2022
Al-Saif Stores for Development & Investment Company IPO Review
+966 11 2256248
[email protected]
AJC Research Team
2
Company Overview Relative Valuation
Company’s Products and Store Network
The key product categories offered by the company through its stores include:
1. Small appliances such as electric pressure cookers, air fryers, mixers, bakers, juicers, blenders, choppers, food processors, sandwich and waffle makers, kettles, ovens and microwaves, roasters and grinders, vacuum cleaners, irons, heaters, mini dishwashers and air purifiers. appliances, such as electric pressure cookers, air fryers, mixers, bakers, juicers, blenders, choppers, food processors, sandwich and waffle makers, kettles, ovens and microwaves, roasters and grinders, vacuum cleaners, irons, heaters, mini dishwashers and air purifiers.
2. Kitchenware such as pots, pans, cake molds and oven pans, food keepers, spoons, knives and kitchen accessories.
3. Serveware such as thermoses, coffee pots, teapots, jugs, small serving dishes for dates, coffee cups, serving trays, serveware sets, cups, incense holders, dinnerware sets, food warmers and plates.
4. Home accessories such as home lampshades, antiques, tablemats, organizers, household cleaners and personal care products.
The products offered by the company through its stores include products related to international and local brands that the company contracts with agents to provide, such as “Alsaif”, “Alsaif-Elec”, “Braun”, “Kenwood”, “Sack Design” and “Delonghi” and other company products related to the Company’s proprietary brands. Additionally, the company provides after-sales services, maintenance and warranties for small appliances related to the company’s proprietary brands for a period of three years.
At SAR 115/share, the upper end of IPO price range, Alsaif Gallery is valued at TTM P/E of 26.2x, a premium to average TTM P/E of Tadawul-listed peers.
Al-Saif Stores for Development & Investment Company (Alsaif Gallery) operates in the home appliances and kitchenware retail sector, where it operates 58 Alsaif Gallery-branded stores covering five regional areas throughout the Kingdom as of 31 March 2022. It also has an online store targeting customers inside the Kingdom and in GCC countries. Through its stores, the company aims to fulfill customer needs for home appliances and kitchenware such as small home appliances, kitchenware, serve ware and other home appliances. To support its stores and supply them with products and merchandise, the company has two warehouses in Riyadh with a total area of more than 35,000 sq. m.
Source: IPO Prospectus
Company EPS (SAR;
TTM)
CMP/IPO
price (SAR) P/E (TTM)
Extra 5.56 72.3 13.0x
SHAKER 0.73 18.4 25.2x
Jarir 8.04 159.8 19.9x
Abo Moati 1.25 29.9 23.9x
F. Alhokair 0.49 16.5 33.7x
Alsaif Gallery 4.39 115.0 26.2x
Source: Argaam, Aljazira Capital Research
Fig 1. Revenue by Key Product Category (SAR mn) Fig 2. Contribution by Key Product Category (FY21)
Source: IPO Prospectus 193
359
95
8
335 348
99
14
367 351
95
13 0
100 200 300 400
Small
appliances Serveware Kitchenware Home accessories FY19 FY20 FY21
44%
43%
11%
2%
Small appliances Serveware Kitchenware Home accessories
3
IPO Offering Summary
Alsaif Gallery is floating 10.5mn shares, representing 30% of the company’s share capital, with a fully paid nominal value of SAR 10 per share. The IPO is divided into two tranches: one for institutional investors and the other for retail investors. The institutional tranche, which is open from November 22-28, 2022. A total of 10.5mn shares (100%) were offered to institutional investors, subject to a scale-back to 90% (9.45mn shares). The retail offering, which will be open from December 05-06, 2022, accounts for up to 10% (1.05mn shares) of the offer size. The company has set offer price range at SAR 100-115 per share.
Source: IPO Prospectus, Argaam Shareholder
Pre-Offering Post-Offering
No. of Shares (mn) Shareholding No. of Shares Shareholding
Suleiman bin Muhammad bin Saleh Alsaif 32,375,000 92.5% 21,875,000 62.5%
Others 2,625,000 7.5% 2,625,000 7.5%
Public - - 10,500,000 30.0%
Total 35,000,000 100% 35,000,000 100%
As of March 31, 2022, the company runs fifty-eight 58 Alsaif Gallery-branded stores covering five regional areas throughout the Kingdom, with a total area of more than 103,000 sq. m. The company’s stores target family consumers of different social classes.
