Research Report 12/28/2011

Jarir Marketing Co (JARIR)
139.50 SAR 1.25 UP 0.90%
As of 08:30 on 12/28/2011

Jarir Marketing Company wholesales and retails stationery, school supplies, office machines, computer supplies, books, and art and engineering supplies. The Company owns and operates the Jarir Bookstore retail chain in Saudi Arabia, Qatar and Abu Dhabi, and wholesale showrooms in Saudi Arabia. In an attempt to build a comprehensive thesis on the prospects of Jarir’s future, we have chosen to analyze them from a Macro Economic perspective, Industry specific perspective, and a company specific perspective. The issues we covered include both supply risks and and demand risks on a variety of levels. Our Macro view on the demand for the Jarir product mix and services is primarily based upon the growth of the population in the Page 1

Tadawul Ticker

= 4190

Bloomberg Ticker = JARIR:AB
● ● ● ● Tadawul Exchange: Saudi Arabia Sector: Consumer, Cyclical Industry: Retail Sub-Industry: Retail-Office Supplies

Growth Price Target SAR 154
Growth (PEG) Formula= 13.5/ 15 =0.9 then 139/0.9 = 154

Value Price Target SAR 217
Value (PEGY) Formula = 13.5 / (15 +5.9) = .64 then 139/.64 = 217

Components of Formulas: Current Price = 139 Forecast P/E 12E = 13.5 PEG = 0.9 CAGR = 15 Dividend Yield= 5.9% PEGY =.64

GCC and in the KSA specifically. The Ministry of Education is opening up new schools to meet the demand of the rapidly growing population. According to the Ministry of Health, their is 66% of the population in between the ages of 15 and 65, and 32% are under 15 years of age. Both those age groups are focused on educating their children and buying the latest tablets, smart phones and electronic gadgets. Therefore we see the regional pursuit of higher education as a proactive component for demand of the Jarir product mix. Weaknesses and risks in our Macro View are found in the following areas: ● Strong Japanese Yen can hinder the importers ability to buy the merchandise. Mitigation of the currency risks can be attained through a variety of hedging solutions that are available at most local banks in the KSA. ● Natural Disasters hindering the supply chain as manufacturing plants are closing in Japan and Thailand. While at first glance the costs might seem to be a temporary problem, after careful analysis we have found both the cost of insurance and interest rates to be on the rise in the disaster stricken zones. ● Interest rate risk due to Capital Market Flux: This type of risk is due to Sovereign debt issues in the US and Europe. The fact of the matter is that the international community is linked either due to the Bretton Woods Agreement or due to currency peg to Page 2

Today Open: Previous Close: Day's Range: 52wk Range: Volume: 1-Yr Rtn:

138.00 138.25 138.00 - 140.75 80.50 - 148.50 89,326 +46.98%

Key Statistics for Jarir Marketing Co (JARIR)
VALUATION
Market Cap (M SAR) Price/Book (mrq) Price/Sales (ttm) PEG Ratio (3 year expected)** Enterprise Value (M SAR) Enterprise Value/Revenue (ttm) Enterprise Value/EBITDA (ttm) 8,370.00 9.1201 2.1273 0.9824 8,366.34 2.13 16.59

EARNINGS
Earnings Per Share (SAR) (ttm) Quarter Estimated EPS (SAR) (mrq) Year Estimated EPS (SAR) (12/11) P/E Ratio (ttm) Relative P/E (ttm) Estimated P/E (12/11) Next Earnings Announcement 8.1965 2.0300 8.0340 17.0194 1.2228 17.3637 2012-01-18

DIVIDENDS the US Dollar. As a result, the company may experience spikes in borrowing costs for working capital or for trade finance, unless they are using some kind of Islamic Finance product that shields them from the fluctuations in LIBOR or they could hedge with a variety of risk management tools. On an Industry Specific level, the latest trend is found in diversification away from the iOS platform towards the various Android devices. The sheer flood and fresh variety of new Android devices is exciting the consumers and capturing their imaginations with all the new and different applications and features. One of the most interesting aspects of the new platform is that the Android applications work on all Android devices, unlike the iOS being limited to iPhone or iPad. Another Industry specific issue can be either a downside risk or an upside risk depending upon whether Jarir takes up the initiative with regards to E-commerce. The fact of the matter is that E-Commerce has proven to be an efficient business model across the planet, brick and mortar companies like Jarir have been forced to build Online distribution outlets. We can make two more assumptions with regards to Ecommerce. The first is that being first to market and establishing an online presence is a key part of capturing the market with brand recognition. The second aspect is about keeping customer loyalty by improving Page 3
Dividend Yield (SAR) (ttm) Last Dividend Reported (SAR) (2011-10-25) Relative Dividend Yield 4.8441 2.2667

