir traded at premium
to peers due to a stable business model and strong cash flow generation hence applying a premium in valuation
multiple. It is valued at a premium to EV/ EBITDA of 13.6X against peer multiple of 11.1x.

Market EV/EBITDA (x) P/E (x)

Company
(USD Mn) 2023F 2024F 2023F 2024F
Extra 1,630 12.0 10.3 19.2 14.5
SACO 269 10.2 8.0 NA 75.3
Hassan Shaker 273 21.5 18.5 17.2 14.0
Cenomi Retail 568 5.4 6.7 NA 12.9

Average 12.3x 10.9x 18.2x 29.2x

Median 11.1x 9.2x 18.2x 14.3x
Max 14.4x 12.4x 18.7x 29.7x
Min 9.0x 7.7x 17.7x 13.7x
Source: FAB Securities

Friday, October 13, 2023 Jarir 3Q23 4

 Research Rating Methodology:
Rating Upside/Downside potential
BUY Higher than +15%
ACCUMULATE Between +10% to +15%
HOLD Lower than +10% to -5%
REDUCE Between -5% to -15%
SELL Lower than -15%

FAB Securities Contacts:

Research Analyst
Ahmad Banihani +971-2-6161629 [email protected]

Sales & Execution

Abu Dhabi Head Office
Trading Desk +971-2-6161700/1 Online Trading Link
+971-2-6161777
Institutional Desk +971-4-4245765

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