Source: IPO Prospectus
Ownership (pre and post IPO)
Fig 4. Revenue by Region (FY21)
Fig 5. Stores by Region (March 2022) Fig 3. Geographical Presence
35.2%
29.9%
16.6%
12.0%
6.3%
Central Western Eastern Southern Northern
Source: IPO Prospectus
Region No. of stores
Central 21
Western 15
Eastern 10
Southern 8
Northern 4
4
Higher consumer spending supported by economic growth beneficial for household appliances market in Saudi Arabia
The total consumer expenditure on household appliances recorded an average annual growth rate of 6.8% in nominal terms over FY19-21 to reach SAR 16.7bn (USD 4.5bn) by the end of FY21, which was the second biggest in the Middle East and Africa region. The improvement in the Kingdom’s macroeconomic conditions, coupled with continued investment on non-oil sectors as part of Saudi Vision 2030 and its related implementation programs, are expected to keep supporting the demand for non-grocery retail categories in the Kingdom. Accordingly, consumer expenditure on household appliances over the period FY22-26 is expected to grow by a CAGR of 2.0% in value terms.
Non-grocery retail to rise at CAGR of 8.6% during FY21-26 The total size of the non-grocery retail sector in the Kingdom reached SAR 183bn (USD 48.8bn) in FY21, down from SAR 214bn (USD 57.0bn) in FY19. After a long-term period of positive growth since early 2000s, the Saudi non-grocery retail market decreased over FY19- 21 due to a slowdown in consumer spending driven by factors like consolidation measures approved by the Saudi government; the introduction and subsequent hike in VAT, and the impact of COVID-19 on the overall economy in the Kingdom. During FY21-26, the Saudi non grocery retail sector is expected to grow at an average annual rate of 8.6% to reach SAR 277bn (USD 73.7bn) by FY26. The expansion of the country’s non-grocery retail industry will reflect the gradual normalization of economic activity both at domestic level (which will positively impact consumer confidence, per household income levels, and retail footfall) and international level (which will lead to increased inbound and outbound travelling to and from the country.
Rising no. of households and disposable income to boost small appliances demand
The total Small Appliances segment in KSA was estimated at around SAR 2.0bn in FY21, after rising at an average annual rate of 5.1% during the period FY19-21, outpacing that of the broader Consumer Appliances segment. Over the medium to long term, Small Appliances segment growth would be driven by a sustained increase in the country’s number of households (set to rise at a CAGR of 0.3%
over FY21-FY26); growing levels of per capita disposable income (CAGR: 4.6%); and government support to the expansion of the Saudi real estate sector, which is leading to higher demand for small Appliances to equip the new housing units entering the market. The total market for Small Appliances is anticipated to rise at CAGR of 2.3%
over FY21-26 to reach SAR 2.2bn.
214
164 183
203
277
0 50 100 150 200 250 300
FY19 FY20 FY21 FY22E FY26E
Fig 6. Non-grocery Retail Market Size in KSA (SAR bn)
Source: IPO Prospectus
413 468 492 512 553
276 298 295 295 318
140 154 150 152 176
22969 25879 26774 27178 29393
657 700 695 701 775
0 600 1200 1800 2400
FY19 FY20 FY21 FY22E FY26E
Food preparation appliances Fryers
Oven categories Hot Beverages
Air Treatment Products Others
Fig 7. Small Appliances Market in KSA (SAR mn)
Source: IPO Prospectus
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Company strategy
• Store network expansion in the Kingdom and abroad: The company is working to expand its network of stores in the Kingdom and abroad, as part of its continuous endeavor to serve the largest number of new and existing customers, by increasing the number of its 58 stores as of March 31, 2022. Among the company’s objectives is to expand by opening small branches in small cities and governorates that fit the size and needs of the target city. The company also plans to open stores in countries neighboring the Kingdom, such as the Gulf states and Egypt. The company’s Board of Directors approved a resolution to expand the company’s business in the United Arab Emirates, Oman, Qatar, Kuwait, Bahrain and Egypt. As of now, the company has not yet set a time plan for expansion projects in Oman, Qatar, Kuwait and Egypt. With regard to the United Arab Emirates, the company is working to establish its legal entity in the United Arab Emirates and plans to open 3 stores and one warehouse in the United Arab Emirates, whereby the first store is expected to open in Abu Dhabi during Q4-22.
