Al-Hokair Group
Investment Update
May 2015
Please read Disclaimer on the back
Favorable view, recently added to Saudi Arabia MSCI small
cap Index. Concerns over delays
Joint Venture with Rezidor Hotel Group improves hospitality segment
outlook for the company: The agreement includes adding and renovating
around 30 hotels. Latest developments in the agreement include the opening
of 3 new hotels during 2017 and 2018 (Park Inn Bay Radisson Dubai, Park Inn Bay
Radisson Jubail, and Radisson Blu Khobar) and the renovation of one hotel for
2017 (Golden Tulip Jubail to Park Inn Bay Radisson). Announced plans includes
4 more hotels for the next few years, two of which are in Jeddah and one in
Makkah and Riyadh, all of which will be under the Radisson Blu brand name. The
joint venture will support RevPAR growth for current hotels under renovation.
Expansion in Entertainment segment: Al Hokair Group is planning on
opening 7 new entertainment centres across the kingdom in 2015 along with
2 entertainment centres that were pushed from 2014 to 2015 in Riyadh and
Dammam to add to its current portfolio of 52 centres.
Solid Q1 results support our favorable view: Q1-15 earnings witnessed a
10.5% YoY growth in net income along with a 19.5% growth in revenues for
the same period. Hospitality revenues grew 14.4% YoY while entertainment
revenues grew 29.8% for the same period. Hospitality gross margins stood
at 41.7% down from 42.1% last year. Gross margins for the entertainment
segment ended the quarter at 38.1% compared to 31.1% last year; growth in
entertainment margins is supported by the company’s strategy of shutting
down under performing entertainment centres. We believe the company will
maintain current margins along with double digit growth figures throughout
2015. Total annual gross margins for 2014 showed slight improvement while
EBITDA margins declined from 30.4% to 29.6%.
Our estimates and valuation: Al Hokair is expected to post SAR 240.5mn in
net income (4.37 EPS) for 2015, recording 22.4% growth for the year supported
by the addition of more than 520 rooms (from new hotels and renovations to
existing ones) to its hospitality portfolio and the expansion in the entertainment
segment. We are adjusting our year end forecast from SAR 262.7mn due to
noted delays in hotel and entertainment centres openings. We reiterate our
“overweight” recommendation for the stock with an updated target price of
SAR 97.3. At current levels, Al Hokair is trading at 19.5x our 2015 forecast and
17.8x our 2016 earnings forecast compared to current sector multiples of 20.5x.
Analyst
Sultan Al Kadi
Previous Target Price (SAR)
105
Current Price* (SAR)
85.5
Target Price (SAR)
97.3
Upside / (Downside)
13.8%
YTD
40٫1%
*prices as of 15th of May
Key Financials
SARmn (unless specified)
FY14
FY15E
FY16E
Revenues
Growth %
Net Income
Growth %
EPS
952
8.1%
196.4
0.4%
3.5
1,107
16.2%
240.5
22.4%
4.3
1,217
9.9%
263
9.4%
4.7
Source: Company reports, Aljazira Capital
Key Ratios
SARmn (unless specified)
FY14
FY15E
FY16E
Gross Margin
EBITDA Margin
Net Margin
P/E
P/B
37.4%
29.6%
20.6%
16.9x
2.7x
37.8%
32%
21.7%
19.5x
3.6x
37.7%
31.7%
21.6%
17.8x
3.3x
EV/EBITDA
12.7
13.7
12.4
ROE
26%
28%
27%
ROA
15%
17%
16%
Dividend Yield
4.1%
2.9%
2.9%
Source: Company reports, Aljazira Capital
Added & Announced Hotels
Hotel
Radisson Blu - Jizan
Holiday Inn - Jeddah
Hilton Double Tree - Riyadh
Radisson Blu Plaza - Jeddah
Marriot - Jeddah
Park Inn Bay Radisson - Dubai
Park Inn Bay Radisson - Jubail
Radisson Blu - Khobar
Date of Opening
Rooms - Suites
Q1-2015
Q1-2015
Q2-2015
Q3-2015 E
NA
2017
2018
2018
141 - 9
148 - 32
170 - 49
72 - 40
220 - 44
102
156
150
Source: Company reports, Aljazira Capital
1.7%
Q1-2015 Revenue
Breakdown
Healthy hotel development pipeline back on track: Al Hokair Group has
recently announced the opening of 3 hotels in Q1 and Q2 of 2015 (Radisson
Blu Jizan, Holiday Inn Jeddah, and Hilton Double Tree Riyadh); these hotels
were scheduled for H2-2014. The company also announced in their latest BOD
report that the Marriot Jeddah hotel will be postponed with no specific date
of opening. We believe that these delays add a level of uncertainty and an
execution risk to the company’s development plans. Plans for 2015 include the
opening of Radisson Blu Plaza Jeddah hotel in Q3. The company signed a 20
year rental agreement for the hotel where the second party pays an annual rent
of SAR 5.70mn for 5 years followed by an annual rent of SAR 6.83mn for the next
15 years.
