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Almarai Food Company Vision Investment Services Co GCC Sector Agriculture Almarai Food Company Country SAR Report Initiating Coverage • Almarai Food Company is among the largest integrated dairy Price Target company in the world with 28% market share in dairy products SAR 180.83 in GCC. CMP SAR 152.75 Up/down side 18.38% • Supporter of innovation and constantly upgrading technology to 52 week H-L 185-110 achieve highest average yield per cow in the world. Rating BUY • Committed to its three pronged growth strategy which includes Date June 29, 2009 organic growth, diversifying in new categories and geographic expansions. Stock Performance 180 12000 • Established a 48 – 52 JV with PepsiCo. to market dairy and 170 11000 juice products to Middle-East, Africa and South East Asia. 160 10000 150 • Recently, announced the acquisition of Hail Agricultural 140 9000 Development Company to diversify into new business lines and 130 8000 reap benefits through vertical integration. 120 7000 EQUITYRESEARCH 110 6000 100 • Plans to enter the fast growth and import dominated Baby Food 90 5000 Market and reap benefits of early entry. 80 4000 07 07 07 07 08 08 08 08 08 08 09 09 09 • A huge population base and extreme climatic condition in Saudi - - - - - - - - - - - - - Jun Jun Jun Oct Oct Apr Apr Feb Feb Dec Dec Arabia leaves it with tremendous growth potential. Aug Aug 2280.SSE SASI • Registered a 33.43% growth in revenue and 36.39% growth in net profit for the year ended 2008. PARTICULARS SAR* • Positive future outlook for the company with sound organic Bloomberg Code ALMARAI AB growth and fresh cash flow pouring recent joint ventures and Market Cap in SAR Billion 16.64 acquisition. Paid Up Cap in SAR Billion 1.09 Diluted EPS** 7.92 • Almarai has significantly outperformed the benchmark Tadawul BVPS # 26.30 All Share Index. P/E'09 14.7 • Recommend a BUY on Almarai with a fair value of SAR 180.83 P/BV'09 4.0 per share, an upside of 18.38% from the June 29, 2009 price. *Except otherwise stated **Last Financial Year #Last Financial Quarter Ownership Financial Highlights SAR million 2008A 2009E 2010E 2011E Public HH Prince Revenues 5,030 6,476 7,857 9,084 26% Sultan Al Saud Gross Profit 1,999 2,581 3,143 3,647 30% EBIT 1,061 1,399 1,748 2,103 Net Profit 911 1,198 1,499 1,820 Other Savola Total Assets 8,181 10,170 11,690 13,666 investors Group Total Debt 3,644 4,661 5,043 5,648 15% 29% Total Equity 3,617 4,415 5,397 6,641 GPM 39.7% 39.9% 40.0% 40.2% OPM 21.1% 21.6% 22.3% 23.2% NPM 18.1% 18.5% 19.1% 20.0% Research Team ROA 11.1% 11.8% 12.8% 13.3% Raj Shekhar [email protected] ROE 25.1% 27.0% 27.7% 27.3% +96824708088 Extn: 122 EPS 7.9 10.4 13.0 15.8 Adnan Bagasrawala [email protected] BVPS 31.5 38.4 46.9 57.7 Extn: 216 P/EPS 19.3 14.7 11.7 9.7 P/BVPS 4.9 4.0 3.3 2.6 For Further Details, Please Contact: VISION INVESTMENT SERVICES CO. (SAOC) – Tel + 968 24708088, Fax + 968 24708099 Website: www.investvis.com Initiating Coverage –Almarai Food Company Vision Investment Services Co Background Almarai Food Company (Almarai) began in 1976 under the leadership of HH Prince Sultan bin Mohammed bin Saud Al Kabeer, as it remains to this day. The company recognized the potential to transform traditional methods of dairy farming to serve the needs of the rapidly expanding Saudi market and commenced with the processing of fresh milk and laban. The next step towards the growth was to expand into modern dairy farms with state-of-the-art processing facilities. Almarai is based in Riyadh with network extended throughout the Arabian Peninsula. The company has positioned it self as a leading agricultural, dairy Largest integrated dairy producer in the world with processing and food distribution industries. Currently, the company has 6 110000 cows in six farms in farms across Saudi Arabia with 110000 cows with milk production of over 674 Saudi Arabia million liters. Almarai is the largest integrated dairy company in the world, with a well- recognised brand that was ranked number three in Forbes’s ‘Top-40 Arab Brands’ list. Almarai enjoys good reputation for quality that is unmatched within the gulf countries where it operates. The company has a three pronged growth strategy which includes organic growth, diversifying in new categories and geographic expansions. This is expected to deliver above average returns in the long term. Business Model Source: Company Filings, VIS Research . 