Saudi Airlines Catering Co Food Service – Industrial CATERING AB: Saudi Arabia 12 May 2015 Rating OVERWEIGHT Target price SAR195.0 (19.6% upside) Current price SAR163.0 Omar Al-Mohamdy Analyst, Research Department Tel +966 11 2119238, [email protected] Key themes & implications Given the expected increase in Saudia’s fleet, Hajj pilgrims and rising disposable income in Saudi Arabia, SACC is fundamentally well positioned to continue its dominance in the catering space. Furthermore, SACC is planning to ramp up its presence in the non-airline catering market, which will serve as the main catalyst for growth. We revise our target price to SAR195 and upgrade to Overweight rating as the upside potential is more than 10%. Valuation 12/15E 12/16E 12/17E P/E (x) 12/14A 22.2 19.9 16.8 14.6 P/B (x) 11.8 11.1 10.1 8.9 EV/EBITDA (x) 21.3 18.7 15.6 13.3 Dividend Yield 3.8% 4.1% 4.7% 5.1% Source: Company data, Al Rajhi Capital Performance Price Close Relative to TADAWUL FF (RHS) 134.0 210.0 128.3 200.0 122.6 190.0 116.9 180.0 111.1 170.0 105.4 160.0 99.7 150.0 94.0 RSI10 220.0 70 30 -10 04/14 07/14 10/14 01/15 Source: Bloomberg, Company data, Al Rajhi Capital Company summary SACC is the largest airline catering company in Saudi Arabia with around 95% market share. Although it mainly caters to Saudia flights it also has other local and international carriers as its clients. SACC also manages AlFursan Lounges on behalf of Saudia and the Sky Sales business. Saudia is the largest shareholder with 35.7%, Strategic Catering Company LLC 33.33%, and the rest is owned by the public. Saudi Airlines Catering Co Upgrade to OW: Solid Fundamentals Saudi Airlines Catering Company (SACC) published its detailed Q1 2015 financial results, which were in line with our estimates. The airline segment’s revenue grew 11% y-o-y, while the non-airline segment’s revenue jumped 51% y-o-y. This confirms the management’s strategy to diversify away from the airline industry into non-airline activities. The company is expected to further diversify by catering to religious tourists and has bagged several remote-site catering contracts. Thus, we expect the non-airline segment to report doubledigit growth over the next few years. Given the expected increase in Saudia’s fleet, religious tourists, and rising disposable income in Saudi Arabia it is fundamentally well positioned to continue its dominance in the catering space. The company has solid financials with high cash, no debt, high margins, and low capex. We revise our target price to SAR195 and upgrade to Overweight rating as the upside potential is more than 10%. Q1 result: Strong in-line numbers: SACC’s revenue of SAR560.3mn (+13% yo-y) was in line with our estimate of SAR551mn. The company reported a net profit of SAR167.4mn (+3.5% y-o-y), largely in line with our estimate of SAR171mn. The revenue growth was mainly driven by the strong performance of its non-airline business (+51% y-o-y). However, given the low margin nature of the non-airline segment the gross profit slightly decreased (-0.4% y-o-y). Clean net profit stood at SAR176.4mn (+9.1% y-o-y). Outlook for Q2: We believe the second quarter will be impacted by the major sandstorm that hit the Gulf region, resulting in delay and cancellation of several flights. However, we do not expect the impact to be significant as most flights were rescheduled. Despite this, we expect revenues to grow by 16% y-o-y, and net profit to grow by a healthy 13% y-o-y (~SAR186mn). Investment themes intact: a) Focus on increasing capacity: SACC will open its fourth production tunnel in Riyadh this year, which will scale up capacity to 36mn meals per year. b) Stable and exceptionally strong financials: cash-rich company with no debt, along with excellent liquidity and profitability ratios. c) High dividends: DPS for 2015 is expected to be SAR7.25, implying a yield of ~4%. d) Fundamentally strong: we expect