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Saudi All Industries Sector
All Industries –All Sectors
Saudi Arabia
07 June 2015
January 18, 2010
US$ 575bn
44%
Market cap
Free float
US$2.3bn
Avg. daily volume
Pritish K. Devassy, CFA
Senior Research Analyst
Tel +966 11 2119370, [email protected]
Key themes
Foreign investors currently hold 1.18% of the total
Saudi market cap through swaps, implying a
maximum additional QFI investment limit of
US$50bn based on the current market cap. Though
QFI investment holding in most companies is limited
to 20%, 12 Saudi companies which already have
significant strategic foreign stake limits the
investment scope for QFIs to less than the 20%.
Given the potential, we expect Saudi Arabia to
eventually attract significant foreign capital. Five
companies do not allow any direct foreign
investment.
Saudi Arabian Equity Market
QFI ownership limits
With qualified foreign institutional (QFI) investors allowed to directly invest in
the Saudi Arabian equity market from 15 June, we look at the existing foreign
holding positions, published recently for the first time by Tadawul. Out of the
10% maximum market cap limit for QFIs, 1.18% is held through swaps
currently. Thus, QFIs can invest up to a total of ~US$50bn (8.82%) in Saudi
companies based on the current market cap. Including all types of foreign
investments, the total foreign ownership is at ~4.8% of the total market cap.
With a market cap more than all other GCC countries combined, it is only
logical for Saudi to eventually attract more than the total foreign stakes in the
key GCC peers, which is ~US$32bn. Though the permitted total QFI investment
limit in each of the companies is 20%, 12 companies, mostly in the banking and
insurance sectors, already have significant foreign investment which limits
scope for QFI ownership to less than the permitted 20%. Further, five
companies do not allow any direct foreign investment. After a possible
inclusion of Saudi Arabia into MSCI emerging markets index in the future, we
believe the 19 companies in MSCI Saudi domestic list are likely to benefit
significantly from passive money following the index.
Companies with highest foreign stake: Currently foreign investors, including
strategic owners and swaps hold 4.8% of the total market. Out of this 1.18% is
owned through swaps. The rest are largely strategic investments, most of it in
the Banking and insurance sectors. There are 22 companies out of the ~170
companies on TASI, which have more than 10% total foreign ownership and 31
companies which have more than 5% total foreign ownership. In 12 companies,
where foreign players have sizable holdings (through mostly strategic
investments) QFIs will have investment scope of less than 20% (please see figure
1). This is because of the maximum limit for QFIs and its clients at 20% and total
foreign investment limit at 49% of the company. For example Saudi Hollandi
Bank already has foreign holdings of 42%, leaving only 7% stake available for
QFIs to acquire.
Foreign stakes in GCC: Overall, QFIs can invest up to a total of ~US$50bn
(8.82%) in Saudi companies based on current market capitalization. We believe
this is a sizable amount for foreign investors and is likely to attract foreign
investors in a significant way over the coming years. Currently foreign investors
own US$9bn*, US$13bn* and US$10bn* in the Dubai, Qatar and Abu Dhabi
markets respectively. These correspond to 9.7%, 7.4% and 9.1% of the market
cap of the countries respectively. With a more diversified economy and a market
cap more than that of all the other GCC countries combined, it is only logical to
expect Saudi eventually attracting more than the sum of the foreign stakes in the
key GCC peers, which is around US$32bn.
Companies where foreign investment is not allowed: Five companies do not
have any allowance for foreign investors (figure 2). Jabal Omar, Makkah
Construction and Taiba focus on the holy cities of Makkah and Madinah. In our
view, foreign ownership of these listed firms could likely have been restricted by
the company’s by-laws. Interestingly, National Shipping Corporation already has
0.59% foreign stake while it is not permitted to have any foreign ownership.
*Note: Definition of Foreign ownerships across GCC may vary and are not directly comparable.
Disclosures Please refer to the important disclosures at the back of this report.