2 Initiating Coverage –Almarai Food Company Vision Investment Services Co Western Bakeries Company Limited operates as a Bakery Company in Saudi Arabia with an issued capital of SAR 100 million. It specializes as a bakery products producer. International Baking Services Company Limited operates as a Trading Company in Saudi Arabia with an issued capital of SAR 0.50 million. Modern Food Industries Limited operates as a Bakery Company in Saudi Arabia with an issued capital of SAR 35 million. Almarai Company Bahrain S.P.C. operates as a Sales Company in Bahrain with an issued capital of BHD 0.10 million. Almarai Holding Company W.L.L. operates as a Holding Company in Bahrain with an issued capital of BHD 0.25 million. Arabian Planets for Trade and Marketing L.L.C. operates as a Sales Company in Oman with an issued capital of OMR 0.15 million. Markley Holdings Limited is a 100% subsidiary registered in Jersey. Teeba Investment for Developed Food Processing Company operates as a Sales Company in Jordan with an issued capital of JOD 32.20 million. International Dairy and Juice Limited operate as a Holding Company in Bermuda with an issued capital of USD 7 million. Joint Ventures and Acquisition The Company announced the creation of a joint venture with PepsiCo to JVs and Acquisition expected explore new business opportunities in dairy and juice products. The new joint to add to synergies and help venture, called International Dairy and Juice Limited (IDJ) , held 52% by increase profitability PepsiCo and 48% by Almarai (through its subsidiary Almarai Investment Holding W.L.L.), has been incorporated and will focus initially on opportunities in Southeast Asia, Africa and the Middle East excluding the Gulf Cooperation Council Countries. The Company, through its subsidiary Almarai Holding Company W.L.L has acquired 75% of Teeba Investment for Developed Food Processing Company in Jordan. The transaction was completed in 2009 and an amount of JOD 54.8 million was paid to the founding shareholder. The company during Q2 2009 transferred its share at cost to International Dairy and Juice Limited (IDJ), the dairy and juice joint venture formed earlier this year with PepsiCo. In the third quarter of 2008, the Company signed a non binding Memorandum of Understanding regarding the acquisition of 100% of International Company for Agro Industrial Projects (Beyti) in Egypt. The acquisition was completed during the second quarter 2009 and the price of EGP 645 million. This included . 3 Initiating Coverage –Almarai Food Company Vision Investment Services Co a 75-hectare piece of land. This was transferred to IDJ at cost to help the JV set foot in the most populous African Market. Beyti was established in 1998 with the acquisition of the largest commercial dairy farm in Egypt, Dallah AlBarakah. The company has successfully expanded in various sectors of the dairy industry including milk, yogurt and cheese. In order to achieve the highest levels of hygiene during the production process, its products undergo extensive quality control measures that ensure the purity, safety and freshness of the products. Beyti specializes in the production and packaging of UHT plain and flavored milk, plain yogurt and an exquisite range of fruit yogurt. Almarai announced the acquisition of 100% of Hail Agricultural and Development Company (HADCO) in exchange of new shares. The company would issue new shares in the ratio of one new Almarai share for every five HADCO shares, and the payment to the shareholders of HADCO of SAR0.50 for each HADCO share. This equates to the issue of six million new Almarai shares to HADCO shareholders and cash outflow of SAR 15 million. The company is primarily engaged in grains, fodder and vegetable production, animal feed, horticulture and cold storage. Additionally, the company has poultry business which focuses on parent breeding, broiler production, and poultry feed, processing and distribution. HADCO is the 5 th largest producer with 4% market share and has over 26 million birds. The company is a low debt base company and the total assets stand at SAR 618.9 million which is 7% of the total assets combined post merger. 4 Initiating Coverage –Almarai Food Company Vision Investment Services Co GCC Food and Beverage Sector Overview GCC Dairy Market • The GCC dairy market consist of five key products categories which are fresh milk, long-life milk, milk powder, fresh laban, recombined laban and zabadi. • Approximately 63% of the dairy market and 61% of the milk market is concentrated in Saudi Arabia, followed by UAE and Kuwait. • Major players include Almarai, Nestle, Al Safi, Saudia and Nadec, with Almarai controlling roughly 28% of the GCC Dairy market share 21% of the GCC milk market share. • The industry is quite fragmented with very high number of small local players indicating further potential consolidation in the industry. GCC Dairy Market Zabadi Milk Pow der 11% 22% Long-Life Milk 20% Fresh Laban 22% Recombined Laban Fresh Milk 4% 21% Source: Almarai Co.
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