rising disposable income, fastincreasing population, and the increase in religious tourists to be the core drivers for SACC’s growth. The management’s efforts to ramp up SACC’s presence in the non-airline market will also help to reduce its dependence on the airline industry e) Assured future: The GACA’s initiatives to expand into major international and regional airports will act as a catalyst for SACC’s growth. Valuation and risks: SACC currently trades at a 2015E P/E ratio of 20.1x vs 21.9x for peers. We think the high PE is justified due to the above average profitability and high growth business. We have revised our estimates and accordingly we have revised our target price to SAR195, implying a ~19.6% potential upside and upgrade to Overweight rating. We have arrived at our target price giving equal weightage to DCF and relative valuations. However, any downturn in Hajj activities will affect our valuation and hence our target price. Period End (SAR) 12/13A 12/14A 12/15E 12/16E 12/17E Revenue (mn) 1,867 2,136 2,485 2,902 3,321 Revenue Growth Gross profit margin EBITDA margin 10.7% 37.1% 29.9% 14.4% 36.3% 30.4% 16.3% 35.9% 29.4% 16.8% 36.4% 30.1% 14.4% 36.8% 30.5% Net profit margin 30.5% EPS 6.94 EPS Growth ROE 51.3% ROCE 42.9% Capex/Sales 1.3% Source: Company data, Al Rajhi Capital 30.6% 7.97 14.9% 54.9% 46.9% 5.2% 29.3% 8.86 11.1% 57.4% 49.4% 4.0% 29.6% 10.49 18.3% 62.7% 53.9% 3.5% 29.9% 12.12 15.5% 65.0% 55.7% 3.0% Disclosures Please refer to the important disclosures at the back of this report. Powered by EFA Platform 1 Saudi Airlines Catering Co Food Service – Industrial 12 May 2015 Recent developments Major sandstorm to slightly impact Q2 A major sandstorm had hit Riyadh and the Gulf region on April 2, 2015. The visibility was low and as a result many flights were either cancelled or delayed. This development is expected to leave a negative effect on the Q2 results. However, we think that the magnitude of the effect will be negligible as most of the flights were rescheduled. Dividend approved for Q1 2015 The company announced a dividend of SAR1.75 (Q1 2014: SAR1.5) per share for Q1 2015, amounting to a total payment of SAR143.5mn. Based on this, the stock is trading at an annual dividend yield of ~4%. In 2014, the company had paid a total dividend of SAR6.75 per share, amounting to a total payment of SAR553.5mn. Building a residential complex SACC has announced its project for the residential complex in Dahban at Jeddah province with an estimated cost of SAR200mn. The project will be financed from the company’s operating cash flow and is expected to be completed on December 31, 2017. The complex will be used in accommodating staff and renting out non-employees, which will have a positive impact on the company given the lower rent cost and higher other revenue. Investment themes Airline industry The airline industry has been growing rapidly in the past and according to the International Air Transport Association (IATA), it is expected to grow at a CAGR of 6.9% over 2013-2017. Saudi Arabian Airlines (Saudia) is the biggest domestic airline in Saudi Arabia, with 92% market share (8% Nasair). As per the management estimate, the company enjoys ~95% market share in the airline catering market with an exclusive catering contract with Saudia. SACC will benefit from the passenger growth as around 90% of its revenue comes from the airline industry. 1. Capacity increased: In 2014, SACC had opened its third production tunnel in Riyadh which increased its capacity to 27mn meals. The company plans a fourth production tunnel in 2015, which will take its capacity to 36mn meals per year. This new capacity is mainly to support the rising demand from airlines as well as to cater to Hajj and Umrah pilgrims. The company is planning to open a new catering unit in Medina in 2015. 