Long road to recovery; Maintain Neutral
Diversification efforts yet to be tested. Although the drop in Alhokair’s LFL sales in Saudi began to ease in 3QFY19 (c11% 9MFY19 vs. 14% in 1HFY19), the expansion in Saudi’s entertainment sector is hurting the apparel market. Shopping is no longer the sole entertainment source, as consumers are allocating a lower share to apparel spending (12% of total PoS in 2018 vs. 14% in 2016), forcing retailers to offer excessive discounts to spur demand. We expect the drop in Saudi revenue to sustain in FY20e (3.5% vs. c11% over FY17-19e), and downplay the cinemas launch and casual dining M&A, as Alhokair considers non-fashion ventures to regain lost traffic. We cut our TP by 8% to SAR23.0/share, to reflect weaker-than-expected store yields. Alhokair’s valuation is stretched, trading on a FY20e P/E of 18.3x, 6% above peers, pricing in earnings recovery from FY18e trough (21% over FY19-21e).
Expansions to resume with a selective stance. We expect the retail space trend to reverse, as network optimisation is almost complete, growing at a FY19-21e CAGR of c2% p.a. (vs. -5% p.a. over FY17-19e). Store additions in Saudi will be limited to: i) brands with attractive value propositions (Lefties and LC Wakiki), and high-yielding ones, and ii) non-fashion stores, including beauty (signed with Estée Lauder) and electronics (Aleph). This should support store yield recovery of c1% p.a., reversing revenue trends (+3.5% p.a. vs. -10% over FY17-19e) beyond FY20e.
Unfavourable sale trends trigger more cost cutting. Alhokair divested Dubai’s DC in 3QFY19 (savings of SAR26mn p.a.), and aims to reduce labour costs and divest unutilised assets to deleverage. Contained discounts, renegotiations with landlords and brand partners, utilising cheaper marketing alternatives, and falling overseas losses mitigated the c12% y-o-y drop in 9MFY19 top line and higher Saudisation bill, leaving clean EBITDA broadly flat y-o-y. We expect EBITDA margin to reach 14% (+60bps y-o-y) by FY20e, recovering from FY18 all-time low of 10.3%.
Fawaz Abdulaziz Alhokair Company SJSC Formerly known as Fawaz Abdulaziz Al Hokair And Company. Fawaz Abdulaziz Alhokair Co SJSC is a Saudi Arabia-based company. The Company's activities include the wholesale and retail trade in ready-made cloth for men, women and children, shoes, textiles, house and office furniture, perfumes, natural cosmetics, ornaments and beauty materials and their compounds and traditional jewelry; the wholesale and retail trading in sports wares and shoes and their complementary; the management and operation of optics centers, wholesale and retail trading in eye glasses and sun glasses, contact lenses, optical equipment and accessories; purchase of land and construction of building thereon for the purpose of running the Company's activities and business; the manufacture, wholesale and retail in Abayas, robes, scarfs and other women embroidered gowns; the wholesale and retail trading in gold and silver, among others.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.