• Product portfolio diversification: The company plans to enhance and develop its product portfolio to serve the needs and desires of its shoppers in terms of kitchenware and other appliances by adding kitchen-related products such as small ovens, refrigerators and dishwashers. The company strives to make its stores a one-stop shop for all home items and appliances. Moreover, the company currently provides some dry food products such as coffee and spices. The company intends to expand by increasing the food products offered in order to improve the experience of its customers, including by offering some products that are compatible with store products. This will enhance the company’s strategy of diversifying products that revolve around the needs of customers to include items that cater to the customer segment and their needs.
In addition, diversification reflects the company’s vision of continuing to develop products that help facilitate customer experience in carrying out their household chores. Since most of the Company’s shoppers are women, the company also seeks to provide products complementary to customer needs for electrical appliances related to personal care.
• Online store expansion: The company’s online store is available through its website (Alsaifgallery.com) and smartphone applications on Android and iOS and aims to provide a flexible and seamless shopping experience. The online store provides a delivery service to all regions of the Kingdom and the GCC countries, where delivery takes between one and three days inside Riyadh, between three and five) days outside Riyadh, and between five and ten days for orders outside the Kingdom.
The company offers various electronic payment options through its online store, such as bank cards, Apple Pay, cash on delivery, or payment in installments.
In addition, the company plans to move to omni-channel sales, which will provide a smooth experience for customers, whether through shopping via the online store or the network of stores. The company is working on exploiting its branches in the Kingdom along with its website to facilitate the customer experience and expedite delivery time and after-sales services.
Source: IPO Prospectus
Kitchenware market to expand at CAGR of 4.4% led by cookware and beverageware
The total market size for the Saudi Kitchenware including serve ware market reached SAR 1.1bn in FY21, up from SAR 987.1mn in FY19. This represents a CAGR of 5.5%
in value terms, which ranks amongst the highest for any segment within the Saudi Non-grocery Retail sector.
Backed by the gradual reopening of the economy and the expected steady improvement in consumer confidence and disposable income levels, the Saudi Kitchenware segment is anticipated to expand at a CAGR of 4.4% during FY21- 26, to reach SAR 1.4bn by FY26.
166 174 187 195 233
217 241 253 266 328
120 126 132 138 168
155 159 165 168 181
190 195 209 217
139 146 154 162 257
201
0 200 400 600 800 1000 1200 1400
FY19 FY20 FY21 FY22E FY26E
Food Storage Cookware Kitchenware
Cutlery Dinnerware Beverageware
Fig 8. Kitchenware Market in KSA (SAR mn)
Source: IPO Prospectus
6
Alsaif gallery among leading market players in small appliances and kitchenware markets in Saudi Arabia
The Saudi Small Appliance market is more concentrated than the broader Electronics and Appliance market.
United Electronics Co (with its brand Extra) dominates the country’s Focus Small Appliance landscape (commanding a 27.8% market share in FY21), capitalizing on its wide product range within the Electronics and Appliance category in order to generate footfall and sales for small appliances, within the overall strategy discussed in the last section of this report. This is followed by the AlSaif Gallery (27.1% market share in FY21), with its significant growth in Focus Small Appliances segment in the FY19-21 and the company’s strong brand Edison, across most of the fast growing categories such as Food Preparation Appliances, fryers, oven categories and hot beverages. This is followed by Saudi Company for Hardware (Saco), with a 16% market share, on the back of a strategic direction focused on continued expansion, broadening of its product portfolio, and emphasis on e-commerce. These were followed by United Yousef M Naghi Co Ltd (and its brand Eddy) with a 9% market share, and Hamad Al-Manea Trade Co. (and its brand almanea) with 6% market share.
The structure of the Saudi Kitchenware market is relatively concentrated. Alsaif Gallery is the market leader in this segment, with a 39% share in value terms in FY21, on the back of its attractive value proposition based on differentiation and on management of its own brand portfolio. This was followed by Qasr Al Awani (commanding a 14% market share in FY21); Saco (12%); Nice (11%) and IKEA (9%).