2. Large dividend player: Strong cash flow from operations and low capex requirements enable the company to pay high dividends to its shareholders. SACC’s policy is to maintain a dividend payout in the range of 60-80%. With a dividend yield of ~ 4%, SACC is one of the best dividend-paying companies in the market. SACC had paid SAR6.75 per share last year with a payout ratio of 84.6%. We have included the company in our dividend portfolio. 3. Summer and Hajj: SACC witnesses higher sales in the summer as well as during the Hajj period – for 2015 this will be in Q2 and Q3. The increasing number of Hajj pilgrims will serve as a catalyst for SACC’s growth, as it tries to cater to religious tourists not only as airline passengers, but also while they are carrying out Hajj activities. 4. Strong increase in religious tourists: Fundamentally, we expect strong growth in airline passengers driven by various factors such as preference of flying over driving, increase in religious tourism owing to the expansion in Makkah and Medina, large proportion of expatriates, etc. Apart from this, a fast growing economy will see an increase in the airline usage, which will help SACC. Disclosures Please refer to the important disclosures at the back of this report. 2 Saudi Airlines Catering Co Food Service – Industrial 12 May 2015 5. Airline expansions: More importantly, the General Authority of Civil Aviation’s (GACA) initiatives to expand into international and regional airports will have a huge impact on SACC. King Khalid International Airport in Riyadh (KKIA) is expected to absorb 35.5 million passengers per year in 2017. The airport currently has the capacity to handle 18.5 million passengers (a CAGR of 24.3% over 20142017). King Abdulaziz International Airport in Jeddah (KAIA) is planning to expand from 26.5 million to 43 million passengers a year in 2017 (a CAGR of 17.5% over 2014-2017). These will lead to an increase in flights serviced by SACC, thus boosting its top-line. Non-airline industry SACC has been diversifying its business to reduce its dependence on airline activities by entering into allied sectors such as non-airline catering and laundry services. Contrary to airline catering where SACC enjoys a monopolistic arrangement with Saudia, the non-airline catering market is highly competitive and fragmented with many players such as Tamimi Global Company, Gulf Catering Company, and Saudi Catering & Contracting Company. Although the market has lower margins and many entry barriers, SACC intends to diversify its top-line by targeting companies that operate in remote sites and cater to Hajj tourists and hospitals. We expect a high growth in this segment. Business Model SACC has mainly two business segments – airline and non-airline. The airline segment (90% of its revenues in 2014) consists of in-flight catering, Sky Sales, and AlFursan lounges, while the non-airline segment (remaining 10%) provides catering service to different companies and laundry services. SACC is the largest airline catering company in Saudi Arabia with around 95% market share. Although it mainly caters to Saudia flights it also has other local and international carriers as its clients. Saudia, which is the national carrier of Saudi Arabia, commands ~ 92% market share (of domestic air traffic). Saudia currently operates a fleet of 117 planes and expects to double this number in 7 years. Moreover, Saudia is the largest shareholder of SACC with 35.7% ownership and also its biggest client. Figure 1 Segmental forecast 100% 90% 4% 3% 3% 10% 80% 3% 3% 2% 2% 2% 2% 1% 1% 4% 3% 7% 4% 8% 4% 9% 10% 11% 11% 12% 12% 10% 5% 10% 5% 10% 6% 6% 10% 7% 8% 10% 9% 9% 9% 9% 5% 70% 60% 50% 40% 80% 77% 77% 75% 74.3% 73% 72% 71% 70% 70% 2012 2013 2014 2015 2016 2017 2018 2019 2020 30% 20% 10% 0% 2011 In-flight catering rev Sky sales rev Business lounge rev Non-airlines rev Other rev Source: Company data, Al Rajhi Capital In-Flight Catering The in-flight catering segment (75% of its total revenue in 