Jarir Marketing Company Report

FALCOM
EQUITY
RESEARCH
REPORT
Company:
Jarir Marketing Company
Date:
June 19th 2007
Recommendation :
STRONG BUY
Market Price: SR 137
Target Price: SR 209
FALCOM Ownership
2.01% : 6,03,000 shares
Snehdeep Fulzele
Head of Research
+966 1 201 1280
[email protected]
INTELLIGENT
INVESTMENT
IDEAS
SAUDI STOCK MARKET
MARKET PERFORMANCE
52 week
Tadawul Code:
4190
High
214.50
Bloomberg Code:
JARIR AB
Low
127.00
No. of Outstanding Shares
PER (TTM)
PBV
Div. Yield
YTD 2007
16.6
7.7
4.4%
-7.3%
1 Year Return
-17.7%
3 Years Return
128.7%
Beta
30 day Av. Volume
0.86
70,211
SHAREHOLDING PATTERN
Founder Shareholders
57.10%
Gulf Investment Corporation
4.50%
Olayan Group
4.13%
Market Price SR 137
30,000,000
0.34%
Market Capitalization
4,110,000,000 % to Total Market Cap
Enterprise Value
4,109,931,203
6.51%
% to Services Sector
SYNOPSIS
Jarir Marketing Company engaged in the retail business is generating heavy
cash flows. Jarir clocked tremendous growth in last two years in view of high
disposable income in the hands of consumers and appetite for technology
intensive business machines.
The brand enjoys solid reputation in the GCC region. The company's unique
business model of de-risking the cyclical variation in demand is paying
off. We have faith in the growth prospects of the company. High dividend
payouts are an additional attraction. FALCOM Financial Services holds shares
in the company.
FALCOM Financial Services
2.01%
OUR TAKE OUT:
Shuaa Capital
0.29%
The company is poised for doubling sales by 2010. Based on our analysis,
we have set a target price of SR 209. Our estimates are conservative. The
current market price of SR 137 leaves room for appreciation of more than
50%. We recommend STRONG BUY on the stock.
Others
31.96%
CAPITAL ACTION
Stock Dividend (18-Dec-05)
1:4
Pre-Dividend Capital
240,000,000
Current Capital
300,000,000
JARIR MARKETING COMPANY
VALUATION INDICATORS EST.*
PEG
0.57
PEG (5 year Est.*)
0.85
Book Value
17.76
PER 2007
15.2
PER 2008
12.8
PER 2009
SR
10.4
Div. Yield % 2007
4.61%
Div. Yield % 2008
5.46%
CAGR (2002-2006)
Sales
29.1%
Net Profit
26.6%
Fixed Assets
Shareholders’ Equity
3.4%
20.0%
CAGR (2006-2011) Est.*
Sales
21.1%
Net Profit
19.5%
Fixed Assets
Shareholders’ Equity
(All amounts in SR)
(* FALCOM Research Estimates)
FALCOM RESEARCH
6.4%
12.0%
(SR MILLION)
2005
2006
2007E 2008E 2009E
2010E 2011E
Sales
1209.7 1505.4 1681.8 2028.8 2537.9
PBDIT
178.7 243.8 275.1 326.5 404.4
Net Profit
176.2 243.3 270.5 320.8 395.7
EPS (SR)
5.9
8.1
9.0
10.7
13.2
Dividend Per Share (SR)
4.0
6.0
6.3
7.5
9.2
PER (X)
32.2
18.2
15.2
12.8
10.4
PBV (X)
11.1
7.0
5.7
4.8
4.0
Enterprise Value/ PBDIT (X)
31.9
17.9
14.5
12.1
9.6
Dividend Yield
2.1%
4.1%
4. 6%
5.5%
6.7%
Dividend Payout Ratio
68.1% 74.0% 70.0% 70.0% 70.0%
Return on Equity
34.6% 38.4% 37.4% 37.5% 38.6%
Asset Turnover Ratio
1.6
1.8
1.8
1.8
1.9
3138.3 3923.9
493.6 609.9
482.1 593.8
16.1
19.8
11.3
13.9
8.5
6.9
3.3
2.8
7.7
6.0
8.2% 10.1%
70.0% 70.0%
39.2% 39.9%
1.9
2.1
E – Estimate; Current Market price is used for estimates while price on last trading day of the year is used for previous years.
(Source: FALCOM Research)
JARIR MARKETING COMPANY
PAGE 01
CONTENTS
FALCOM RESEARCH
Executive Summary
04
Valuation
06
Return to Shareholders
11
Company Profile
13
De-risking the business model
21
Competitive Advantages
24
Projections
27
Financials
31
JARIR MARKETING COMPANY
PAGE 03
SUMMARY
EXECUTIVE
Despite changing customer trends and pressure on margins, Jarir has
emerged a winner.
Early mover advantage
the first quarter of 2007 at SR 80 million was
Jarir Marketing Company (Jarir) is operating
higher 5.3% from SR 76 million for first quarter
in the retail as well as wholesale field of school
2006. First three months of 2006 had seen a
supplies and office supplies for more than 30
growth of 75% in year on year net profit.
years. It added computer supplies, software and
However, we are not concerned with short-term
office machines to product line along the way. It
drop in rate of growth as previous two years
has created a niche in a field that is witnessing
registered a strong growth. More importantly,
increasingly higher competition. We like the past
financials are still growing on a higher base. We
track record of the company. Despite changing
believe the growth story of Jarir is not just intact
customer trends and pressure on margins, Jarir
but is going to gather pace in coming years.
has emerged a winner.
The company opened one new showroom in
2006, in Madinah and another one in Riyadh in
Strong Financial position
the first week of 2007.
In the past four years, Jarir registered a
compounded annual growth rate of more than
Jarir is expected to double the number of retail
29% in top line and close to 27% growth in
showrooms (Jarir Bookstores) in five years.
the bottom-line. Its Gross Profit Margin (GPM)
Jarir would have added 3 showrooms by the
touched a nadir at 18.6% in 2005 but recovered
to 19.8% in 2006. In the first quarter GPM
stood at slightly under 21%. Net profit margin
touched 14.6% in 2004 and stayed there in
the subsequent year before jumping to 16.2%
in 2006. First quarter bottom-line margin was
at 18.7%. At the end of 2006, Jarir carries
shareholders’ equity of SR 633 million including
share capital of SR 300 million.
and 4 more showrooms are scheduled to open
in 2008. We will be seeing faster geographical
expansion. Moreover, the new showrooms are
likely to be bigger. From an average size of
2800 sqm now, in future the area of each Jarir
Bookstore would be around 3500 sqm.
Since the end of 2003, sales have shot up from
SR 663 million to SR 1.5 billion at the end of
2006. FALCOM expects the sales to more than
double over next five years raising the top line
Growth to continue
Drop in year on year growth rates of various
financial parameters in the first quarter have
not escaped our scrutiny. Year on year sales
grew 9.6% compared to a smart 43.3% growth
in same period last year. Similarly, net profit in
PAGE 04
end of 2007 (2 within KSA and one in Kuwait)
EXECUTIVE SUMMARY
to SR 3.5 billion by 2011.
MIS drives efficiency through strict control
on costs
For the high demand items like laptops,
shortening of time from receiving the product
FALCOM RESEARCH
to dispatching it at the right retail showroom is
Professional Management
crucial. It also reduces the risk of obsolescence.
Thin line that usually separates the family
We are impressed by the strong logistics and
involvement in routine affairs of the company
supply chain management through the use of
initially bothered us. We were comforted by
IT. In a fast moving world, Jarir has been at the
the pro-active steps of the management to
forefront of using technology. The company
ensure total non-interference from the family
equipped itself with the state of the art
members in the running of the company. Al Agil
Management Information System as early as
family that holds the majority stake has taken
1984. Management added JD Edwards program
concrete steps to shift the management in the
for resource planning in 1994. Almost half
professional hands.
the sales in B2B segment are routed through
More than 80% of the key manpower is with
connectivity with large customers.
the company for over 10 years. Employee
We believe supply chain management at Jarir
satisfaction at Jarir is high.
gives it an edge over competitors. It is critical to
source the inputs at competitive prices which
Strong Buy
in turn enable Jarir to maintain an image of
Jarir is quoting at a PER of 15.2 for estimated
provider of goods for value.
2007 EPS of SR 9. The dividend yields on
estimated dividends of SR 6.3 and SR 7 in 2007
Healthy cash flows will continue to reward
and 2008 respectively are attractive at 4.6%
shareholders
and 5.5%. We have used a dividend discount
Jarir has rewarded its shareholders well. In 2006,
model given the regularity of dividend payment,
dividend payout ratio is on the higher side at
stability of earnings and high dividend payout.
74% on rising profits. Company has managed
We arrived at a fair value per share of SR 209.
to consistently improve asset turnover ratio as
The current price leaves a potential for 52%
well as return on equity by expanding through
appreciation. We believe our assumptions for
long-term lease arrangements. Management
the next five years are conservative. FALCOM
has confirmed that the lease agreements favor
recommends STRONG BUY on the stock.
the company and are for a period of 15 to 20
years. The arrangement reduces the operational
risk in the start up phase as company retains
the right to exit in the first two years. We like
the Jarir’s business model that has a potential
to boost sales without straining the dividend
payouts for the shareholders.