Retailer No. of outlets Brands Market share Ranks
eXtra 47 Class Pro 27.8% 1
Alsaif Gallery 56 Edison, iCafe 27.1% 2
SACO 34 Homix 15.5% 3
Eddy 28 - 9.4% 4
Al Manea 19 - 5.6% 5
Others - - 14.5% -
Retailer No. of outlets Market share Ranks
Alsaif Gallery 56 39% 1
Qasr Al Awani 47 14% 2
SACO 34 12% 3
Nice 10 11% 4
IKEA 4 9% 5
Others - 7% -
Source: IPO Prospectus
Source: IPO Prospectus
Competitive Landscape of the Saudi Small Appliances Market
Competitive Landscape of the Saudi Kitchenware Market (including serve ware)
7
Pandemic-led demand boosted the top line growth;
margins hit by higher shipping and advertising costs
• Revenue increased to SAR 825mn in FY21 from SAR 655mn in FY19 at a CAGR of 12.2%. The rise in revenue was driven by increase in demand for Kitchenware and appliances during the pandemic, opening of new stores and the increase in online sales.
• Gross profit (GP) margin contracted from 42.1% in FY19 to 33.4% in FY21. The GP margins were hit by higher shipping costs and increase in other costs related to store expansion, as the company did not pass higher costs to the customers.
• Net margin decreased to 22.4% in FY21 from 28.6% in FY19, impacted higher advertising expenses.
Profitability impacted by contraction of margins and decline in bottom line
• Return on equity (ROE) fell to 48.5% in FY21 from 56.8%
in FY19, after improving to 61.6% in FY20.
• Return on assets (ROA) also followed the same trend, as it improved to 39.5% in FY20 from 36.4% in FY20.
However, declined to 30.3% in FY21.
• Both ROE and ROA were impacted by a drop in net income in FY21 due to contraction of margins, despite revenue growth.
Debt-to-equity stands at comfortable level
• The company’s total debt (including lease liabilities) increased to SAR 175mn in FY21 from SAR 157mn due to increase in lease liabilities owing to increase in number of branches.
• Total equity rose to SAR 381mn in FY21 from SAR 330mn in FY19.
• Thus, debt-to-equity ratio was steady at 0.46x in FY21 as compared to 0.48x in FY19.
655 797 825
42.1%
40.7%
33.4%
28.6%
26.9%
22.4%
20%
25%
30%
35%
40%
45%
50%
0 200 400 600 800 1,000
FY19 FY20 FY21
Revenue (SAR mn) Gross margin Net margin
Fig. 9 Revenue and Margins Trends
Source: IPO Prospectus, Aljazira Capital Research
36.4%
39.5%
30.3%
56.8%
61.6%
48.5%
25%
35%
45%
55%
65%
FY19 FY20 FY21
ROA ROE
Fig. 10 ROA and ROE Trend
Source: IPO Prospectus, Aljazira Capital Research
157 146 175
3300.48x 348 381
0.42x
0.46x
0.40x 0.42x 0.44x 0.46x 0.48x
0 100 200 300 400 500
FY19 FY20 FY21
Total debt Total equity Debt-to-equity
Fig. 11 Debt-to-equity Trend
Source: IPO Prospectus, Aljazira Capital Research
Financial Highlights
8
Competitive Strengths
Market leadership and distinctive brands
о As of FY21, the company’s market share amounted to 39.0% in the Kitchenware and Serve ware sector (the highest market share) and 27.1% in the small home appliances sector (the second largest market share).
о The company has established many products and brands such as Edison, Tornado, Robust and Rocky among others.
It also has more than one dealership for international brands such as Markutec, Helios, Hascevher and Falez.
Ability to grow through geographic expansion and/or product diversification
о The company opened 26 stores during January 2019 to March 2022. The company intends to continue expanding its store network and serving new geographies.
о The company plans to open three stores and one warehouse in the UAE. The first store is expected to be opened in Abu Dhabi during Q4-22.
о The company follows a growth strategy that includes adding new and diverse products as well as shaping, renovating and introducing fashion in serve ware and hospitality utensils, in addition to targeting new categories of customers.
Reliance on a direct supply chain that drives profitability improvement
о Due to the company’s reliance on selling its own products (84% of revenue in FY21), its ability to control costs is relatively higher, as the company contracts directly with manufacturers.
Ease of reaching customers
о Through its network of stores spread over a wide geographical area and an easy-to-use online store the company has an expanded reach to tap the customers.
Excellent relationships with manufacturers and suppliers
о Due to the company’s longevity and leadership in the Kingdom in terms of market share, it enjoys distinguished relationships with manufacturers and suppliers that enable it to negotiate prices, quantities and schedules to suit its objectives.
