Strongly positioned to outperform, remain buyers
Beneficiary of new regulation. The MoL’s Jan-18 decree to enforce full Saudisation in stores selling electrical and electronic appliances (deadline Nov-18), among 11 other retail sectors, favours eXtra. This decision should trigger faster displacement of unorganised expat players, particularly within the big appliances market, diverting traffic to eXtra. We raise 2018-22e revenue by c7%, assuming eXtra will expand its big appliances market share to 15.5% by 2019 from 9%. Saudisation costs should also be mitigated by the more favourable sales mix, in our view. We raise our 12M TP by 38% to SAR80/share, and reiterate our Overweight rating, despite the 43% price rally post our Nov-17 update. eXtra trades on a 2019e P/E of 10.7x, 26% below peers, despite its higher growth (2017-19e EPS CAGR of 29% vs. peers’ 11.5%).
Market share gains to accelerate. Within the appliances market, big appliances is highly fragmented (49% unorganised), providing eXtra significant room to expand its market share. We expect market share gains to add cSAR400mn to 2019 revenue vs. management’s target of SAR682mn, assuming a market slowdown. Our 2017-19 revenue growth of 11% is driven by market consolidation, supported by eXtra’s efforts to distinguish itself through its unique services, wide product offering, and innovative marketing campaigns, and growing its online presence.
Earnings-accretive market share gains in 2019. Growing contribution of high-margin home appliances (18% gross margin) post market consolidation, and economies of scale should support 2019e EBITDA margin expansion (+80bps y-o-y to 5.6%), along with the profitable after-sales services and consumer finance programme. This should mitigate pressures from the higher Saudisation wage bill (SAR20mn p.a., on average), as eXtra replaces 650 expat salesforce with Saudis (43% currently on the store level), leaving 2018e EBITDA margin flat at 4.8%.
Full 2018 promotions calendar. eXtra’s 15th anniversary promotions (1Q18), as well as Ramadan and World Cup promotions (2Q18), should stimulate demand, offsetting any slowdown post subsidy cuts and VAT implementation. We also expect the 4Q18 Mega Sale to be strong (+12.6% y-o-y), as it coincides with November’s Saudisation deadline. Other initiatives posing upside include Noon.com’s exclusive distribution agreement and consumer finance programme (+2x y-o-y to SAR152mn in 2017), which has no cap, as long as loss ratios are <5%.
United Electronics Company JSC is a Saudi Arabia-based joint stock company engaged in the retail of consumer electronics, appliances, communications and solutions. The Company distributes: Television and Audio, which includes plasma, Liquid Crystal Display (LCD), projectors, home theater, and Digital Video Disc (DVD) players; Computing, which includes laptops, net books, tablets, printers, data storage and accessories; Mobile Communications, which includes a range of mobile handsets and smart phones; Digital and Audio Imaging, which includes digital and professional cameras, photo smart printers, Global Positioning System (GPS) and accessories; Gaming, which includes consoles and gaming software; Home Appliances, which includes refrigerators, washing machines, air conditioners, cookers, dryers, and dish washers, as well as Small Appliances, which includes microwaves, vacuum cleaners, cooking appliances and personal care.
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.
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