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 05
VALUATION
Valuation
Selection of valuation model
We have valued Jarir using the Dividend
Discount Model (DDM) and Free Cash Flow to
Equity (FCFE) Model.
Dividend Discount Model is suitable given the
regularity of dividend payment, stability of
earnings and high dividend payout.
Dividend Discount Model
1. Cost of equity
Capital Asset Pricing Model is used for arriving
at the cost of equity (Re).
a. Risk Free Rate
The 10 year government bond yield was sought
as the benchmark for the risk free rate of return.
However, the bond market lacks liquidity and
most of the bids are pointing to an inverted
curve indicating market expectation of a fall in
yields at the longer end of the maturity. We have
assumed a risk free rate of 5% that is equivalent
to current yield on government securities of 5
to 7 year period.
b. Return from the Saudi Stock Market
Since 1985, the market has returned
compounded annual growth rate of 9.3%. For
past five years this return stands at 23.1% and
over last 10 years, Tadawul All Share Index has
clocked compounded annual growth rate of
13.8%. For our analysis, we assumed market
return of 11%. A higher expectation punishes
the fair value while a lower expectation leads to
sharp jump in the value.
for technology intensive office machines, we
believe the risk for Jarir is in line with the overall
stock market and hence equity risk premium is
taken same as the market risk premium.
We get a cost of equity of 10.2%.
2. Perpetual growth rate
The average dividend payout from the company
since 2002 has been 78%. We expect the
dividend per share would rise to SR 14 per
share in 2011 from SR 6 that the company
paid recently. From 2007 to 2011, we have
assumed 70% dividend payout. Beyond 2011,
we expect the long-term perpetual growth rate
in the dividends to settle around 5%.
With these assumptions, we arrived at a per
share fair value of Jarir at SR 209.
Sensitivity of valuation
Fair value is highly sensitive to the expected
return from the market as well as perpetual
growth rate of dividends for years beyond
2011.
SENSITIVITY ANALYSIS
Fair Value
Beta
Risk Free rate
177.41 207.59 208.78 252.61 252.77
0.86
0.86
0.86
0.86
0.86
5.00% 5.00% 5.00% 5.00% 5.00%
Expected market return 12.00% 12.00% 11.00% 11.00% 10.00%
Perpetual growth rate
5.00% 6.00% 5.00% 6.00% 5.00%
Cost of equity
11.0% 11.0% 10.2% 10.2%
9.3%
Source: FALCOM Research estimates
Fair value calculation is not an exact science. It
is subjective to the assumptions. A change in
perpetual growth rate to 6% would boost the
c. Equity risk premium in line with the market
In view of strong position of the company in
the GCC region and growing consumer appetite
PAGE 06
VALUATION
fair value to SR 253. Keeping other assumptions
same, if we raise the cost of equity to 11%, the
fair value drops to SR 177.5.
FALCOM RESEARCH
Free Cash Flow to Equity (FCFE) Model
2. Often in cases of takeovers, another
management targeting the company weighs the
Free Cash Flows are preferred over
value in terms of free cash flows that are likely
dividends in the following cases:
to be generated in future.
1. Firms pay dividends that are not in line with
earnings.
In the case of Jarir, Al Agil family holds the
Some firms preserve cash by not paying any
controlling stake of more than 57%. At the same
dividends or pay minimal dividends which
time, some other shareholders are invested in
are
insignificant when compared with net
the company for long-term. This reduces the
profits. Dividends then fail to represent the
floating stock of the company and adversely
future prospects of the firm. In such cases, it
impacts takeover bid from any prospective
is advisable to avoid dividend based valuation
investors.
approach.
Although both the conditions do not apply, we
Jarir pays out substantial dividend in line with
have worked on the valuation based on Free
increasing net profit.
Cash Flows to offer another benchmark.
FREE CASH FLOW TO THE EQUITY CALCULATION (SR ‘000)
2007E
2008E
2009E
2010E
2011E
PBDIT
275,134
326,538
404,361
493,651
609,921
Zakat
(10,091) (12,173) (15,228)
(18,830)
(23,543)
Working capital Investment
(34,211) (62,241) (82,233)
(89,743)
(83,075)
Capex
(18,298) (19,112) (20,220)
(32,400)
(37,610)
Free Cash Flow
212,534 233,012 286,680
352,678
Terminal Value
465,693
9,476,308
Cost of Debt
3.50%
3.50%
3.50%
3.50%
3.50%
Cost of Equity
10.2%
10.2%
10.2%
10.2%
10.2%
63,637
79,701
2,886
Portion of Debt
23,640
39,747
Portion of Equity
723,384
854,864 1,025,979 1,231,132 1,487,424
WACC
PV of FCF (2007E-2011E)
1,133,363
PV of FCF (2012 onwards)
5,844,855
Enterprise Value
6,978,218
Minus: Outstanding Debt
Plus: Cash
9.95%
9.86%
9.77%
9.76%
10.15%
193,302
193,049
216,738
243,041
287,233
2,886
29,419
Equity Value
7,004,751
Number of Shares
30,000
Fair Value per share (SR)
233.5
*WACC – Weighted Average Cost of Capital (Source: FALCOM Research Estimates)
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 07
Keeping the key assumptions same, we arrived
Free cash flows react significantly to variation in
at a fair value of SR 233.5 per share.
assumptions of cost of equity and rate of future
growth beyond five years.Thus, a one percentage
It is worth noting here that the company does
drop in perpetual growth to 4% would result in a
not carry a long-term debt on its balance sheet.
fair value for the share dropping to SR 200. Fair
Any portion under ‘due to banks’ represents
value moves in tandem with perpetual growth
a short-term arrangement for cash flows
rate. On the other hand, fair value has an inverse
management. As such, fluctuation in the debt
relationship with cost of equity. A drop in cost of
portion reflects outstanding dues on given day
equity to 9% would push the fair value higher at
and is only a measure of short-term liquidity or
SR 305 per share.
a lack of it. There is no significant variation in
valuation on account of changes in debt.
SENSITIVITY ANALYSIS
Cost of Equity
Perpetual growth
3%
PAGE 08
4%
5%
6%
7%
9%
213.2 249.9 304.9 396.5 579.8
10%
180.7 206 241.3 294.4 382.7
10.2%
176.4 200.3 233.5 282.6 362.8
10.50%
167.8 189.1 218.3 260.4 326.5
11%
156.5 174.7 199.1 233.2 284.3
VALUATION
FALCOM RESEARCH
Relative Valuation
No other company in Saudi Stock Market is in the
same business as Jarir. The listed companies in other
markets that are operating in the same/ similar
business segment can not be directly compared
with Jarir for number of reasons such as
would provide a good insight.
As can be seen, Jarir enjoys lowest price earnings
to growth ratio for the next five year projected
financials. It has the highest net profit margin as
well as dividend yield.
This chart provides a quick comparison in terms
• Growing trade surpluses of countries in GCC
(SR MILLION)
have kept the liquidity higher in areas where Jarir
does its business
•
Higher liquidity and economic boom have
boosted the consumer confidence higher in last
few years and the huge correction in 2006 of
the stock markets in the region have done little
to dent consumer spending
•Demographic profile of the GCC population
favors strong growth in future for Jarir. Sources
suggest, more than 38% of the population is
below 14 years in Saudi Arabia – the largest
country in the six nations GCC and home to
Jarir
•Companies within GCC pay lesser tax and face
lesser competition.
Keeping the above points in perspective, we
focused our attention on three companies that
we believe operate in the retail segment with
products similar to Jarir.
Source: FALCOM Research ¥YAHOO Finance
of size denominated in Saudi Riyal. It is relevant
to point out the difference among the competing
companies. Although, all of them target the retail
consumer, they differ in the range of products,
mix of products and marketing channels.
Best Buy Co.
Best Buy completed 50 years of operation
in 2006. Company operates in US, Canada
and China. It offers range of products in
consumer electronics, home-office products,
entertainment software, appliances etc. Like
Jarir, the company also provides office machines
that comprise laptops and desktop computers,
computer support services, networking, and
For the investors with an access to invest in any
of these companies listed elsewhere as well as
Jarir, a quick look at the relative value measures
MARKET
NET
PBV DIV YIELD CAP./
PROFIT
SALES MARGIN
(TTM)
PEG
(5 YR. EST.)
Jarir
0.85
16.62 7.71 4.4%
2.66
18.7%
Barnes & Noble *
1.61
18.90 2.29 1.5%
0.51
2.9%
Best Buy*
0.95
17.16 3.71 0.8%
0.64
3.8%
Staples*
1.00
18.98 3.59 1.2%
0.99
5.4%
PER
accessories; the other similar line of products is
in the entertainment software that includes DVD
movies, video game hardware and software,
CDs and computer software. It has established
branded retail stores and commercial Web sites
under the brand names - Best Buy, Five Star,
Future Shop, Geek Squad, Magnolia Audio Video,
and Pacific Sales Kitchen and Bath Centers.