1.4108

ADDITIONAL INFORMATION
Average Volume (5-day) Average Volume (30-day) Short Ratio Short % of Float Float (M) Short Interest Shares Short (% prior month) ● ● ● ● 91,911 76,427 32.53 -

Abbreviations: mrq = Most Recent Quarter ttm = Trailing Twelve Months ** Bloomberg cites a 3 yr PEG in an attempt to increase volatility in their projections. We use the 5yr CAGR in our forecasts.

the warranties on the products and services that are sold in the stores. That investment in customer satisfaction is going to be the key driver in terms of future sales. The third issue on an Industry specific level is the sheer number of new entrants and competition into the market. The various electronic devices will be sold from a variety of sources, and the majority will compete based on price as opposed to quality of service. The fact of the matter is that there is a general fear of obsolescence in the industry, since there is a flood of new and improved products hitting the shelves. Fundamental Analysis and Price Targets: From a company specific perspective we see Jarir has a 10% upside potential to SAR 154 based on the PEG or growth formula; however, if you want the more conservative PEGY formula then we could include the value of the dividend yield as a part of the growth forecasts, which would give us a price target of SAR 217 on the assumption of a PEGY .64

Value (PEGY) Formula= Forward P/E divided by the CAGR plus the dividend yield. Once you have the PEGY then you divide the Current price by the PEGY to get the Value Oriented Target Price. Value (PEGY) Formula = 13.5 / (15 +5.9) = .64 then 139/.64 = Value Price Target SAR 217 Growth PEG Formula= Forward P/E divided by CAGR gives you PEG, then you take the current target price and divide by the PEG Growth (PEG) Formula = 13.5/15 =0.9 then 139/0.9 = Growth Price target SAR 154 Forecasts:
P/E (x) P/B (x) 10A 21.8 10.9 11E 16.4 9.9 16.9 5.9 12 E 13.5 8.7 14.1 6.2 CAGR* 15%

EV/EBITDA (x) 14.8 Div Yield (%) 5.2

* CAGR is based on the Industry standard 5yr.

Khalid I Natto Head of Equity Research The KIN Consortium Tel: +9665 686 100 43 Email: khalid@kinconsortium.com

Page 4

Quarterly Income Statement for Jarir Marketing Co (JARIR)
http://www.bloomberg.com/quote/JARIR:AB/income-statement

All Values in Millions SAR (except Per Share) Period End Date Revenue - Cost of Revenue Gross Profit - Operating Expenses Operating Income - Interest Expense - Net Non-Operating Losses (Gains) Income Before XO Items - Extraordinary Loss Net of Tax - Minority Interests Net Income - Total Cash Preferred Dividends Net Inc Avail to Common Shareholders Abnormal Losses (Gains)

FQ3 2011 9/30/2011 1,208.91 1,024.91 183.99 33.10 150.90 0.81 -7.45 152.88 0.00 0.00 152.88 0.00 152.88 0.00

FQ2 2011 6/30/2011 968.26 840.46 127.80 30.58 97.22 2.31 -7.72 98.52 0.00 0.00 98.52 0.00 98.52 0.00

FQ1 2011 3/31/2011 945.63 782.95 162.68 27.15 135.53 2.63 -7.39 136.77 0.00 0.00 136.77 0.00 136.77 0.00

FQ4 2010 12/31/2010 811.80 678.84 132.95 32.18 100.77 2.87 -8.71 103.62 0.00 0.00 103.62 0.00 103.62 0.00

Normalized Income Basic EPS Before Abnormal Items Basic EPS Before XO Items Basic EPS Basic Weighted Avg Shares Diluted EPS Before Abnormal Items Diluted EPS Diluted Weighted Avg Shares