2014) provides a full range of services such as menu-planning & costing, meal preparation, delivery of meals, beverages and supplies to the aircraft. Saudia uses the full range of services, while other airlines use these services only partially. The company prepares these meals in its central production unit (CPU), which is located at the King Khalid International Airport in Riyadh (KKIA). They receive the raw materials, cook the meals, and then store it in freezers for up to 18 months. The company then sends these meals to various catering units (CUs) located at the King Abdulaziz International Airport in Disclosures Please refer to the important disclosures at the back of this report. 3 Saudi Airlines Catering Co Food Service – Industrial 12 May 2015 Jeddah (KAIA), King Fahad International Airport in Dammam (KFIA), Prince Mohammed Bin Abdulaziz International Airport in Madina (PMIA) and Cairo International Airport. These meals can then be reheated whenever required. This ensures that the company can deliver meals even during Ramadan and Hajj periods when the demand is high. The company’s raw materials are supplied by different suppliers. SACC has a policy to diversify among its vendors, and maintains two to three alternative sources for each product. These products include water, juices, fish, meat, prawns, eggs, vegetables, rice, and flour. AlBerri United Food Company, Siraj Medher, Astra Farms, and Halwani Brothers are the main suppliers. We think this segment will continue to be the main source of revenue, contributing around 74% to its top-line with a growth of 14% in 2015. Sky Sales Saudia and SACC had entered into an agreement in 2007, which gave the latter an exclusive right to sell retail products on all Saudia flights. Sky Sales are operating on Saudia flights as well as on NAS Flights. This segment had generated around 10% of SACC’s revenue in 2014 and we expect it to remain the same in 2015. SACC purchase Sky Sales products directly from suppliers on a “sale or return basis”. Some of these products are exclusively provided to SACC for a certain period of time. The catalogue is prepared by the company and is updated around three times a year. AlFursan Lounges Saudia was granted a license by the General Authority for Civil Aviation (GACA) to operate the AlFursan Lounges in all the international Airports in the Kingdom (i.e. KAIA, KFIA, KKIA and PMIA) to serve the passengers of Saudia. The AlFursan Lounges at KAIA, KFIA, KKIA and PMIA are operated by SACC on behalf of Saudia. This segment generated around 4% of its total revenue in 2014 with a growth rate of 36%. Fees collected from airlines are based on the number of passengers that use these lounges. The economy class passengers that otherwise do not have access to the AlFursan Lounges can access by paying a fee. The services provided at AlFursan Lounges include private seating & dining areas, hot & cold food and internet connectivity. We expect the AlFursan lounges segment to continue its high growth with a 30% increase in 2015. Non-airline Business Although this segment is small relative to the main business (around 10% of its total revenue in 2014), and has lower margins than airline catering, the non-airline segment has lately turned out to be significant for the company. By trying to capitalize on its catering market expertise, existing production lines, and economies of scale, SACC’s management is working toward diversifying the company’s revenue stream. The management’s main goal is to target new clients in remote areas and Hajj & Umrah tourists. The company has been successful adding new contracts in 2014 with a client retention rate of 98%. We think that the nonairline segment will see high growth over the next few years, with an estimated growth of 30% in 2015. Disclosures Please refer to the important disclosures at the back of this report. 