TTM – Trailing Twelve Months
(Source: FALCOM Research Estimates and * YAHOO Finance)
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 09
Till March, the company operated around 822
Best Buy stores, 20 Magnolia Audio Video
stores, 14 Pacific Sales stores, 121 Future Shop
stores, and 135 Five Star stores. It was formerly
time. Jarir marked its 52 week low of SR 127
on 27th January. A brief snapshot of relative
valuation in the Saudi Stock Market is provided
in the following table.
known as Sound of Music, Inc. and changed its
PER
name to Best Buy Co., Inc. in 1983.
Staples Inc.
The company, together with its subsidiaries,
operates office products superstores worldwide.
It offers business machines, computers and
related products, as well as office furniture. In
addition, it also provides a range of services in
printing and faxing. The company has a strong
network of 1,884 office superstores as well
as 55 distribution and fulfillment centers. It
markets its products and services through
catalog mailings, direct mail advertising, and
Internet. It is in the business since 1985.
Barnes & Noble
Barnes & Noble is known as a bookstore
Tadawul All Share Index
PBV
14.34 3.01
DIV. YIELD
3.59%
TASI Services
31.43 2.01
1.81%
Jarir
16.62 7.71
4.38%
Source : FALCOM Research
Due to the vast differences among listed
companies in general and Services sector in
particular, this comparison is not very useful.
Because of the substantial drop in stock prices
since March 2006, dividend yield for the market
looks attractive. We believe Jarir stands out
among the increasing listed companies on the
Saudi Stock Market because of its track record.
We would not take guidance from average
valuation measures of indices in the table as
such a simplistic analysis would be misleading.
operator. The company operates as a bookseller
primarily in the United States through a chain
of bookstores. It also sells its books through its
Web site, Barnes & Noble.com. The company,
through its subsidiaries, publishes a range of
nonfiction and illustrated books in wide range
of areas, such as crafts, food, home design,
puzzles and games and children’s books etc. The
company runs around 793 bookstores. Barnes
& Noble, Inc. was founded in 1986 and is based
in New York, United States.
Within Saudi Arabia
Saudi Stock Market is currently trading at a PER
multiple of 14.34. Tadawul All Share Index is at
7075 after briefly dipping under 7000 towards
the end of January. Similarly, Services sector to
which Jarir belongs witnessed its index closing
below 1800 for a short period around the same
PAGE 10
VALUATION
FALCOM RESEARCH
SHAREHOLDERS
RETURN TO
From February last year, the stock has outperformed the two indices.
Jarir stock price has grown steadily as compared
Dividend Policy
to Tadawul All Share Index and TASI Service
Jarir is generating net profit at a compounded
index. It lagged behind the two indices when the
annual growth rate of 26.6% over past four years
bullish trend was strong. During a bearish trend
whereas it has built up assets at a CAGR of 10.8%
that commenced from February last year, the
while shareholders’ equity has grown at 20%
CAGR. Every year, Jarir is paying high dividends
without affecting growth in sales that have grown
at a CAGR of 29.1%. Since 2002, the company
has made a cumulative profit of SR 744 million out
of which it distributed a sum of SR 583 million as
dividends – an average dividend payout ratio of
more than 78%.
Year on Year Returns including dividends
YEAR
MARKET PRICE
DIVIDEND
TOTAL
AS ON 31ST DEC RECEIVED (SR) RETURNS
2003
61.35
2004
73.59
2005
189.20
4.4 163.1%
2006
147.75
4.0 -19.8%
2007 YTD
137.00
6.0
4.0
26.5%
Source : FALCOM Research
-3.2%
Source : Tadawul
stock has outperformed the two indices.
Strength of the Jarir stock is evident over
Source : FALCOM Research
long term. It has provided higher returns as
compared to both the Tadawul All Share Index
and TASI Services Sector Index. Comparatively
low volatility and steady growth make this stock
We expect the heavy dividend payout to continue.
We have assumed a constant dividend payout of
70% for future projections.
a must for a long-term portfolio.
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 11
SHAREHOLDING PATTERN % SHARES
As on
Jarir Investment Company
(NUMBER OF SHARES)
12-May-07 12-May-07
31-Dec-06
% SHARES
Post IPO adj.*
Post Pvt.
Founding
Placement Shareholders
Post IPO
12.10%
3,631,000
3,647,000
4,250,000
680,000
12.6%
-
Muhammed Al Agil
9.00%
2,700,000
2,700,000
3,125,000
500,000
12.0%
20.0%
Abdullah Al Agil
9.00%
2,700,000
2,700,000
3,125,000
500,000
12.0%
20.0%
Abdulkarim Al Agil
9.00%
2,700,000
2,700,000
3,125,000
500,000
12.0%
20.0%
Nasser Al Agil
9.00%
2,700,000
2,700,000
3,125,000
500,000
12.0%
20.0%
Abdulsalam Al Agil
9.00%
2,700,000
2,700,000
3,125,000
500,000
12.0%
20.0%
Gulf Investment Corporation
4.50%
1,351,000
1,351,000
3,000,000
480,000
10.0%
-
Olayan Group
4.13%
1,238,000
1,238,000
1,350,000
216,000
-
-
FALCOM Financial Services
2.01%
603,000
-
-
-
-
-
Shuaa Capital
0.29%
88,000
-
-
-
-
-
31.97%
9,589,000
10,264,000
5,775,000
924,000
17.4%
-
100.00% 30,000,000
30,000,000
30,000,000
4,800,000
100%
100.0%
Others
Total
* Shares are adjusted for the change in face value from SR 50 to SR 10 as well as stock dividend after the initial public offering.
Source : Jarir Marketing Company
PAGE 12
RETURN TO SHAREHOLDERS
FALCOM RESEARCH
PROFILE
COMPANY
Taking the best practices from the industry all over the world, Jarir
developed its unique business model.
Preamble
in the GCC region through opening of showroom in
Today a renowned name in the Middle East, Jarir
Qatar. More recently in 2006, the company stepped in
Marketing Company (Jarir) was started
in 1974
Egypt with the acquisition of land. Today, the company
on the Jarir Street of Riyadh. A one store firm that
owns three trademarks – Jarir BookstoreTM, ROCOTM
primarily sold books slowly graduated into school
and Royal FalconTM. Jarir Bookstores are the company’s
supplies, then to office supplies and finally computer
retail showrooms. Carefully located, Jarir Bookstores
hardware and software. Success of Jarir happened
are prominent landmarks of their areas. They are
over 30 long years.
professionally designed and products are organized for
ease in shopping. ‘ROCO’ targets the premium range of
Jarir operates in School supplies, Office Supplies,
products while ‘Royal Falcon’ caters to the lower end.
Computer Supplies, Books (both English and Arabic),
Information Technology (IT) and business machines
Jarir is majority owned by the founding family of Al
(laptops, desktops) segments. From the beginning,
Agil. Conscious efforts by the promoting family have
management is conscious of developing Jarir as one
resulted in building up of a professional team for running
stop shop for all family members.
the company. Only two members out of twelve in the
senior management belong to the family.
The company segregated the operations between
Retail division that focuses on end users and Wholesale
The company operates in a vibrant environment that is
division that caters to resellers (retailers - small
impacted by changing customer tastes, technological
shops, malls etc. as well as wholesalers). Until January
progress, increasing competition and advances in
2000, two divisions were separate companies – Jarir
productivity. Challenges are many.
Bookstore Company looked after retail business and
Jarir Marketing Company handled wholesale business.
Taking the best practices from the industry all over
Since the products were common, Jarir Bookstore
the world, Jarir developed its unique business model.
Company was merged into Jarir Marketing Company
Management has de-risked the business substantially
to take advantage of the synergy. This move was a
to remove blips in growth so that the company does
pre-cursor to a larger plan of widening the shareholder
not see a short period of rapid growth followed by
base. In April 2000, founders privately placed 40%
stretched period of inactivity.
shares with Gulf Investment Corporation (10%) and
Jarir has been successful in occupying a niche
others.
position through savvy combination of sourcing
Till 2000, Jarir had 11 showrooms that fetched
of materials, logistics management, systematic
27,300 square meters (sqm) of selling space. By
inventory control and marketing. One common
the end of 2006, the network had grown to 20
thread running through its operations over three
showrooms with 56,200 sqm area. Over the same
decades is spontaneous adjustment to customer
period, sales zoomed up from SR 402 million to SR
requirement.
1.5 billion. Year 2001 witnessed the foray of company
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 13
Operations
patterns. Accordingly, wholesale division cherry
In January 2000, after the merger of the two
picks fast moving items for its customers.
companies, Jarir Bookstore Company and Jarir
Marketing Company, operations of the combined
A single warehouse of the company located
company were separated into two divisions
in Sulai area of Riyadh serves all the outlets
– retail and wholesale. Type of user defines the
of the company whether inside or outside
involvement of a division. A direct user is tapped
Saudi Arabia. Logistical arrangement at Jarir
by the retail division. On the other hand, resellers
is efficient and keeps close tab on inventory
come under the wholesale division.
management. Almost 50% products account
Sourcing
Suppliers
School
Supplies
OfÝce
Supplies
Computer
Supplies
Softwares
Business
Machines
Books
Others
Storing
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Wholesale Division
Marketing
Retail Division
Showrooms
Corporate Sales
Showrooms
Sales OfÝces
Two divisions work separately on product
for cross-stocking, in other words, half the
planning, sales and marketing. However, human
products arriving in the warehouse immediately
resources, systems and sourcing are handled at
move out to the desired showrooms.
the corporate level. Retail showrooms provide
the early indicators on changing consumption
PAGE 14
COMPANY PROFILE
Company has recently acquired land of 57,000
FALCOM RESEARCH
sqm next to the existing warehouse taking the
favorable. In the meanwhile, the real estate in
total warehouse space to over 95,000 sqm.