152.88 2.55 2.55 2.55 60.00 2.55 2.55 60.00

98.52 1.64 1.64 1.64 60.00 1.64 1.64 60.00

136.77 2.28 2.28 2.28 60.00 2.28 2.28 60.00

103.62 1.73 1.73 1.73 60.00 1.73 1.73 60.00

Quarterly Balance Sheet for Jarir Marketing Co (JARIR)
http://www.bloomberg.com/quote/JARIR:AB/balance-sheet

All Values in Millions SAR (except Per Share) Period End Date Assets

FQ3 2011 9/30/2011

FQ2 2011 6/30/2011

FQ1 2011 3/31/2011

FQ4 2010 12/31/2010

+ Cash & Near Cash Items + Accounts & Notes Receivable + Inventories + Other Current Assets Total Current Assets

103.66 209.57 548.54 44.92 906.69

36.82 190.01 573.59 45.05 845.47

89.33 204.54 421.36 37.71 752.94

52.28 211.85 543.05 35.67 842.85

+ LT Investments & LT Receivables + Net Fixed Assets Total Long-Term Assets Total Assets Liabilities & Shareholders' Equity

35.37 628.08 663.45 1,570.14

35.44 594.98 630.42 1,475.89

35.51 581.54 617.05 1,369.99

35.58 555.02 590.60 1,433.45

+ Accounts Payable + Short-Term Borrowings + Other Short-Term Liabilities Total Current Liabilities + Long-Term Borrowings + Other Long-Term Liabilities Total Long-Term Liabilities Total Liabilities + Total Preferred Equity + Minority Interest + Share Capital & APIC + Retained Earnings & Other Equity Total Equity Total Liabilities & Equity

397.77 50.00 114.76 562.53 50.00 39.85 89.86 652.38 0.00 0.00 400.00 517.76 917.76 1,570.14

388.63 36.92 100.73 526.28 66.67 38.07 104.74 631.02 0.00 0.00 400.00 444.88 844.88 1,475.89

267.60 16.67 111.57 395.84 83.33 36.47 119.80 515.64 0.00 0.00 400.00 454.35 854.35 1,369.99

317.38 50.11 133.59 501.08 100.00 34.79 134.79 635.87 0.00 0.00 400.00 397.58 797.58 1,433.45

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Quarterly Cash Flow for Jarir Marketing Co (JARIR)
http://www.bloomberg.com/quote/JARIR:AB/cash-flow

All Values in Millions SAR (except Per Share) Period End Date Cash From Operating Activities

FQ3 2011 9/30/2011

FQ2 2011 6/30/2011

FQ1 2011 3/31/2011

FQ4 2010 12/31/2010

+ Net Income + Depreciation & Amortization + Other Non-Cash Adjustments + Changes in Non-Cash Capital Cash From Operations Cash From Investing Activities

152.88 5.27 4.41 26.16 188.72

98.52 4.66 4.06 -37.35 69.90

136.77 4.88 3.39 53.45 198.50

103.62 5.04 1.18 -27.86 81.97

+ Disposal of Fixed Assets + Capital Expenditures + Increase in Investments + Decrease in Investments + Other Investing Activities Cash From Investing Activities Cash from Financing Activities

0.00 -38.30 0.00 0.00 0.00 -38.30

0.04 -18.03 0.00 0.00 0.00 -17.99

0.00 -31.33 0.00 0.00 0.00 -31.33

0.04 -3.56 0.00 0.00 0.00 -3.53

+ Dividends Paid

-80.00

-108.00

-80.00

-80.00

+ Change in Short-Term Borrowings + Increase in Long-Term Borrowings + Decrease in Long-term Borrowings + Increase in Capital Stocks + Decrease in Capital Stocks + Other Financing Activities Cash from Financing Activities Net Changes in Cash

-3.58 0.00 0.00 0.00 0.00 0.00 -83.58 66.84

3.58 0.00 0.00 0.00 0.00 0.00 -104.42 -52.51

-50.11 0.00 0.00 0.00 0.00 0.00 -130.11 37.05

-0.21 0.00 0.00 0.00 0.00 0.00 -80.21 -1.77

Annual Income Statement for Jarir Marketing Co (JARIR)
http://www.bloomberg.com/quote/JARIR:AB/income-statement#fa_annual