о The company also has its own exclusive production lines with manufacturers and its own exclusive designs that are not available to any other importers.
Key Risks
The company relies heavily on certified suppliers and manufacturers to supply the company’s stores with its home appliances and Kitchenware products. It imports the majority of its products directly from manufacturers, most of whom are located in China, and relies relatively less on domestic agents and suppliers.
The company’s success depends on its market reputation. The company’s reputation may also be significantly damaged due to several events, such as poor quality of its services and products, disputes with customers, deficiencies in internal control, or the company’s stores facing negative publicity regarding the quality or safety of the products.
The company relies on leased sites, whereby 56 stores out of its total 58 stores are located on sites leased from third parties as of March 31, 2022. The company may not be able to renew all leases, or such leases may be renewed under different terms and conditions that may not be commensurate with the company’s plan and strategic objectives.
The company’s board has also approved expansions in Oman, Qatar, Kuwait, Bahrain and Egypt. If the company is unable to handle the market and operational risks associated with its business outside the Kingdom as required, this will impede the company’s future business growth, which will have a material and adverse impact on the company’s business, results of operations, financial position and prospects.
The company expects competition to intensify in the future, and it may not be able to continue to effectively compete with other market competitors including department stores, specialty retailers and discount stores, and other prospective competitors.
Source: IPO Prospectus
Competitive Strengths and Risk Factors
9
Key Financial Data
Amount in USD mn, unless otherwise specified FY19 FY20 FY21 9M-22
Income statement
Sales 655 797 825 551
Y/Y 21.7% 3.5% -11.6%
Cost of sales (379) (473) (550) (379)
Gross Profit 276 324 276 171
Y/Y 17.5% -15.0% -18.6%
Selling and distribution expenses (33) (43) (58) (35)
General & Administrative expenses (40) (47) (24) (21)
Finance cost (6) (8) (7) (6)
Depreciation on right-of-use assets (11) (15) (19) (14)
Operating profit 186 211 167 95
Y/Y 13.4% -20.5% -25.8%
Other income 5 6 20 11
Gains on sale of financial assets carried at fair value through profit or loss 3 3 4 0
Net profit before Zakat 193 220 191 107
Zakat (5) (6) (7) (5)
Net profit for the year 187 214 185 102
Y/Y 14.3% -13.7% -23.5%
EPS* 5.36 6.12 5.28 2.91
Balance sheet Assets
Cash and cash equivalents and Short term Investment 145 66 47 9
Trade receivables 1 4 5 5
Inventories 127 189 258 234
Prepayments and other receivables 25 45 37 47
Other current assets 11 15 0 44
Total current assets 309 319 347 340
Property Plant and equipment 115 124 142 183
Right of use assets 90 99 121 123
Non-current assets 205 223 264 306
Total assets 514 542 611 645
Liabilities
Lease liabilities-current portion 10 12 15 15
Short term loans 70 48 53 0
Trade payables 9 16 21 46
Other 16 27 27 48
Total current liabilities 104 103 115 110
Long-term lease liabilities 77 86 107 110
Provision for employee benefits 3 5 8 8
Total liabilities 184 194 230 228
Shareholders' Equity
Share capital 42 42 42 350
Reserves 13 13 13 23
Retained earnings 275 293 326 45
Total shareholders' equity 330 348 381 418
Total liabilities and shareholders' equity 514 542 611 645
Cashflow statement
Operating activities 214 184 161 182
Investing activities (35) (24) (12) (87)
Financing activities (81) (238) (169) (132)
Ending cash balance 145 66 47 9
Key fundamental ratios Liquidity ratios
Current ratio (x) 3.0 3.1 3.0 3.1
Liabilities to Assets 35.8% 35.8% 37.6% 35.3%
Profitability ratios
GP Margin 42.1% 40.7% 33.4% 31.1%
Operating Margins 28.3% 26.4% 20.3% 17.2%
Net Margins 28.6% 26.9% 22.4% 18.5%
ROA 36.4% 39.5% 30.3% 21.0%
ROE 56.8% 61.6% 48.5% 32.5%
Leverage ratios
Debt / equity (x) 0.5 0.4 0.5 0.3
Sources: Company Prospectus, Aljazira Capital Research; *EPS for previous years calculated based on current no. of shares for comparison
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1. Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target.
Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months.
2. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target.
Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months.
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