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JULY2012
KSARetail Sector
Research DivisionCompany Reports
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Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), License No. 07076-37
RESEARCHDIVISION
AGM - Head of ResearchAbdullah Alawi+966 2 [email protected]
Senior Analyst Syed Taimure Akhtar +966 2 6618271 [email protected]
AnalystSaleh Al-Quati+966 2 [email protected]
BROKERAGE AND INVESTMENT CENTERS
DIVISION
General Manager - Brokerage DivisionAlaa Al-Yousef+966 1 [email protected]
AGM-Head of international and institutional brokerageLuay Jawad Al-Motawa +966 1 [email protected]
Regional Manager - West and South RegionsAbdullah Al-Misbahi+966 2 [email protected]
Area Manager - Qassim & Eastern ProvinceAbdullah Al-Rahit+966 6 [email protected]
JULY2012
1
KSA - An emerging landscape for retailers A major shift in retail market structure - SaudiArabiasretailsectoristhelargestin
GCC, representing42%of thecouncilsmarketsize, followedby theUAE (29%)andQatar(11%).TheretailmarketinsideKSAhasevolvedovertheperiodoftimebuttheindustrywitnessedkeydevelopmentsinthepast10years;whichtransformedKingdomslandscapefromsmallandunorganizedmarketstopalatialmallsandhypermarkets.
Youth domination in population lead to support KSA retail sector - According toSAMA12011annualreport2,thepopulationinSaudiArabiawasrecordedat27.1mnin2010,wheresignificantportion(around47%3)oftotalpopulationagedbetween15and39.AccordingtoIMF4,thecountryspopulationwillincreaseat2010-15CAGRof1.4%andreachat29.02mnin2015.Basedonourunderstanding,weexpecttheyouths(15-39ages)willcontinuetodominatethepopulationtill2015.
Relatively low space/capita in the region - Despite of aggressive expansions inretail business across the Kingdom in past 5 years, it is worthy tomention that theretailspace/capitaisstilllowerthantheotherregionalmarkets.BasedonthestudyofLaSalle,retailspace/capitaincitieslikeRiyadh&Jeddahstoodat0.2m2ascomparedtospace/capitaof1.6m2ofmallinDubai,UAE.Furthermore,basedontheincreaseincustomerawarenessandeducation,weexpecttheretailcentersneedtobedesignedinmoreprofessionalmanner,whichshouldbewellequippedwith the latestavailabletechnologiesandfacilities.Hence,webelievesuchchangeswillleadto(i)theincreaseentrybarrierforsmallplayersand(ii)theenvironmentwherethesurvivalwillbebasedonuniquebusinessstrategy.
Fragmented market dominated by private groups - The local sector is mainlydominatedbyfamilyownedbusinessgroups;whoarefocusingonacquiringexclusivityandfranchiseagreementswithwell-knowninternationalsuppliersandbrands.Inaddition,these private groups have well diversified business activities and good investmentsin real estateand land;which is also supporting toexpand retail activities inside theKingdom.Thetopfiveplayershold11.9%marketshare,whichislowerthandevelopedmarketsliketheUK,whereinthetopfiveplayershavea59%marketshare.Savola,AlOthaim,AlHokairandJarirMarketingarekeyplayersinKSAsretailsector.
KSA Retail Sector 2012Sector | KSA | Retail Sector July 2012
2011 GRDI country attractiveness
Source: A.T Kearney 2011 GRDI
Retail space/capita-Key regional cities
Source: Jones Lang LaSalle
Brazil
Uraguay
Chile
India
Kuwait
China
SaudiArabia
Peru
UAE
Turkey
55.0
65.0
75.0
85.0
95.0
105.0
55.0 60.0 65.0 70.0 75.0
Co
untr
y ri
sk (e
cono
mic
& p
olit
ical
)0=
hig
h 10
0= lo
w
GDRI score (Market potential)
0.0
0.5
1.0
1.5
2.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Dubai Riyadh Jeddah AbuDhabi
Doha Muscat Beriut Cairo
Sq meters (mn)-LHS Sq meter/capita-RHS
1. SaudiArabianMonetaryAgency2. 47thannualreport,TheLatestEconomicDevelopment20113. JaririnvestorspresentationSep-20114. InternationalMonetaryFund
JULY2012
2
Sector outlook - AccordingtoEIUestimates,theretailvolumetricsaleshasapotentialtoincreaseat2010-14CAGRof3.8%ascomparedtohistorical4-year2006-10CAGRof3.5%.Apartfromconventionalretail,onlineretailisgrowingexponentiallyinKSA,withincreasinginternetpenetrationallowingpeopletoshopaspertheirconvenience.ItisworthytonoticethattheexpectedgrowthinKSAretailerisnotguaranteeingtheconventionalretailertogetmuchbenefit;buttheactualbeneficiarywillbethosewhoevolvethemselveswiththechangingcompetitiveenvironment.WeinitiatethecoverageonAbdullah al-Othaim Markets Co.andFawaz Abdulaziz al-Hokair Co.withOverweightandNeutralrecommendations,respectively
PE & PBV 2011 (Local retailers)