All Values in Millions SAR (except Per Share) Period End Date Revenue - Cost of Revenue Gross Profit - Operating Expenses Operating Income - Interest Expense - Net Non-Operating Losses (Gains)

FY 2010 12/31/2010 3,014.57 2,512.99 501.58 105.90 395.68 11.41 -28.90

FY 2009 12/31/2009 2,555.31 2,068.93 486.38 101.92 384.46 13.49 -13.65

Income Before XO Items - Extraordinary Loss Net of Tax - Minority Interests Net Income - Total Cash Preferred Dividends Net Inc Avail to Common Shareholders Abnormal Losses (Gains) Normalized Income Basic EPS Before Abnormal Items Basic EPS Before XO Items Basic EPS Basic Weighted Avg Shares Diluted EPS Before Abnormal Items Diluted EPS Diluted Weighted Avg Shares

400.74 N/A 0.00 400.74 0.00 400.74 0.00 400.74 6.68 6.68 6.68 60.00 6.68 6.68 60.00

373.97 0.00 0.00 373.97 0.00 373.97 0.00 373.97 6.23 6.23 6.23 60.00 6.23 6.23 60.00

Annual Balance Sheet for Jarir Marketing Co (JARIR)
http://www.bloomberg.com/quote/JARIR:AB/balance-sheet

All Values in Millions SAR (except Per Share) Period End Date Assets + Cash & Near Cash Items + Accounts & Notes Receivable + Inventories + Other Current Assets Total Current Assets + LT Investments & LT Receivables + Net Fixed Assets Total Long-Term Assets Total Assets Liabilities & Shareholders' Equity + Accounts Payable + Short-Term Borrowings + Other Short-Term Liabilities Total Current Liabilities

FY 2010 12/31/2010

FY 2009 12/31/2009

52.28 211.85 543.05 35.67 842.85 35.58 555.02 590.60 1,433.45

39.66 181.18 421.42 36.84 679.11 35.86 535.44 571.31 1,250.42

317.38 50.11 133.59 501.08

243.29 37.05 102.00 382.34

+ Long-Term Borrowings + Other Long-Term Liabilities Total Long-Term Liabilities Total Liabilities + Total Preferred Equity + Minority Interest + Share Capital & APIC + Retained Earnings & Other Equity Total Equity Total Liabilities & Equity

100.00 34.79 134.79 635.87 0.00 0.00 400.00 397.58 797.58 1,433.45

100.00 45.24 145.24 527.58 0.00 0.00 400.00 322.84 722.84 1,250.42

Annual Cash Flow for Jarir Marketing Co (JARIR)
http://www.bloomberg.com/quote/JARIR:AB/cash-flow

All Values in Millions SAR (except Per Share) Period End Date Cash From Operating Activities + Net Income + Depreciation & Amortization

FY 2010 12/31/2010

FY 2009 12/31/2009

400.74 19.68

373.97 18.64

+ Other Non-Cash Adjustments + Changes in Non-Cash Capital Cash From Operations Cash From Investing Activities + Disposal of Fixed Assets + Capital Expenditures + Increase in Investments + Decrease in Investments + Other Investing Activities Cash From Investing Activities Cash from Financing Activities + Dividends Paid + Change in Short-Term Borrowings + Increase in Long-Term Borrowings + Decrease in Long-term Borrowings + Increase in Capital Stocks + Decrease in Capital Stocks + Other Financing Activities Cash from Financing Activities Net Changes in Cash

10.09 -66.04 364.47

14.05 33.26 439.92

0.07 -38.97 0.00 0.00 0.00 -38.91

0.33 -31.88 0.00 0.00 0.00 -31.55

-326.00 13.06 0.00 0.00 0.00 0.00 0.00 -312.94 12.62

-338.00 -4.97 0.00 -50.00 0.00 0.00 0.00 -392.97 15.40

Important information The authors of this document hereby certify that the views expressed in this document accurately reflect their personal views regarding the securities and companies that are the subject of this document. The authors also certify that neither they

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