Egypt is going up in value.
Jarir stocks more than 50K items of office
equipment, 5K art and engineering products
The warehousing facility is integrated with
and a wide range of gift items. In addition,
bookstores and sales offices through central
Jarir Publication has more than 20K Arabic and
IT and Management Information System. It
English book titles.
enables almost real time monitoring of sales
and inventory. As a result, management can
Due to more time required for transporting
quickly act to adjust the product mix following a
goods from Riyadh warehouse and the cost
change in customer preferences. The whole set
involved, Jarir has decided to keep its venture
up significantly contributes in keeping the control
in Egypt on hold till the situation becomes
on costs through
• on time availability of fast moving products
at all the showrooms
• excellent product sourcing. Jarir is leveraging
its might in Retail to get attractive deals from
t the suppliers and
• competitive pricing.
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FALCOM RESEARCH
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PAGE 15
SNAPSHOT OF RETAIL AND WHOLESALE DIVISIONS
Divisions
Retail
Wholesale
Customer
profile
End users - Walk in / Corporate
Resellers – wholesalers / retailers
Operates 20 book stores including one
each in Doha, Abu Dhabi and Kuwait
and 5 corporate offices.
Had 16 bookstores and 3 corporate offices till December 2003.
Expected to double the number of showrooms over next five
years.
It has 6 wholesale showrooms and
7 wholesale offices.
No addition is foreseen
for coming five years.
School Supplies, office supplies, Computers and IT, Books &
Magazines, Office Machines
Fast moving items in school
and office supplies
Stores/
offices
Products
• Jarir has state of the art system that ensures quick response to market determined product mix.
• Egypt venture is on hold following unfavorable logistics.
• Jarir acquired additional land in the first quarter for warehouse.
PAGE 16
COMPANY PROFILE
FALCOM RESEARCH
Retail Division
Retail division is split into showrooms (widely
known as Jarir Bookstores) and Corporate Sales
offices. Walk in customers are serviced through
the showrooms while big clients with repetitive
orders such as government, quasi-government
departments, companies are attended to by the
Bookstores need to carry entire range of
products because of different profiles of walk
in customers. Often, Jarir management gets its
first feel of changing trends here. An average size
of a bookstore is currently 2,800 square meter
(sqm). The company runs 20 bookstores out of
which 17 are inside the Kingdom and one each in
Source: FALCOM Research
Corporate Sales offices. Over the years, retail
division has grown in prominence. From the
contribution of 71% in sales in 2000, the retail
division has grown to a share of 88% in total
sales in 2006.
Qatar, Abu Dhabi and Kuwait. Given the higher
spending power of consumers in Kuwait, Qatar
and UAE, Jarir enjoys better margins outside
Saudi Arabia.
Source: FALCOM Research
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 17
Corporate sales differ from book store sales in
two major ways – size of order and credit period.
Client companies also provide repetitive business
for Jarir. This clientele lifts large quantities of
office stationeries and software products that
generate better margins. Jarir has established
five offices for looking after this segment of
retail one each in Riyadh, Al Khobar, Jeddah in
Saudi Arabia as well as in Qatar and Abu Dhabi.
Key customers of Corporate sales are Aramco,
Government organizations, hospitals and banks.
Jarir has a program for loyal retail customers
whether corporate or walk in individuals. The
company can track the repeat customers and
at the same time appreciate the loyalty of its
customers by providing favorable treatment
such as discount. Over 225,000 customers use
Jarir Bookstore’s loyalty card program.
company maintains more than 1,600 products
Wholesale Division
Jarir established the wholesale section in 1979
after it tapped an opportunity in the distribution
of school and office supplies. This division
was responsible for developing two special
network for this division and does not have any
trademarks viz. ROCOTM and Royal FalconTM. The
PAGE 18
COMPANY PROFILE
from these two trademarks.
Remote locations and other retailers including
competitors are served by a wholesale division.
Usually because of the reselling nature of the
business, client is more aware of the current
trends in products and prices. The margin chart
outlines the trend in net profit margin of the
two divisions. As can be seen, we have assumed
lower margins for projections.
The division operates through its showrooms
and sales offices. It has six showrooms and
seven sales offices. Showrooms entertain the
walk in customers while sales offices cater to
customers with large orders. Over last few
years, Jarir did not feel a need to increase the
presence outside Saudi Arabia.
Wholesale division closely co-ordinates with
retail showrooms. Often, a fast moving item on
the floor of the retail showroom is picked by the
wholesale.
FALCOM RESEARCH
Product Categories
bags etc. are part of office supplies. In view of
1. School Supplies
faster growth of IT products, this segment is
As can be expected, this is the most seasonal
also seeing a drop in percentage contribution to
product line at the company. School kits such
overall sales of the company.
as educational books, writing instruments, bags,
notebooks, educational aids, writing material
Computer supplies such as printing material
etc. constitute school supplies. At the beginning
like paper, ink cartridges; Compact Disks, DVDs
of the two school terms in September (impacts
etc. are also part of the Office Supplies. Jarir
third quarter result) and January (impacts first
competes with hypermarkets and electronic
quarter result), company sees major sale of
stores in computer supplies.
school supplies.
Corporate clients account for lion’s share of the
Faber Castell, a strong brand in this product
office supplies. The segment has better margins
group, has witnessed heavy supply of duplicate
as compared to the Office Machines. Jarir faces
cheaper imports in the market. Jarir has taken
competition from small retail outlets as well as
steps to curtail substandard supply from
major players such as Maktaba and Obeikan in
unauthorized persons.
office supplies.
School supplies are low value items. Over
3. IT Products and business machines
the years, Jarir has seen a drop in percentage
Multimedia and software products, desktops,
contribution in total sales from this category.
laptops, scanners, printers, fax machines,
The group sales have maintained a steady
networking products such as routers and photo
growth, a sign of matured segment unlike fast
copiers are part of the category. Jarir sources
moving office machines. From 2001-2006, the
products from reputed world manufacturers
category has clocked high single digit growth.
– IBM, Hewlett Packard, Dell etc. but enjoys a
In 2007, school supplies product group is
special understanding with Toshiba.
expected to contribute only 10% to the total
sales of the company. Ten years back, school
Laptops and notebooks are among the best
supplies accounted for 30% of the total sales.
sellers at Jarir. This is the fastest growing
Jarir competes with many hypermarkets in this
and technologically intensive area. Recent
segment.
developments in the field of office machines
(laptops) and telecom have generated a
FALCOM RESEARCH
2. Office Supplies
strong demand. Due to quick technological
Stationery – diaries, calendars, writing paper,
obsolescence and fast launching of new
pens & pencils; table top items – pins, desk top
products, the turnover in this product group is
mats, in and out boxes, staplers, letter opener,
extremely high. A substantial growth at Jarir is a
files etc.; and miscellaneous items like hand
result of sudden and sharp jump in this category.
JARIR MARKETING COMPANY
PAGE 19
In 2005, feel good factor in the GCC due to
health, information technology, personality
buoyant stock markets of the region gave a
development, life style, sports, travel, cooking
tremendous boost to business.
etc. JPC undertakes complete range of activities
that include selection of book titles, approval of
Sustenance of high growth rates of the segment
local authorities and assigning both translation
is debatable. Oil prices have seen increased
and printing to specialized entities. Sale of JPC
volatility at higher levels and regional stock
is high among Arab readers. Some of the titles
markets shrunk in 2006. Impact of wealth
are selected for college education. JPC exports
effect from the collapse of the stock prices
to Egypt, United Arab Emirates, Syria, Jordan,
may have been delayed by the region’s younger
Kuwait, Oman and Lebanon.
population and easy monetary policy.
5. Newspaper & Magazines
Due to dramatic growth of the IT products and
This serves to keep the family together in Jarir
especially office machines, this product segment
Bookstores. Despite insignificant sales, news
has attracted attention of big players. Jarir is a
papers and magazines are essential to maintain
leader in the product category with substantial
traffic to the retail showrooms.
lead over second placed competitor.
Own brands
We expect the segment to register the
Over more than 20 years, Jarir has established
maximum growth among all products. However,
two of its brands – Royal FalconTM and
we have toned down the rate of growth in our
ROCOTM. The company sells office stationery
projections and also taken into account probable
and school supplies under these brands that
negative impact on the margins.
includes pens, drawing tools and notebooks.