Source: Tadawul, Companies report & Aljazira Capitalal-Othaim Mouwasat
Extra
SASCOAldrees
al Hokair
Alkhaleej
Jarir
0.0
2.0
4.0
6.0
8.0
10.0
12.0
6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0
PBV
P/E
JULY2012
3
KSA retail sector - Volumetric growth
Source: EIU 2010; * where 2009 & 2010 are
based on EIU estimates
Segment-wise retail sales & growth trend in KSA
Source: Economist Intelligence Unit, February
2012
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
2007 2008 2009* 2010* 2011e 2012e 2013e 2014e
0%
3%
6%
9%
12%
15%
18%
21%
-
50
100
150
200
250
300
350
400
2006 2007 2008 2009 2010 2011e Non- Food Retail Sales (SAR bn) Food Retail Sales (SAR bn)
Non-food growth (%, RHS) Food growth (%, RHS)
Saudi Arabias retail sector
Growing significantlySaudiArabiasretailsectoristhelargestinGCC,representing42%ofthecouncilsmarketsize,followedbytheUAE(29%)andQatar(11%).TheretailmarketinsideKSAhasevolvedovertheperiodoftimebuttheindustrywitnessedkeydevelopmentsinthepast10years;whichtransformedKingdomslandscapefromsmallandunorganizedmarketstopalatialmallsandhypermarkets.Atpresent,SaudiArabiaisthelargestretailmarketintheGCCwiththeestimatedmarketsizeofUSD69.0bn-USD70.6bnin2011andexpectedtoreachatUSD76bn-USD78bnin2012,accordingtoEIU&JonesLangLaSalle.Moreover,accordingtoEIUestimates,theretailvolumetricsaleshasapotentialtoincreaseat2010-14CAGRof3.8%ascomparedtohistorical4-year2006-10CAGRof3.5%.Apartfromconventionalretail, online retail is growing exponentially in KSA,with increasing internet penetrationallowingpeople toshopasper theirconvenience.Thenumberof internetusers inKSAgrew46%in9M2011vis--vistheworldaverageof7%.
Moreover,accordingtoEIU,growth in theKingdomsretailsectorwitnessed increase intotalvolumesataCAGRof6.3%during200711.Foodandnon-foodsegmentscontributealmostequallytoKSAsretailsales.However,demandforbothsegmentsweakenedduringtheeconomicslowdownduring200910.Thefoodsegmentsannualsalesgrowthreducedfrom14.9%over200708to7.5%during200910,whilethatforthenon-foodsegmentfellfrom17.8%to8.9%overthesameperiod.Ascrudepricesrecoveredin2011,demandforboththesegmentsregainedmomentum.However,duetorisingpopularityofmodernretail,thefoodsegmentgrewhigher(16.9%)comparedtothenon-foodsegment(10.9%)in2011.
JULY2012
4
Growth trend in KSAs retail sales volume
Source: Economist Intelligence Unit, February
2012
11.7%
12.8%
5.0%
3.1%2.6%
8.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2006 2007 2008 2009 2010 2011e
GrowthinretailvolumesandsaleswasdrivenbysurgingdisposableincomeduetohighGDP growth (10.7% CAGR over 200111), favorable demographics (2.9% populationgrowthoverthelastdecade)andincreasingreligioustourism.GiventheKingdomsculturalsetupandweather,increasingpurchasingpowerandpopulationgrowth,webelieveonlineretailcouldgrowataratehigherthanthatforotherdevelopingcountries.
According toA.TKearneys2011GlobalRetailDevelopment Index (GRDI) 5 ,KSA retailmarket isrankedasthe7thmostattractiveretailmarketaroundtheglobeintermsof(i)offeringinvestmentopportunitiesatpresentand(ii)futuregrowthprospectus.
5. GRDIisanindexthatanalyzes30developingcountrieson25macroeconomicandretail-specificvariablestoidentifyinvestmentopportunityinemergingmarket.Moreover,thisindexalsohelpstoidentifytheprofitablemarketstodayaswellasthosewhichofferthemostpotentialinfuture.
GRDIranking2011
Macro economic & industry specific variables weightage
Ranking Country RegionMarket
attractiveness (25%)
Country risk (25%)
Market saturation
(25%)
Time pressure
(25%)
GRDI score
1 Brazil LatinAmerica 100.0 79.4 42.9 63.9 71.62 Uraguay LatinAmerica 85.0 73.8 63.6 39.6 65.53 Chile LatinAmerica 84.3 100.0 30.3 44.3 64.74 India Aisa 28.9 59.9 63.1 100.0 63.05 Kuwait MENA 80.4 80.6 57.3 27.1 61.46 China Asia 49.5 76.5 31.0 87.7 61.2
7 SaudiArabia MENA 70.9 80.7 50.6 35.7 59.5
8 Peru LatinAmerica 39.8 61.5 72.0 59.5 58.29 UAE MENA 87.6 88.9 12.6 42.9 58.010 Turkey MENA 83.8 65.5 45.0 37.0 57.811 Lebonan MENA 56.3 43.0 57.5 53.8 52.712 Egypt MENA 22.1 49.5 85.5 52.7 52.513 Albania EasternEurope 19.9 48.3 79.6 60.5 52.114 Russia Aisa 76.2 49.1 30.9 51.0 51.815 Kazakhstan Asia 29.2 30.1 87.5 60.1 51.716 Indonesia Asia 38.2 53.0 54.5 58.8 51.117 Morocco MENA 22.6 72.9 52.8 54.8 50.818 Philippens Aisa 8.4 54.3 66.1 51.0 45.019 Tunisa MENA 37.5 75.2 63.0 21.3 49.320 Srilanka Asia 8.4 52.6 86.5 42.4 47.521 Malaysia Asia 53.9 64.0 18.0 52.7 47.222 Mexico LatinAmerica 74.6 67.5 16.3 23.8 45.623 V