Al Rajhi Capital said it has observed a structural shift in the spending pattern of Saudis due to significant changes happening in the kingdom, amid the increasing entertainment avenues expected to take a considerable share of consumer discretionary spending.
The brokerage firm said in a research note that shopping used to be one of the main modes of entertainment activities due to limited options that were previously available. However, with movie theatres, various cultural events, music shows, sports events taking place very frequently in the kingdom people have more options to spend.
It added that the government has recently launched Riyadh season, which received more than 100,000 tourists so far, noting that the average spending per person accounts for SAR 300-400 per person.
With relatively young population and changing demographics along with several social changes in the country, entertainment industry is the next big theme which will drive the consumer spending, Al Rajhi Capital said.
It also expected a spending increase in the fields of healthcare, housing, utilities and restaurants, especially fine dining.
“Therefore, the amount of discretionary spending which was earlier flowing to shopping of clothing, apparels, footwear, consumer electronics goods, etc. will remain modest and thus we revise our forecast for eXtra, Jarir and Fawaz Alhokair, accordingly,” the brokerage firm said.
It added that eXtra’s Tasheel program will help the company in standing out compared to other discretionary retailers, while the contribution of Tasheel sales to the overall results are expected to improve from 8% in 2019 to 13% in 2021, driven by increasing expenditure in other avenues’ consumption on credit.
“We revise the top-line growth to 8.5% YoY to SAR 5.52 billion in FY2020 and 5% YoY to SAR 5.8 billion in FY2021, as we reduce the basket size growth in our forecast factoring in the reduced consumer spending towards electrical appliances,” Al Rajhi Capital said.
It also said that eXtra will likely post SAR 208 million profits in FY2019, and SAR 236 million in 2020.
As regards to Alhokair, the brokerage firm said that it will be difficult for the company to regain its lost market share due to several store closure, nevertheless, it is expected to see a gradual recovery in sales from 2022 onwards.
“We are expecting a reduction in the percentage of income spent on clothing and apparel from 3.7% in 2018 to 2.8% in 2020,” it stated, adding that Alhokair is forecast to post a net profit of SAR 144.7 million in FY2018, and a loss of SAR 42.8 million in 2020.
For Jarir, Al Rajhi Capital said that there will be some pressure on the top-line as the consumer electronics business will face headwinds from reduced consumer spending.
Stationery business is expected to remain defensive and continue to grow by double digit as per revised forecasts, it added.
“We expect Jarir’s top-line to grow 8% YoY to SAR 8.9 billion by 2020 and SAR 9.5 billion by 2021,” it noted.
It also expected the firm to post a net profit of SAR 1.02 billion in 2019, and SAR 1.07 billion in 2020.
The table below highlights Al Rajhi Capital’s recommendation for retail firm’s shares:
|
Al Rajhi Capital’s Recommendations |
||||
|
Company |
Recommendation |
Target price (SAR/share) |
||
|
Previous |
New |
Previous |
New |
|
|
eXtra |
Overweight |
Neutral |
80.00 |
74.00 |
|
Alhokair |
Neutral |
Neutral |
22.00 |
22.00 |
|
Jarir |
Neutral |
Neutral |
171.00 |
156.00 |
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