Royal Falcon targets the lower end while ROCO
4. Books
is a premium brand. In school and office supplies,
For decades, Jarir is known for its stock of
Jarir’s own brands help raise the margin. Jarir
books. Even today, Jarir bookstores offer more
is not involved on the manufacturing of these
than 50,000 titles in Arabic and English.
brands. Production is entirely outsourced. Given
the ease in duplication and risk of losing heavy
Looking at the potential of Arabic books, the
business to sub-standard products, Jarir has
company established Jarir Publishing Company
registered both the trademarks in number of
(JPC) more than a decade back in 1996. JPC
markets including Middle East, India and China.
obtains rights from publishers, in the United
States and Europe, of the original English version
of the books for translation and publication in
Arabic. At present JPC holds rights on over 1,000
titles from various areas such as management,
PAGE 20
COMPANY PROFILE
FALCOM RESEARCH
THE BUSINESS MODEL
DE-RISKING
Jarir has taken several measures to limit risk while containing its focus
on growth.
Jarir is in a business of retailing with no
is evident in high turnover and return on equity
significant barriers to entry. It has a model that
ratios. Moreover, it might increase the risk of
is easy to replicate. Against the conventional
overselling if for any reason market fails to
wisdom, Jarir has chosen to go for stand alone
absorb the volumes. Management is therefore
stores instead of taking space at the malls
cautious in creating right amount of space that
where traffic of walk in customers is always
is neither restrictive for free movement of
high. Except Toshiba that has a preferential
customers nor so huge that empty floor starts
arrangement with the company, Jarir has no
to bite the efficiency.
exclusive arrangements with leading suppliers in
the segments it operates in. Secret of business
Take Riyadh, for example, the fastest growing
model at Jarir lies in the thoughtful actions
capital in the world. Population of Riyadh
that go into reducing the risks at every stage
has supposedly shot up to six million people.
– sourcing, warehousing, sales and marketing.
However,
Management at Jarir runs a highly efficient
showrooms which mean each showroom is
structure that starts with human resources.
serving 1.2 million people and that is clearly
Absence
and
inadequate. Problems in getting the right people
qualified manpower in the local market as well
on board, training them as also right location at
as limitations on outsourcing of manpower by
the right price limits growth.
of
adequately
experienced
company
has
only
five
retail
the Government has been mainly responsible
for controlled growth in the past.
2. Leasing against owning
In the past, management has been cautious in
Company has taken several measures to limit
not locking its investments in low yielding assets
risks while continuing its focus on growth.
including real estate. Expansion in last six years
has entirely come from leased showrooms.
1. Cost and efficiency drive expansion
Against five of its own showrooms, company
Despite tremendous growth in population and
runs fifteen showrooms on leased premises.
spurt in consumerism within GCC, company has
FALCOM RESEARCH
seen a checkered expansion of Jarir Bookstores.
Leasing agreements favor Jarir. Lessor enters
One reason could be that growth of past two
into long-term arrangement that usually runs for
years has been phenomenal and caught most
not less than fifteen years and Jarir gets to pay
in the market off-guard. At the same time,
rentals at a substantial discount to the market
company believes that a rapid fire expansion
rates. Jarir also retains the right to exit for the
may yield faster growth in the short duration
first two years that are crucial to the success
but reduce its control on cost and efficiency that
of the venture. If the showroom is successful
JARIR MARKETING COMPANY
PAGE 21
in the first two years then it is set to become a
or lose opportunities that would make more
cash cow or else management can walk away
returns than shareholders could hope to make
with minimal loss to its shareholders. Lessor
elsewhere.
agrees to favor Jarir because Jarir Bookstore
soon becomes a major landmark in the area
3. Stand alone family Stores
attracting customers. As a result, Lessor is able
Based on past experience, management
to charge better rentals to other tenants.
realized that store within a mall may steer
growth in initial years but would cap the
Past two years have seen a sudden jump in
revenues when the consumer focus shifts
real estate. In last three months, the company
to another commercial centre. On the other
has executed two transactions, both in Riyadh.
hand, the concept of stand alone stores
First, it expanded the warehouse by investing
maintains the brand identity; continues to
SR 27 million and then it invested SR 60 million
offer consistent and expected experience
for a plot of land. We believe this strategy
to walk in customers and most importantly
would benefit company in two ways – Riyadh is
maintains the overall trend in growth.
growing very fast and there is every possibility
that property at a prime location would facilitate
own showroom in future. On the other hand,
if the property is developed as a mall then it
would yield higher rentals not to mention a ride
on bullish real estate.
Leased
PAGE 22
Lessors of premises offer attractive terms
to Jarir as it generates traffic to the location.
A new Jarir store invariably pulls customers
because of shopping value to entire family.
Jarir has something to offer for every member
Owned
Area (sqm)
We tend to agree with the management
of the family. It is pertinent to mention here
on unlocking the cash and distributing to
that despite low volume and low profit, Jarir
shareholders as long as it does not compromise
needs to offer items such as Newspapers and
the steady growth potential of the company
Magazines to maintain stream of customers.
DE-RISKING THE BUSINESS MODEL
FALCOM RESEARCH
4. Sub-letting to complementary business
6. Market Intelligence
Jarir operates in technologically intensive
Market intelligence is an integral part of
products such as laptops and mobiles. These
strategy to increase revenues, expand
products move fast but also carry low life
geographically
due to quick technological obsolescence.
maintains good relations in the fields of
To reduce the risk of obsolete mobiles,
real estate and hypermarket to scan the
company tied up with a company that had
consumer
desired expertise – Axiom Telecom. The
surveys, industry exhibitions and economic
association kept its earlier margins from
data are also tracked regularly to get a feel
mobiles intact but took away the risk of
of the market.
and
patterns.
control
costs.
Separate
Jarir
consumer
variation in sales as well as obsolescence out
of its model. Recently, it added Starbucks
There have been ample instances of Jarir
to its showrooms to enhance the consumer
delaying its decision to enter a market when
experience.
data was contradictory. A case in point is its
showroom in Madina where basic analysis
5. Strong Management Information System
of emerging data suggested low disposable
Jarir equipped itself with the state
income amid rising population. Discussion
of the art system as early as 1984.
with its associates in the real estate and
Monitoring current trend of consumption
hypermarket segments, however, confirmed
is important for the management to
the arrival of its consumer and management
increase turnover on the warehouse
promptly latched on to the opportunity.
floor. Management Information System
(MIS) at Jarir has always been strong.
Since the technological advances are fast
and consumerism drives the demand to
latest products especially in Business
Machines category, company has to
reduce the shelf life (time spend by the
product in the warehouse) of its key
products significantly which is done with
the help of MIS. In the B2B category,
Jarir has managed to connect online with
some customers. Management has key
data at its fingertips with a maximum lag
of a day. This is a major advantage in a
competitive industry.
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 23
ADVANTAGES
COMPETITIVE
Jarir works in a competitive market but strategically in-built advantages
should give the company an edge over its rivals.
Buoyancy in oil prices and resulting consumer
1.Dedicated Manpower
boom has attracted the attention of the world
Company has an experienced team in place that
to the Middle East. International competition is
values strategic vision. Management lays extra
coming home - knocking on the region’s door
emphasis on transparency and responsibility.
which has hitherto been the only domain of the
About 80% of the executive managers are with
company – and it will test the dynamism of the
the company for more than 10 years. Founding
management. For the last five years, consumer
family follows hands off approach but controls
has raised its spending by 10% year on year.
key positions. Employee satisfaction at Jarir is
The retail market in the Middle East is largely
very high.
fragmented with top five retailers accounting
for less than 15% of the total retail sales.
2. Innovation and leadership
Retailers from United States and Europe may
Jarir entrusts responsibility and at the same time
find the biggest markets with the most growth
rewards employees financially. It formulated
in consumer spending in Sharjah, Abu Dhabi and
a unique system called ‘Employee Stocks’
Dubai in the UAE followed by Kuwait, Qatar
that distributes a share of profit to deserving
and Saudi Arabia. For the new entrants various
options are available – franchising, licensing or
distribution partnerships if their appetite for
risk is low and are not looking at heavy capital
expenditure.
Jarir works in a competitive market. It does not
have exclusive arrangements with any suppliers
FOUNDING
MEMBER
Muhammed Al Agil
Abdullah Al Agil
Abdulkarim Al Agil
KEY POSITION
Chairman
Head of Wholesale Operations
(Jarir Marketing)
Head of Retail Operations
(Jarir Bookstores)
Nasser Al Agil
Head of Engineering and Real Estate
Abdulsalam Al Agil
Chairman of Audit Committee
Source : Jarir Marketing Company
and barriers to entry are almost non-existent.
employees. This program is not linked to the
Hypermarkets and supermarkets are opening
stock price of Jarir and is internally developed.
at a frantic pace to keep pace with the growing
‘Employee Stocks’ has inculcated a culture of
consumerism.
ownership within the company.
The company faces competition from many
It is easy to expand selling space by taking space
players in each product groups. Amidst
in the hypermarkets. However, Jarir has followed
toughening competition, we believe that Jarir
a longer route of expansion by selectively
has following competitive advantages:
choosing important locations and setting up
stand alone showrooms.