‘Overweight’
Recommendation
Hospitality
Entertainment
37.4%
60.9%
Other
+966 11 2256374
s.alkadi@aljaziracapital.com.sa
1
Source: Company reports, Aljazira Capital
© All rights reserved
Al-Hokair Group
Investment Update
May 2015
Please read Disclaimer on the back
Key Financials
Income Statement in SAR mn
REVENUES
Hotels
Entertainment
Others
TOTAL REVENUES
% Growth
DIRECT COSTS
Hotels
Entertainment
Others
TOTAL DIRECT COSTS
GROSS PROFIT
EXPENSES
Selling and marketing
General and administrative
TOTAL EXPENSES
INCOME FROM MAIN OPERATIONS
Share in net results of associates
Financial charges
Other income, net
INCOME FROM CONTINUING OPERATIONS
INCOME BEFORE ZAKAT
Zakat
NET INCOME FOR THE YEAR
% Growth
Balance Sheet in mn SAR
ASSETS
CURRENT ASSETS
Bank balances and cash
Accounts receivable
Prepayments and other current assets
Inventories
Amounts due from related parties
TOTAL CURRENT ASSETS
NON-CURRENT ASSETS
Investments in associates
Projects under construction
Property and equipment
Goodwill
Other assets
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
CURRENT LIABILITIES
Accounts payable
Accrued expenses and other current liabilities
Bank borrowings and term loans
Current portion of obligations under
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Term loans
Employees’ terminal benefits
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
SHAREHOLDERS’ EQUITY
Share capital
Statutory reserve
Retained earnings
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND EQUITY
2012A
2013A
2014A
2015E
2016E
2017E
483
273
14
770
6.6%
553
310
17
880
14.2%
592
341
19
952
8.1%
714
373
20
1,107
16.3%
799
396
22
1,217
9.9%
863
432
24
1,319
8.4%
(297)
(172)
(6)
(475)
295
(342)
(206)
(6)
(554)
326
(356)
(233)
(6)
(595)
356
(440)
(242)
(7)
(689)
418
(492)
(259)
(8)
(759)
458
(531)
(281)
(9)
(820)
499
(30)
(112)
(142)
153
28
(4)
7
183
183
(5)
179
1.7%
(33)
(123)
(156)
169
26
(9)
12
198
198
(3)
196
9.4%
(37)
(137)
(174)
182
29
(12)
2
201
201
(5)
196.4
0.4%
(42)
(146)
(188)
231
26
(13)
2
245
245
(5)
240.5
22.4%
(46)
(159)
(206)
253
26
(16)
6
268
268
(5)
263
9.4%
(50)
(169)
(220)
280
26
(18)
5
293
293
(5)
287
9.3%
47
35
50
22
4
158
135
40
108
23
23
329
57
47
106
26
31
268
157
53
86
32
31
359
323
60
104
37
31
555
502
67
119
42
31
760
89
15
672
39
27
843
1,001
107
79
660
39
886
1,215
96
144
755
39
1,034
1,301
107
164
746
39
1,056
1,415
107
174
745
39
1,065
1,620
107
179
743
39
1,068
1,828
62
116
69
2.7
250
47
117
105
0.2
269
52
137
125
0.0
314
57
132
138
0.2
326
61
138
170
0.2
370
65
142
191
0.2
399
130
42
173
423
147
40
187
456
190
48
239
553
196
40
237
563
232
40
273
643
262
40
303
701
408
86
85
578
1,001
550
20
120
759
1,215
550
39
160
749
1,301
550
63
238
852
1,415
550
90
338
977
1,620
550
118
459
1,127
1,828
Source: AlJazira Capital *for years 2015 & onwards we used closing price of 20th May 2015
2
© All rights reserved
Al-Hokair Group
Investment Update
May 2015
Please read Disclaimer on the back
Key Financials
Cash Flow in SAR mn
2012A
2013A
2014A
2015E
2016E
2017E
Net cash from operating activities
Net cash used in investing activities
Cash flow from Financing Activity
Changes in Cash