4 Saudi Airlines Catering Co Food Service – Industrial 12 May 2015 Extremely stable financial performance SACC’s revenues have grown at steady double-digit rates over the past. Total revenue growth stood at 15.2%, 10.7%, and 14.4% in 2012, 2013, and 2014 respectively. However, the gross margin has been under pressure as the revenue contribution from the lower margin businesses such as Sky Sales, airline equipment, and non-airline catering has increased. However, the operating margin has improved by 50bps from 29.2% in 2013 to 29.7% in 2014 because of lower personal costs and general & administrative expenses. Figure 2 Operating profit Figure 3 Total revenue 1,600 30.5% 5,000.0 4,500.0 1,400 30.0% 4,000.0 Title: Source: 20% Please fill in the values above to have them entered in your report 16% 18% 1,200 29.5% 1,000 800 29.0% 600 28.5% 3,500.0 14% 3,000.0 12% 2,500.0 10% 2,000.0 8% 1,500.0 6% 1,000.0 4% 500.0 2% 400 28.0% 200 0 27.5% 2011 2012 2013 2014 2015 Operating profit 2016 2017 2018 2019 - 0% 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 operating margin Total rev Source: Company data, Al Rajhi Capital growth Source: Company data, Al Rajhi Capital In addition, SACC’s net profit margin has been increasing gradually – it stood at 28.9%, 30.5% and 30.6% in the last three years. We expect the company to maintain its net profitability at around 30%. As a result of this exceptional profitability, the return on equity is 55% and the return on assets is 36%. Even the liquidity ratios are good, with the current ratio and quick ratio at 3.1 and 3 respectively. Notably, the receivables (mainly from Saudia) are around 31% of the total assets with a collection period of more than 70 days. With regard to its cash flow, cash flow from operations (CFO) has been declining in the past couple of years (SAR786mn, SAR500mn, and SAR487mn in the past three years). The decline in CFO was because of the high amount that Saudia had paid to SACC in 2012. Nevertheless, SACC is expected to continue generating high CFO. Furthermore, the capex was 1.2%, 1.3%, 5.2% of sales in 2012, 2013, and 2014 respectively. The high capex in 2014 was mainly due to the construction of the new catering unit at Medina’s new airport. We assume that the company will maintain its capex at 2% of sales in the long run. Additionally, SACC funds its capex through internal sources due to its strong CFO. Thus, with strong CFO and low capex requirements, we believe SACC will be able to pay generous dividends. The company’s dividend policy is to pay 60-80% of net income. With a dividend yield of ~ 4%, SACC is one of the top dividend-paying companies in the Saudi market. Figure 4 Cash Flow 1,000.0 900.0 876 844 786 800.0 737 658 700.0 584 600.0 500 467 500.0 487 399 400.0 300.0 261 214 162 200.0 100.0 109 59 100 20 2011 2012 2013 2014 (100.0) CFO CFI -3 2015 2016 CFF Source: Company data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. 5 Saudi Airlines Catering Co Food Service – Industrial 12 May 2015 Key opportunities SACC’s competitive strengths ensure the stability of its business. The strong relationship with Saudia and the fact that the airline catering market is characterized as a monopolistic market with high entry barriers will help maintain its dominant position. Moreover, the company’s high cash flow enables it to maintain a high payout ratio. The General Authority for Civil Aviation (GACA) announced that Qatar Airways and Gulf Air have been selected as the new airlines companies to operate domestic and international flights from and to Saudi Arabia. For SACC, this is an opportunity to raise its airline market share since it has the capability to serve these carriers. Valuation and risks Our fair price of SAR195 is based on a 50%-50% weight for DCF and relative valuations. This implies an upside potential of ~19.6%. We have assigned an Overweight rating as the upside potential is more than 10%. For DCF we have