PAGE 24
COMPETITIVE ADVANTAGES
FALCOM RESEARCH
We believe innovation and ability to go
product groups, Jarir concentrates on offering
alone are key ingredients in the success of
a single umbrella option for the whole family.
top companies. These attributes constantly
The range of products at Jarir is unmatched
enable leadership position and competitors
which keeps the number of walk in customers
find them most difficult to imitate.
high, broadens motives of purchase and
thereby raises return per square meter of
3. Smart locations and design
space. Exposure to wide variety of customers
Retail is driving the volumes at Jarir not the
facilitates quicker adaptation to trends and
wholesale. Management has always been
provides stability to income.
conscious of location that is single most
important factor in making or breaking a retail
5. Response to customers
business in any product. Jarir Bookstores,
Management foresight is noticeable in the fast
branded retail showrooms of Jarir, are famous
pace at which Jarir adjusts to the changing
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as landmarks in their areas. Moreover, each
trends in customer preference. Experience in
showroom is designed to offer uncluttered
excess of three decades is simply irreplaceable.
shopping experience that stands out among
Ten years back, School Supplies accounted for
competitors. Recently, it also added Starbucks
one third sales but today they are down to
coffee to few showrooms which further
one tenth. Whereas, IT products and business
enhances the feel of the place.
machines that clocked 11% of the sales in
1997 and 22% in 2000 now generate 60%
4. Diversity of Products
of the top line.
Unlike competitors who focus on different
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 25
6. Management Information System
activities – inventory, distribution, creditors
Information technology and administrative
and debtors’ management, administrative and
information systems form the base of all
financial reports, ledger book, equipments, fixed
operations at Jarir. Points of sale at showrooms
assets, email, budget system management
are integrated with administrative information
etc. Company has received a certificate of
systems. JD Edwards system for resource
appreciation from JD Edwards for effective
planning provides effective control over the daily
implementation of resources planning system.
operations. It covers entire gamut of essential
PAGE 26
COMPETITIVE ADVANTAGES
FALCOM RESEARCH
PROJECTIONS
Cash rich nature of business would lead to drop in financial charges.
Jarir Bookstore is a misnomer for today’s Jarir
Marketing Company. Out of four major lines of
products, books are no more the growth drivers.
Higher turnover on comparatively lower margins
in office machines is powering the company to
new heights.
Business model of Jarir puts the onus of growth
on choosing the right products that would
move fast off the shelves. As long as Jarir is able
to read the customer’s mind, demand pull and
right product mix will maintain the buoyancy in
efficiency parameters such as turnover ratios.
It is obvious that the retail is the key to company’s
success. Speedier expansion in number of
showrooms coupled with double digit growth in
sales at existing showrooms will keep the cash
cow that Jarir is, healthy.
For future projections, we have relied upon
recent performance of the company in the same
store sales. We also scanned the past data of the
company on new store sales. Jarir showrooms
become the main feature in the locality soon
after their opening but it takes about three years
for the new outlet to reach its full potential.
From the fourth year onwards, the sales tend to
follow a normalized growth pattern. In terms of
profitability, new showrooms usually break even
FALCOM RESEARCH
JARIR MARKETING COMPANY
within one year.
Before the expansion, Jarir undertakes a
thorough study of the location that includes but
does not limit to
•Demographic profile such as population,
distribution of age group etc.
•Number of schools, offices, food and
beverage joints, hypermarkets etc.
•GDP per capita
•Trend in real estate prices besides
construction activities
Retailing is substantially location driven. If the
location is wrong, retailers can suffer cash
drainage over number of years in which case
immediate closure in the initial years is better.
Top management of Jarir spends considerable
time and effort into the feasibility study. Jarir
has unblemished record of site selection. The
company has never closed its showroom
except in one case where it shifted its existing
showroom to a bigger location in the same area.
We have a strong faith in the management of
the company to lead the industry in innovation.
Increasing competition will undoubtedly drive
the company to explore new ways of doing the
things.
PAGE 27
• Expansion is crucial to maintaining growth.
• Jarir will double the number of showrooms in next five years.
• Unlike in last six years when Jarir added new showrooms through leasing arrangement, coming five years will see
Jarir adding at least four new showrooms of its own.
• Company acquired real estate in Egypt in 2006 and since the beginning of the year additional land worth SR 87
million has been added.
• Hike in rentals and building of own showrooms would see steady rise in other income over the period of
projections.
At Jarir, a plan of expansion is implemented in three
Although ambitious, we believe this schedule is
phases viz.
achievable. In the past, management should have
• identification and finalization of site including signing
of purchasing agreement or leasing contract
• prepayment of expenses for getting the showroom
ready and
• marketing and eventual opening of a new
showroom
been more expansive but the sudden and sharp
growth in last two years was not anticipated. We
do not mind seeing a short-term drop in efficiency
ratios in lieu of faster growth in revenues that would
not only increase the market share of Jarir but also
forestall the competition in its track.
Jarir brand has a distinct advantage as the name
We have assumed a following schedule of expansion
evokes a complete family experience in cozy and
over the next five years:
professional surroundings. New entrants may replicate
the design and product offerings but to provide the
EXPANSION PLAN
2007
Q1
Q2
Q3
KSA
GCC
2008
KSA
Q1
Q2
Q3
1
1
1
Q1
Q2
Q3
KSA
2010
KSA
1
1
Q1
Q2
Q3
1
1
Q1
Q2
1
1
2
KSA
2
2
same showroom sales for stores that have
1
celebrated their third anniversary. For new
1
three quarter sale in the second year and old
showroom status in the third year.
3
4
margin on office machines is low but is high on
1
the software. Higher churning of fast moving
Q4
1
PROJECTIONS
We expect the trend of increasing sale of office
machines and software to continue. Profit
Q4
Total
PAGE 28
of established showrooms in the first year,
2
1
GCC
3
Q4
2
Q3
showrooms, we assumed sales at half that
Q4
1
GCC
2011
Total
1
GCC
We have assumed a steady growth of 10% in
Q4
1
GCC
2009
similar feel is a formidable challenge.
products reflects in higher turnover ratios. Rising
2
sales on steady asset base leads to dilution of
1
20
fixed cost and to some extent compensates for
lower margins on fast moving items.
FALCOM RESEARCH
Corporate sales division is part of retail because
years from end of 2002 to 2006, wholesale
of absence of intermediary. This comprised 8%
registered a CAGR of 10%. In the past two years,
of the retail sales in 2006. We have assumed
wholesale grew at more than 13% which may
little growth in this segment. At 5% year on year
not be sustained. Year on year growth of 7% is
rise, corporate sales are expected to cross SR
assumed in the sales of wholesale division.
122 million by 2011.
Because of bottom-up approach in retail
FALCOM RESEARCH
Historical data points towards diminishing
sales, growth there is more uneven. As
contribution of wholesale division. As against
expected, top line of retail division grows
CAGR of more than 36% in Retail sales over 4
faster from 2009 onwards because of sale at
JARIR MARKETING COMPANY
PAGE 29
new showrooms peaking to its potential three
expected to see further improvement due to
years from opening.
higher volumes on the same asset base. Fixed
cost expenses will spread over larger business
Over last few years, cost of goods sold and
turnover and that would reflect in fall of
occupancy have ranged between 78-81.5%
selling & distribution cost as a % of sales. Cash
of sales; we have assumed the same to be
rich nature of business would lead to drop in
between 80-82% for the next five years.
financial charges. Our assumptions result in
General and administrative expenses will fall
gradual fall of net profit margin from 16.2%
as % sales as they are more related to inflation
as of 2006 to 15.1% for the year 2011.
than the top line. Logistics management is
Key Assumptions
• Growth of 10% in same showroom sales from 3rd year onwards
• Consumer preference for fast moving office machines and software shall continue
• Corporate sales is expected to grow at 5% year on year
• Wholesale division is assumed to grow at 7% per annum
• Gross profit margin to fall from 19.8% at the end of 2006 to 18% for 2011
• Operating efficiency to improve from higher turnover
• Net profit margin to decrease from 16.2% in 2006 to 15.1% in 2011.
Our assumptions are conservative. We have preferred to err on the side of caution. Potential
higher returns could accrue from number of factors such as – favorable product mix that
would eventually reflect in higher profit margins and higher sales, faster implementation
of expansion, higher rental income etc.
PAGE 30
PROJECTIONS
FALCOM RESEARCH
FINANCIALS
Over a period from 2002 to 2006, retail sales jumped at a CAGR of 33.7%
while sales at the wholesale division recorded more sedate CAGR of 9.9%.
1. Revenues
Total retail sales at the showrooms (without
Retail division is quintessential for the growth of
corporate sales) shot up from SR 300.5 million
the company. Within retail, share of corporate
in 2002 to SR 1.2 billion in 2006 whereas per
sales is less than the showrooms. Management
showroom sale went up from SR 23.5 million
is therefore according its undivided attention to
to SR 61 million over the same period. We
the growth of retail outlets. Over a period from
anticipate the growth to continue further.
The growth in sales at the Jarir Bookstores (retail
showrooms) is because of both higher selling
space through the addition of new showrooms
as well as increasing per square meter sale.
Based
on
assumptions
in
the
previous
2002 to 2006, retail sales jumped at a CAGR
of 33.7% while sales at the wholesale division
recorded more sedate CAGR of 9.9%.
The average per annum growth for retail over
four years is 34.1%. In 2005, wide-spread
participation of individual investors in the stock
markets and precipitous rise in stock prices took
the consumer confidence to unprecedented level
which reflects in extraordinary retail growth for
Jarir in that year at 54%. Without 2005, retail
grew at an average of 27.6% - a more than six
percentage point drop.