Opening Balance of Cash
Closing Balance of Cash
194
(130)
(26)
37
10
47
196
(239)
39
(3)
47
45
294
(119)
(162)
13
45
57
362
(134)
(128)
100
57
157
368
(142)
(59)
167
157
323
405
(148)
(79)
179
323
502
Liquidity Ratio
Current Ratio(x)
Quick Ratio (x)
0.6
0.5
1.2
1.1
0.9
0.8
1.1
1.0
1.5
1.4
1.9
1.8
Efficiency Ratios
Receivables Days Turnover
Inventory Days Turnover
Payables Days Turnover
16.4
10.4
47.6
16.7
9.5
30.9
17.0
10.0
32.0
17.5
10.5
30.0
18.0
11.0
29.5
18.5
11.5
29.0
Profitability
ROE
ROIC
ROA
31%
23%
18%
26%
19%
16%
26%
18%
15%
28%
20%
17%
27%
19%
16%
25%
18%
16%
Margins
Gross Margins
EBITDA Margins
EBIT Margins
Net Margins
38%
33%
20%
23%
37%
30%
19%
22%
37.4%
29.6%
19.2%
20.6%
37.8%
32.0%
20.8%
21.7%
37.7%
31.7%
20.8%
21.6%
37.8%
32.2%
21.2%
21.8%
Leveraging Ratios
Debt to Equity
Debt to Capital
35%
17%
33%
17%
42%
20%
39%
19%
41%
20%
40%
20%
Valuations
Dividend Yield
Book Value Per Share (BVPS)
Market Capitalization(in SAR Mn)
Enterprise value (in SAR Mn)
PE (x)
PB (x)
EV/EBITDA (x)
EPS (diluted)
NA*
30
NA*
NA*
NA*
NA*
NA*
3.25
NA*
25
NA*
NA*
NA*
NA*
NA*
3.56
4.1%
22
3,328
3,586
16.94
2.74
12.72
3.57
2.9%
24
4,703
4,880
19.55
3.61
13.78
4.37
2.9%
26
4,703
4,782
17.88
3.32
12.40
4.78
2.9%
29
4,703
4,654
16.37
2.90
10.97
5.22
Ratios
Source: AlJazira Capital *for years 2015 & onwards we used closing price of 20th May 2015
3
© All rights reserved
RESEARCH DIVISION
AGM - Head of Research
Abdullah Alawi
+966 11 2256250
a.alawi@aljaziracapital.com.sa
Analyst
Sultan Al Kadi
+966 11 2256115
t.nazar@aljaziracapital.com.sa
+966 11 2256374
s.alkadi@aljaziracapital.com.sa
General manager - brokerage services and sales
AGM-Head of international and institutional
AGM- Head of Western and Southern Region Investment Centers & ADC
Ala’a Al-Yousef
brokerage
Brokerage
+966 11 2256000
a.yousef@aljaziracapital.com.sa
Luay Jawad Al-Motawa
Abdullah Q. Al-Misbani
+966 11 2256277
lalmutawa@aljaziracapital.com.sa
+966 12 6618400
a.almisbahi@aljaziracapital.com.sa
AGM-Head of Sales And Investment Centers
AGM-Head of Qassim & Eastern Province
AGM - Head of Institutional Brokerage
Central Region
Abdullah Al-Rahit
Samer Al- Joauni
Sultan Ibrahim AL-Mutawa
+966 16 3617547
aalrahit@aljaziracapital.com.sa
+966 1 225 6352
s.alJoauni@aljaziracapital.com.sa
Jassim Al-Jubran
+966 11 2256248
j.aljabran@aljaziracapital.com.sa
BROKERAGE AND INVESTMENT
CENTERS DIVISION
RESEARCH
DIVISION
Talha Nazar
Analyst
+966 11 2256364
s.almutawa@aljaziracapital.com.sa
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1.
RATING
TERMINOLOGY
Senior Analyst
2.
3.
4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target.
Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels
over next twelve months.
Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target.
Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve
months.
Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks
rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve
months.
Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further
analysis of a material change in the fundamentals of the company.
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