incorporated the future developments in both the airline and non-airline markets for the next ten years. We have used a WACC of 9% and a terminal growth rate of 3%. Based on the DCF, we arrive at a fair value of SAR213. For relative valuation we use a forward earnings multiple of 21.9x (based on its peers). We also adjust the net income as the company reports net income without deducting Zakat and income tax. Therefore, to compare the company with its peers we use the net income post zakat and income tax. Based on our relative valuation, we have a fair price of SAR178. Risks to our valuation • Decrease in the number of Hajj pilgrims will affect SACC’s airline and non-airline divisions, thus our valuation. However, it is unlikely that this will happen. • We are expecting a high growth in the non-airline cater business. However, if the management finds difficulty in signing any new non-airline catering contracts this can affect our valuation. • The airline industry is characterized by cyclicality. So during bad economic times with low disposable income, the airline industry will suffer and consequently SACC’s profitability will be hit. • SACC has just extended its contract with Saudia until December 31, 2019. The termination of the contract will severely affect the company. • Food prices have been declining over the last couple of years; if it bounces back this can increase costs and put the margins under pressure. Disclosures Please refer to the important disclosures at the back of this report. 6 Saudi Airlines Catering Co Food Service – Industrial 12 May 2015 Income Statement (SARmn) Revenue Cost of Goods Sold Gross Profit 12/13A 12/14A 12/15E 12/16E 1,867 2,136 2,485 2,902 12/17E 3,321 (1,176) (1,361) (1,592) (1,844) (2,098) 1,058 1,223 692 775 893 S.G. & A. Costs (146) (141) (186) (218) (249) Operating EBIT 546 633 707 840 974 Government Charges Cash Operating Costs (1,309) (1,487) (1,755) (2,030) (2,307) EBITDA 559 649 730 872 Depreciation and Amortisation (13) (15) (23) (32) 1,014 (40) Operating Profit 546 633 707 840 974 Net financing income/(costs) - - - - - - - - - - Forex and Related Gains Provisions Other Income 24 21 20 20 20 Net Profit Before Taxes 569 654 727 860 994 Taxes - - - - - Other Expenses Minority Interests Net profit available to shareholders 569 654 727 860 994 (451) (554) (596) (688) (745) 12/13A 12/14A 12/15E 12/16E 12/17E 82.00 82.00 82.00 82.00 82.00 CFPS (SAR) 7.10 8.16 9.14 10.88 12.61 EPS (SAR) 6.94 7.97 8.86 10.49 12.12 DPS (SAR) 5.50 6.75 7.27 8.39 9.09 Dividends Transfer to Capital Reserve Adjusted Shares Out (mn) Growth 12/13A 12/14A 12/15E 12/16E 12/17E Revenue Growth 10.7% 14.4% 16.3% 16.8% 14.4% Gross Profit Growth 10.2% 11.9% 15.3% 18.4% 15.6% EBITDA Growth 7.4% 16.1% 12.5% 19.5% 16.3% Operating Profit Growth 7.7% 16.0% 11.6% 18.9% 15.9% 16.9% 14.9% 11.1% 18.3% 15.5% 14.9% 11.1% 18.3% 15.5% Net Profit Growth EPS Growth Margins 12/13A 12/14A 12/15E 12/16E 12/17E Gross profit margin 37.1% 36.3% 35.9% 36.4% 36.8% EBITDA margin 29.9% 30.4% 29.4% 30.1% 30.5% Operating Margin 29.2% 29.7% 28.4% 28.9% 29.3% Pretax profit margin 30.5% 30.6% 29.3% 29.6% 29.9% Net profit margin 30.5% 30.6% 29.3% 29.6% 29.9% 12/13A 12/14A 12/15E 12/16E 12/17E 42.9% 46.9% 49.4% 53.9% 55.7% ROIC 1379.1% 504.5% 172.9% 201.8% 188.3% ROE Other Ratios ROCE 51.3% 54.9% 57.4% 62.7% 65.0% Effective Tax Rate 0.0% 0.0% 0.0% 0.0% 0.0% Capex/Sales 1.3% 5.2% 4.0% 3.5% 3.0% Dividend Payout Ratio 79.2% 84.6% 82.0% 80.0% 75.0% Valuation Measures 12/13A 12/14A 12/15E 12/16E 12/17E P/E (x) 25.4 22.2 19.9 16.8 14.6 P/CF (x) 24.9 21.6 19.3 16.2 14.0 P/B (x) 12.5 11.8 11.1 10.1 8.9 7.3 6.5 5.5 4.7 4.1 24.3 21.3 18.7 15.6 13.3 24.9 21.8 19.3 16.2 13.9 108.3 33.8 32.8 26.3 21.9 3.8% 4.1% 4.7% 5.1% EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) EV/IC (x) Dividend Yield Source: Company data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. 