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 31
PAGE 32
section, retail shall grow at a CAGR of slightly under
account for 93% of total sales as compared to 88%
23% over next five years whereas Wholesale shall
now. Over the same period, share of wholesale
clock a CAGR of 7%. By 2011, we expect retail to
division is expected to fall to 7% from 12% now.
FINANCIALS
FALCOM RESEARCH
FALCOM RESEARCH
JARIR MARKETING COMPANY
11.1%
10.2%
663,366
108,807
541,135
94,705
Source: FALCOM Research
Total Net Profit
Total Sales
120,593
825,718
16,234
14,272
Net Income
NPM %
3.7%
17,805
145,708
9.6%
135,514
2004
15.3%
104,359
30.1%
680,010
2006
16.4%
215,816
26.1%
1,318,244
680,666
2007 E
16.3%
241,498
12.4%
1,481,582
765,004
176,220
1,209,731
14.4%
23,661
13.0%
164,640
178,887
2005
243,283
1,505,385
14.7%
27,467
13.7%
187,141
162,686
2006
270,533
1,681,823
14.50%
29,035
7.0%
200,241
174,074
2007 E
WHOLESALE DIVISION
14.6%
152,559
53.7%
1,045,091
2005
566,867
2004
496,156
140,483
128,202
2003
18.1%
94,535
26.6%
522,883
2003
YoY Growth
Sales
Total Assets
2002
18.6%
76,900
412,933
2002
Source: FALCOM Research
NPM %
Net Income
YoY Growth
Sales
Total Assets
RETAIL DIVISION
2008 E
320,853
2,028,767
14.25%
30,532
7.0%
214,258
186,259
2008 E
16.0%
290,322
22.5%
1,814,509
930,000
2009 E
2010 E
3,138,347
482,151
395,713
13.75%
33,729
7.0%
245,304
213,248
2010 E
15.5%
448,422
25.3%
2,893,044
1,400,000
2,537,934
14.00%
32,096
7.0%
229,256
199,297
2009 E
15.8%
363,617
27.2%
2,308,678
1,150,000
2011 E
593,798
3,923,881
13.50%
35,434
7.0%
262,475
228,176
2011 E
15.25%
558,364
26.6%
3,661,406
1,600,000
There is a noticeable growth in the sales at the new
bookstores in the initial two years. Invariably, new
showrooms are observed to catch up with the old
without affecting its geographically closest showroom.
Management ensures avoidance of cannibalization
at the time of choosing the new locations. From
the third year onwards, new showrooms follow the
normalized growth patterns. The contribution from
the new showrooms seems to be on the lower side in
the chart because after a year new showroom moves
to old showroom category.
Jarir classifies its sales broadly under Retail and
Wholesale and within retail, sales are segregated into
PAGE 33
Bookstore (showroom) and corporate. The combined
and allocate a large portion for its retail showroom.
sales at Jarir in 2006 stood at SR 1.5 billion out of
The remaining portion is rented. By and large, the
which Bookstores contributed SR 1,222.7 million,
other income is accruing from rentals. In the absence
corporate sales chipped in with a sale of SR 95.5
of usage of any financial structures, 2007 is likely to
million and balance SR 187.1 million came in from
see income from rentals settling around SR 12 million
Wholesale division. By 2011, total sales are expected to
and next four years should see gradual improvement
be SR 3,923.9 million out of which a lion’s contribution
in line with inflation and opening of own showrooms.
of SR 3,661.4 million is anticipated from retail
(showrooms: SR 3,539.5 million and corporate:
SR 121.9 million) and rest SR 262.5 million from
wholesale.
4. Profitability
Competition in laptops is fierce all over the world but
manufacturing cost has remained steady leading to
pressure on margins. However, consumer demand has
2. Expenses
kept the industry growing. Company is playing the
Cost of goods sold and occupancy is fairly steady
same game – pushing the products at frantic pace on
– moving in tandem with the sales. Jarir has done
low margins.
well to keep leasing expenses lower than the market
Product mix at Jarir has changed dramatically and
rentals. In coming years, real estate rentals shall climb
every few years, shift is discernible towards IT
up. However, leasing agreements favor Jarir and
products and office machines. Gross profit margin has
the company should see less grow in cash out flow
picked up in 2006 after a steady fall over previous
on account of occupancy than the overall market.
three years. For the next five years, margins are seen
Administrative expenses going forward will keep pace
steadily declining.
with the inflation. Turnover is expected to grow more
than the fixed assets and variable expenses especially
distribution will show gradual decline as a percentage
Seasonal influence on account of school supplies is
noticed in the first and third quarter every year. In terms
of sales, third quarter logs in the highest followed by
of sales.
first and then fourth and second quarter in that order.
PAGE 34
3. Other Income
Fourth quarter of 2005 was solitary exception as the
Prior to 2000, management was in favor of owning the
momentum of the third quarter carried on to the last
bookstore. Jarir used to acquire land, build a building
quarter to record more sales than the first quarter.
FINANCIALS
FALCOM RESEARCH
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 35
843,352
745,754
Source: FALCOM Research and Jarir
632,851
509,569
277,024
183,069
13,000
13,085
29,742
300,000
Total Shareholders’ Equity
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
E - Estimates
8,000
13,086
5,414
300,000
16,940
939,078
723,384
353,589
13,000
-
56,795
300,000
215,695
15,981
210,501
15,012
236,185
5,269
28,984
140,862
198,755
5,269
28,484
160,210
23,640
939,078
335,000
27,951
100,000
476,136
10,000
309,896
150,253
5,988
31-Dec-07E
194,520
221,173
5,266
20,823
133,032
557
843,352
318,712
27,951
8,290
488,399
10,871
306,778
137,637
33,113
31-Dec-06
Retained earnings
Reserve for employees
Special reserve for expansion
Statutory reserve
Share Capital
SHAREHOLDERS’ EQUITY
Total Current Liabilities
Provision for end of service
Indemnities
Total Liabilities
deferred revenues
Accrued expenses and other
Accounts payable
Due to Banks
CURRENT LIABILITIES
62,052
745,754
TOTAL ASSETS
Liabilities & Shareholders’ Equity
291,291
454,463
Property & Equipment, net
Equity Investment
Investment Property, net
Total current Assets
11,495
286,612
Inventories, net
Prepaid expenses and other
31,695
124,661
Accounts receivables, net
31-Dec-05
Cash & Cash Equivalents
CURRENT ASSETS
for period ending
Assets
1,116,259
854,864
452,983
13,000
-
88,881
300,000
261,395
17,956
243,439
5,269
30,984
167,439
39,747
1,116,259
352,000
27,951
175,000
561,308
12,000
368,366
178,601
2,341
31-Dec-08E
ANNUAL BALANCE SHEET
1,349,297
1,025,979
584,528
13,000
-
128,452
300,000
323,318
19,034
304,284
5,269
32,984
202,395
63,637
1,349,297
370,000
27,951
265,000
686,347
15,000
445,268
215,888
10,191
31-Dec-09E
1,613,248
1,231,132
741,465
13,000
-
176,667
300,000
382,117
20,176
361,941
5,269
34,984
241,987
79,701
1,613,248
400,000
27,951
350,000
835,298
15,000
532,372
258,120
29,806
31-Dec-10E
1,828,176
1,487,424
938,378
13,000
-
236,047
300,000
340,751
21,386
319,365
5,269
36,984
274,226
2,886
1,828,176
435,000
27,951
415,000
950,225
25,000
603,298
292,508
29,419
31-Dec-11E
(SR’000)
PAGE 36
FINANCIALS
FALCOM RESEARCH
176,220
Net Income
Source: FALCOM Research, Jarir
E - Estimates
(6,550)
182,770
Provision for Zakat
Income before Zakat
10,861
176,797
Operating Income
(4,888)
(22,939)
Selling & Distribution Expenses
Financing Charges
(25,185)
Gen. & Admin. Expenses
Other income
224,921
Gross Profit
(984,810)
Cost of Sales & occupancy
2005
1,209,731
(SR’00)
Sales
243,283
(8,576)
251,859
(4,788)
14,516
242,131
(23,210)
(32,842)
298,183
(1,207,202)
1,505,385
2006
270,533
(10,091)
280,624
(4,500)
12,000
273,124
(25,227)
(34,484)
332,835
(1,348,988)
1,681,823
2007E
STATEMENT OF INCOME
320,853
(12,173)
333,026
(4,000)
12,600
324,426
(30,432)
(36,208)
391,066
(1,637,701)
2,028,767
2008E
395,713
(15,228)
410,941
(3,800)
12,600
402,141
(38,069)
(38,019)
478,228
(2,059,705)
2,537,934
2009E
482,151
(18,830)
500,981
(3,500)
13,230
491,251
(47,075)
(39,920)
578,246
(2,560,101)
3,138,347
2010E
593,798
(23,543)
617,341
(3,200)
13,230
607,311
(58,858)
(41,916)
708,085
(3,215,795)
