Al Meera Consumer Goods Mohamed Hamdy Qatar Manager, Equity Analysis Equities | Consumer Goods | Initiation of Coverage Mubasher International Wednesday, 17 August 2016 [email protected] Return not in sync with expansions — Initiate with Hold Price Target: QAR231.5 Hold/Low Risk Low Risk ETR: +5.2% • Qatar is an attractive retail market with sustainable growth despite lower oil prices. MERS (QAR) vs. QE Rebased • Retail sector growth is fueled by high spending power and inflow of tourists and expats. Stock Details Volume (RHS) MERS QE Rebased Last price (QAR) 220.10 • MERS is leading the retail industry in Qatar through ownership of consumer outlets. mn 300.00 0.12 52-W High (QAR) 270.50 • Over the past five years, profitability ratios (ROE and ROIC) slipped as MERS ramped up 52-W Low (QAR) 165.30 250.00 0.10 its invested capital to fund its store expansion from 26 to 45. 6M -ADVT (QARmn) 3.08 200.00 0.08 % Chg: M oM 2.9 • MERS plans to expand by opening 15 stores in 2016 to reach a total of 60 (55 in Qatar). % Chg: YoY -18.63 150.00 0.06 • Initiate with Hold/Low Risk; PT of QAR231.5/share (+5.2%). % Chg: YTD 0.0 100.00 0.04 M ubasher Ticker M ERS.QE Bloomberg Ticker M ERS QD Expanding its leadership in domestic retail market: Expansions fueled top-line growth, yet profitability 50.00 0.02 Capital Details Al Meera Consumer Goods Co. (MERS.QE) is is weakening: MERS started its turnaround story in No. of Shares (mn) 20.0 leading the retail industry in Qatar through 2010 by implementing a strategic plan to expand 0.00 - M kt Cap (QARmn) 4,402.0 ownership and management of 45 consumer from its store count from 26 in Qatar to 45 by end Jul-16 Oct-15 Apr-16 Jun-16 Jan-16 Mar-16 Feb-16 M kt. Cap (USDmn) 1,209.2 Nov-15 Dec-15 Aug-15 Sep-15 May-16 outlets (41 in Qatar and 4 in Oman), including its of 2015. Since then, net operating income (EBIT) Free Float (%) 41.8% first Géant Hypermarket at Hyatt Plaza, which was grew at a 5-year (2010-2015) CAGR of 20.3%, driven opened in Qatar in 2013. The company operates mainly by a 21.8% CAGR in total store sales (98% of Summary KPIs (QAR mn) 2013a 2014a 2015a 2016e 2017e 2018e three business segments: (1) retail, (2) investment, revenues). Retail EBITDA margin surged from 3.9% Total retail sales 1,946 2,176 2,449 2,806 3,162 3,494 and (3) leasing. MERS signed agreements with two in 2010 to 7.6% in 2015, supported by cost savings Shop rental income 37 43 50 68 75 82 leading international brands in 2011, namely Casino from economies of scale and synergies. Expansions Other operating income 97 81 21 21 21 20 Group (hypermarket) and WHSmith (bookstore). were financed from a QAR950mn rights issue in EBITDA 233 253 201 246 296 329 MERS started the construction works of 14 new 2013 and Islamic finance of QAR409mn in 2012. EBITDA margin 11.2% 11.0% 8.0% 8.5% 9.1% 9.2% shopping malls in Qatar, and plans to open a new Although normalized earnings grew by a 26.2% 5- Net Profits After Taxes 196 227 162 199 229 241 supermarket in Oman in H2 2016. year CAGR, MERS’s return on invested capital Net profit margin 10.1% 10.4% 6.6% 7.1% 7.3% 6.9% EPS 9.8 11.3 8.1 9.9 11.5 12.0 (ROIC) dropped from 34% in 2011 to 11% in 2015, An attractive retail market in the MENA region: DPS 8.0 9.0 9.0 9.0 8.0 8.4 putting into question its ability to generate a higher Qatar is emerging as an attractive market for BVPS 68.2 70.2 69.3 70.2 72.7 76.7 marginal return on new expansion investments. retailers in the MENA region with sustainable PER (x) 13.6x 17.7x 27.1x 22.2x 19.2x 18.3x growth due to the defensive nature of the business Initiate with Hold/Low Risk; PT QAR231.5 (ETR PBV (x) 2.0x 2.8x 3.2x 3.1x 3.0x 2.9x (i.e. mostly trading in food products) despite the +5.2%): We used two valuation models to value EV/EBITDA (x) 8.0x 13.7x 20.0x 16.5x 14.3x 13.3x continued drop in oil prices. The main factors MERS: (1) Discounted cash flow (DCF), resulting in Dividend Yield 6.0% 4.5% 4.1% 4.1% 3.6% 3.8% affecting growth in Qatar’s retail sector are: the QAR267.0/share and (2) Multiples valuation based Net Debt (Cash)-to-Equity - 6.3% 6.4% 13.0% 28.4% 40.3% country’s high per-capita income, high spending on 2016e PER and EV/EBITDA, resulting in an Net Debt (Cash)-to-EBITDA - 0.3x 0.4x 0.7x 1.4x 1.9x power, and growth in tourists number. In view of its average of QAR148.8/share. We assigned 70%/30% Source: Company