3.1% 7 Saudi Airlines Catering Co Food Service – Industrial 12 May 2015 Balance Sheet (SARmn) 12/15E 12/16E 12/17E 893 677 851 878 967 Current Receivables 57 85 99 116 133 Inventories 77 87 99 116 133 424 623 671 784 897 1,451 1,471 1,721 1,894 2,129 Cash and Cash Equivalents Other current assets Total Current Assets Fixed Assets 12/13A 12/14A 98 192 268 337 397 140 140 40 40 40 Other Intangible Assets - - Total Other Assets - Total Non-current Assets Investments Goodwill Total Assets Short Term Debt - - - 10 10 10 10 238 342 318 388 447 1,689 1,813 2,039 2,282 2,576 - - - - - Trade Payables Dividends Payable 3 4 14 37 52 Total Current Liabilities 418 464 608 723 829 Long-Term Debt - - - - - Other LT Payables 112 124 124 124 124 Other Current Liabilities Provisions - - - - - Total Non-current Liabilities 112 124 124 124 124 Paid-up share capital 820 820 820 820 820 Total Reserves 339 406 487 615 803 Total Shareholders' Equity 1,159 1,226 1,307 1,435 1,623 Total Equity 1,159 1,226 1,307 1,435 1,623 Total Liabilities & Shareholders' Equity 1,689 1,813 2,039 2,282 2,576 12/17E Minority interests Ratios 12/13A 12/14A 12/15E 12/16E Net Debt (SARmn) (893) (677) (851) (878) (967) Net Debt/EBITDA (x) (1.60) (1.04) (1.17) (1.01) (0.95) -77.1% -55.2% -65.1% -61.2% -59.6% 14.13 14.95 15.94 17.50 19.79 12/13A 12/14A Net Debt to Equity EBITDA Interest Cover (x) BVPS (SAR) Cashflow Statement (SARmn) 12/15E 12/16E 12/17E 569 654 727 860 994 Depreciation & Amortisation 13 15 23 32 40 Decrease in Working Capital (87) (192) 58 (54) (54) Net Income before Tax & Minority Interest Other Operating Cashflow - - Cashflow from Operations 495 477 (24) (112) Capital Expenditure New Investments Others Cashflow from investing activities Net Operating Cashflow Dividends paid to ordinary shareholders (140) 2 (162) - 7 22 13 815 860 993 (99) (102) (100) 100 3 (109) 4 4 - 1 (101) 1 (99) 333 368 819 759 894 (449) (553) (585) (665) (731) Proceeds from issue of shares Effects of Exchange Rates on Cash Other Financing Cashflow Cashflow from financing activities Total cash generated Cash at beginning of period Implied cash at end of year Ratios Capex/Sales Source: Company data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. (43) (44) (60) (67) (75) (492) (597) (645) (732) (806) (159) (228) 174 27 88 1,022 893 677 851 878 863 665 851 878 967 12/13A 12/14A 12/15E 12/16E 12/17E 1.3% 5.2% 4.0% 3.5% 3.0% 8 Saudi Airlines Catering Co Food Service – Industrial 12 May 2015 Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. 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This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction. Additional disclosures 1. Explanation of Al Rajhi Capital’s rating system Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 6-9 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 6-9 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 6-9 month time horizon. 2. Definitions "Time horizon": Our analysts make recommendations on a 6-9 month time horizon. In other words, they expect a given stock to reach their target price within that time. "Fair value": We estimate fair value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. "Target price": This may be identical to estimated fair value per share, but is not necessarily the same. There may be very good reasons why a share price is unlikely to reach fair value within our time horizon. In such a case we set a target price which differs from estimated fair value per share, and explain our reasons for doing so. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company’s profits or operating performance exceed or fall short of our expectations. Contact us Pritish Devassy, CFA Senior Research Analyst Tel : +966 11 211 9370 Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37. Disclosures Please refer to the important disclosures at the back of this report. 9
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