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Saudi All Industries Sector
All Industries –All Sectors
07 June 2015
19 companies on MSCI Saudi local index likely to see significant QFI and local
investor interest: After a possible inclusion of Saudi Arabia into the MSCI emerging markets
index, we believe the companies to be included in the MSCI emerging market index, are to
largely benefit from the passive money tracking the index. We list the existing FII ownership
in these companies separately(figure 3). Among the 19 companies only two companies - Arab
National Bank and Banque Saudi Fransi have more than 10% total foreign ownership.
Figure 1 Top 12 companies with highest foreign holding
Market cap
(SARmn)
QFI
Maximum
Limit
Total
Foreign
Maximum
Limit
Company
Sector
Saudi Hollandi Bank
Banks
27308
20%
49%
Actual
41.8%
Saudi British Bank
Banks
55080
20%
49%
41.6%
Arab National Bank
Banks
34400
20%
49%
40.9%
MetLife AIG ANB Cooperative Insurance Co.
Insurance
1006
20%
49%
40.3%
Bupa Arabia for Cooperative Insurance Co.
Insurance
9675
20%
49%
33.3%
Allianz Saudi Fransi Cooperative Insurance Co.
Insurance
1124
20%
49%
33.2%
SABB Takaful Co.
Insurance
1563
20%
49%
33.1%
Arabia Insurance Cooperative Co.
Insurance
606
20%
49%
32.4%
Banque Saudi Fransi
Banks
46467
20%
49%
31.9%
ACE Arabia Cooperative Insurance Co.
Insurance
731
20%
49%
30.7%
Alinma Tokio Marine Co.
Insurance
1082
20%
49%
30.1%
Alahli Takaful Co.
Insurance
1110
20%
49%
29.9%
180152
Source: Company data, Al Rajhi Capital
Figure 2 Companies in which foreign investment is not allowed
Company
Sector
Market cap (SARmn)
Transport
21,952
Jabal Omar Development Co.
Real Estate
72,558
Knowledge Economic City
Real Estate
9,925
Makkah Construction and Development Co.
Real Estate
16,089
Taiba Holding Co.
Real Estate
6,541
National Shipping Company of Saudi Arabia
Source: Tadawul, Bloomberg, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
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Saudi All Industries Sector
All Industries –All Sectors
07 June 2015
Figure 3 MSCI Saudi local Index constituents
Actual
Total Foreign
foreign
ownership limit ownership
Maximum
available to
QFIs
Market cap
Max Limit
for QFIs
Al Rajhi Bank
108,729
20%
49%
1%
Alinma Bank
36,090
20%
49%
2%
7,218
Almarai Co.
54,186
20%
49%
3%
10,837
Altayyar Travel Group
21,238
20%
49%
8%
4,248
Arab National Bank
34,400
20%
49%
41%
2,800
Banque Saudi Fransi
46,467
20%
49%
32%
7,964
Etihad Etisalat Co.
26,326
20%
49%
1%
5,265
Fawaz Abdulaziz Alhokair Co.
21,977
20%
49%
2%
4,395
National Commercial Bank
133,600
20%
49%
1%
26,720
Rabigh Refining and Petrochemical Co.
20,437
20%
49%
1%
4,087
Riyad Bank
53,400
20%
49%
1%
10,680
Samba Financial Group
57,020
20%
49%
7%
11,404
Saudi Arabia Fertilizers Co.
49,842
20%
49%
0%
9,968
Saudi Arabian Mining Co.
54,720
20%
49%
0%
10,944
Saudi Basic Industries Corp.
310,410
20%
49%
1%
62,082
Saudi Electricity Co.
81,999
20%
49%
0%
16,400
Saudi Telecom Co.
138,540
20%
49%
0%
27,708
Savola Group
39,434
20%
49%
2%
7,887
Yanbu National Petrochemical Co.
29,942
20%
49%
2%
5,988
Company name
Total
1,318,755
21,746
258,342
Source: Company data, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
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Saudi All Industries Sector
All Industries –All Sectors
07 June 2015
Disclaimer and additional disclosures for Equity Research
Disclaimer
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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.
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