3,923,881
2011E
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 37
34.5%
37.1%
22.9%
-2.5%
0.9%
17.4%
30.1%
Sales
Sales Cost
Total Revenues
Admin and Marketing Expenses
Total Expenses
Zakat
Net Income
Source: FALCOM Research and Quarterly Results of the Jarir
# Number of shares are adjusted for the change in face value.
* QoQ – Quarter on Quarter
19.6%
16.0%
11.6%
7.2%
0.4
42.6%
105.3%
1.8
15.7
24,000
2005
Q1
272,806
219,472
53,334
2,419
55,753
9,644
748
463
10,855
44,898
1,350
43,548
240,000
Gross Profit Margin
Net Profit Margin
ROE
ROA
Asset Turnover Ratio
* Sales Growth (QoQ change)
* NP Growth (QoQ change)
EPS (SR)
BV (SR)
# number of shares Adj. (000)
Sales
Sales Cost
Total Income
Other Revenues
Total Revenues
Admin and Marketing Expenses
Depreciation
Other Expenses
Total Expenses
Net Income Before Zakat
Zakat
Net Income
Share Capital
(SR ‘000)
55.6%
57.0%
43.2%
28.1%
31.2%
14.3%
50.7%
15.1%
11.2%
7.2%
4.1%
0.4
-4.0%
-32.6%
1.2
16.9
24,000
Q2
261,913
222,313
39,600
3,397
42,997
10,835
397
1,216
12,448
30,549
1,200
29,349
240,000
1.4
17.0
30,000
Q4
314,202
258,240
55,962
3,360
59,322
13,748
425
1,215
15,388
43,934
1,600
42,334
300,000
21.1%
17.8%
16.9%
13.5%
13.1%
8.3%
8.0%
5.7%
0.5
0.4
37.8%
-12.9%
107.8%
-30.6%
Year on Year Change
37.1%
64.3%
39.1%
64.1%
28.0%
65.2%
8.0%
7.4%
15.6%
11.9%
26.3%
68.8%
31.3%
99.6%
2.0
15.6
30,000
Q3
360,809
284,784
76,025
1,685
77,710
11,990
336
1,995
14,321
63,389
2,400
60,989
300,000
QUARTERLY INCOME STATEMENT
43.3%
40.0%
60.7%
10.2%
7.3%
38.9%
74.7%
21.4%
19.5%
16.3%
8.2%
0.4
24.4%
79.7%
2.5
15.5
30,000
2006
Q1
390,821
307,268
83,553
6,051
89,604
10,627
415
609
11,651
77,953
1,875
76,078
300,000
22.0%
19.3%
35.8%
-4.7%
3.3%
37.6%
49.6%
17.1%
13.7%
8.6%
5.2%
0.4
-18.2%
-42.3%
1.5
17.0
30,000
Q2
319,652
265,122
54,530
3,873
58,403
10,324
409
2,122
12,855
45,548
1,651
43,897
300,000
23.8%
22.4%
29.0%
17.2%
14.8%
27.1%
32.4%
22.0%
18.1%
13.7%
9.6%
0.5
39.8%
84.0%
2.7
19.7
30,000
Q3
446,762
348,542
98,220
2,028
100,248
14,055
409
1,977
16,441
83,807
3,050
80,757
300,000
10.8%
10.9%
8.6%
41.0%
29.3%
25.0%
0.5%
17.8%
12.2%
6.7%
5.0%
0.4
-22.1%
-47.3%
1.4
21.1
30,000
Q4
348,150
286,270
61,880
2,564
64,444
19,387
426
80
19,893
44,551
2,000
42,551
300,000
9.6%
10.5%
2.9%
-12.8%
-15.6%
22.1%
5.3%
20.8%
18.7%
15.0%
9.5%
0.5
23.1%
88.2%
2.7
17.8
30,000
2007
Q1
428,489
339,544
88,945
3,268
92,213
9,265
525
41
9,831
82,382
2,290
80,092
300,000
CASH FLOW STATEMENT
2005
2006
2007E
2008E
2009E
2010E
2011E
Net Income
176,220
243,283
270,533
320,853
395,713
482,151
593,798
Net Cash Flow from Operating Activities
164,965
258,832
237,790
261,619
316,557
395,550
513,933
(32,553)
(75,919)
(92,000) (108,000)
(115,000)
(100,000)
(156,917) (173,266) (200,708)
(260,935)
(414,321)
7,850
19,615
(387)
Net Cash Flow from Investing Activities
Net Cash Flow from Financing Activities
Net Change in cash and cash equivalents
(115,030) (181,495)
(107,998)
17,382
1,418
(27,125)
(3,647)
Beginning of Year
14,313
31,695
33,113
5,988
2,341
10,191
29,806
End of Year
31,695
33,113
5,988
2,341
10,191
29,806
29,419
Cash and Cash Equivalents
E - Estimates
Source: FALCOM Research
FINANCIAL RATIOS
2005
2006
2007E
2008E
2009E
2010E
2011E
Profitability Ratios
5.9
8.1
9.0
10.7
13.2
16.1
19.8
Gross Profit Margin
18.6%
19.8%
19.8%
19.3%
18.8%
18.4%
18.0%
PBDIT Margin
14.8%
16.2%
16.4%
16.1%
15.9%
15.7%
15.5%
Operating Profit Margin
14.6%
16.1%
16.2%
16.0%
15.8%
15.7%
15.5%
Net Profit Margin
14.6%
16.2%
16.1%
15.8%
15.6%
15.4%
15.1%
Return on Equity
34.6%
38.4%
37.4%
37.5%
38.6%
39.2%
39.9%
Return on Assets
23.6%
28.8%
28.8%
28.7%
29.3%
29.9%
32.5%
Total Asset Turnover Ratio
1.62
1.79
1.79
1.82
1.88
1.95
2.15
Fixed Asset Turnover Ratio
4.15
4.60
3.87
3.85
4.00
4.18
4.62
Equity/ Assets
68.3%
75.0%
77.0%
76.6%
76.0%
76.3%
81.4%
Debt/ Equity
12.2%
0.1%
3.3%
4.6%
6.2%
6.5%
0.2%
EPS (SR)
Turnover Ratios
Leverage Ratios
Other Ratios
Current Ratio
Book Value per share (SR)
2.1
2.5
2.4
2.3
2.3
2.3
3.0
17.0
21.1
24.1
28.5
34.2
41.0
49.6
4.0
6.0
6.3
7.5
9.2
11.3
13.9
68.1%
74.0%
70.0%
70.0%
70.0%
70.0%
70.0%
Sales
46.5%
24.4%
11.7%
20.6%
25.1%
23.7%
25.0%
Net Profit
46.1%
38.1%
11.2%
18.6%
23.3%
21.8%
23.2%
DPS (SR)
Dividend Payout Ratio
Year on Year Growth
Source: FALCOM Research
PAGE 38
FINANCIALS
FALCOM RESEARCH
Rating Rationale
• FALCOM Research assigns ratings based on the calculated fair value of a stock.
Recommendation assumes, unless specifically mentioned, the holding period
of 2 years for a stock to get closer to its fair price.
We assign
• Strong Buy if Fair Value > 20% of the Current Market Price
• Buy if Fair Value > 10% of the Current Market Price
• Hold if Fair Value is between +10% and -10% of the Current Market Price
• Sell if Fair Value < 10% of the Current Market Price
• Strong Sell if Fair Value < 20% of the Current Market Price
•
•
User’s Guide
Earnings per Share: The amount of profit to which each share is entitled.
IPO: Short for Initial Public Offering. An IPO is when a company sells stock in itself
for the first time.
•
Market Cap: The amount of money you would have to pay if you bought every
share of stock in a company. (To calculate market cap, multiply the number
of shares by the price per share.) Short for Market Capitalization.
•
Return on Equity (ROE): This ratio measures the percentage return earned by the
company for its shareholders. It is calculated by dividing net profit by the
Shareholders’ Equity.
•
Return on Assets (ROA): Calculated by dividing net profit with total assets, the
ratio measures the return on total capital deployed in the business.
•
Asset Turnover Ratio: The ratio measures efficiency of assets in terms of sales
realized. Higher the sales on the given asset base, better the efficiency.
•
Dividend Payout Ratio: Dividend is paid out of the profits or sometimes through
reserves. It is calculated as the dividend as a percentage of net profit. The ratio
indicates distribution of net profits to the shareholders. Equity shareholders receive
their returns through dividends and appreciation of share price.
FALCOM RESEARCH
JARIR MARKETING COMPANY
PAGE 39
Disclosures
Corporate
• FALCOM Financial Services did not receive any compensation for the preparation of this report.
• FALCOM Financial Services was not involved in the management of public issue of the company
in last 3 years.
• FALCOM Financial Services holds equity shares of the researched company.
• Neither associate nor employee of FALCOM Financial Services serves on the Board of Directors
of the company.
Analyst
• The analyst involved in the preparation of this report does not hold equity shares of the Jarir
Marketing Company.
• The analyst responsible for this report has never worked for the Jarir Marketing Company.
• The views expressed in this report accurately reflect personal views of the analyst about
companies mentioned in the report.
• No part of the analyst’s compensation was, is or will be directly or indirectly linked to the
specific recommendations or views expressed in this report.
PAGE 40
FINANCIALS
FALCOM RESEARCH
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