reports, MubasherTrade Research estimates strategic “Vision 2030”, Qatar plans to more than weights to both models, respectively, reaching a double its visitors by 2030 to 7mn (vs. 2.8mn in one-year price target (PT) of QAR231.5/share, an 2014). Also, population growth in Qatar is expected total return (ETR) of +5.2% which is within supported by the continuous inflow of expats; we our Hold rating range. Hence, we initiate coverage expect inflow of expats to grow at a slower rate on MERS with a Hold/Low Risk rating. because of lower oil prices. Page 1 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Al Meera Consumer Goods| Qatar | Initiation of Coverage Wednesday, 17 August 2016 Corporate Profile Al Meera Consumer Goods Co. is a mass grocery retailer (MGR) Board of directors structure Shareholder structure leading the retail industry in Qatar. It was established in 2005 and listed on the Qatar Exchange on 28 October 2009. Through its Chairman ownership and management of consumer outlets, MERS provides Non- Government wholesale and retail services, trading of consumer goods, government H.E. Abdulla Bin 29% foodstuff, household items, electrical and electronic equipment, 71% Mutual Khalid Al Qahtani Qatar in addition of other products. Funds Holding 4% The company operates three business segments: (1) retail, Vice Chairman LLC comprising the trading of consumer goods, (2) investment, 26% including equity and funds held as available-for-sale investments, Dr. Saif Said Al and (3) leasing, which mainly includes renting shops in various Sowaidi Qatar malls owned by the company. Al Meera Investment Consumer Authority At present, MERS operates through 45 supermarkets and Board Member Board Member Board Member 29% convenience stores in Qatar (41 stores) and Oman (4 stores). Goods MERS had acquired Qatar Markets Company and Al Oumara Dr. Mohammed HE Dr. Saleh Bin Mr. Ahmed Bakery in 2011. This acquisition provided five new store outlets in Nasser Al Qahtani Mohammed Al- Abdullah Al Khulaifi different areas totaling 15,000 sqm, in addition to providing a company-owned bakery. Furthermore, to facilitate access of high- Board Member Board Member Free Float quality international products, MERS signed an agreement with 42% two leading international brands, namely Casino Group (hypermarket) and WHSmith (bookstore). The WHSmith shops Mr. Mohammed Mr. Hassan Ibrahim Al Sulaiti Abdullah Al Asmakh sell a wide range of books, stationery items, toys and games, magazines, confectionery and drinks. The first two stores were opened in 2013 in Nuaija Mall and Ezdan Mall in Qatar. Source: Company reports Source: Decypha Retail outlets MERS expanded its network from 26 stores to 45 branches by MERS inaugurated first Géant Hypermarket at Hyatt Plaza in In 2011, MERS signed an exclusive franchise right of 2015 (41 in Qatar and 4 in Oman). Supermarket chain consists Qatar in 2013. The agreement between MERS and the French “WHSmith” in Qatar. Since then, three stores were of 14 branches in Doha and 18 other branches in malls. Outside Casino Group in 2011 relies on two pillars: the strength of MERS inaugurated in Nuaija Mall, Ezdan Mall, and Hyatt Plaza. We Doha, MERS has seven branches in addition to two branches in in the local retail market with knowledge in local needs, and the note that the company’s plan was to open 10 stores within residential compounds. MERS began construction work on wide experience of “Géant” Casino, the French hypermarket five years. The British retail “WHSmith”, internationally other stores as part of its expansion strategy to construct 14 chain, in operating and managing superstores. The shoppers at known as “SMITH”, is well known for its commercial stores new shopping malls across Qatar. To further expand and Géant have the opportunity to get products of the brand chains, with 550 libraries in its portfolio located in public reinforce its market share, MERS plans to open a new Casino, which includes food, home appliances and streets, railway stations, airports, hospitals, stores, where supermarket in a new mall in Oman in H2 2016. supplements, computer supplements, cleaning and others. books, stationery, magazines, newspapers, and lifestyle Casino’s products are directly imported from France based on products are sold. international standards. Page 2 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected].