Saudi Banking Sector

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Banking sector posts another strong quarter; Al Rajhi leads the charge

The Saudi banking sector had a strong quarter as the economy started to recover from the pandemic. Credit growth continues in at a double-digit rate, driven by the government’s expansionary policy and surging retail demand. Oil prices have recovered strongly and are at pre-COVID-19 levels. This should provide the much-needed support to the government’s finances. The Saudi Central Bank’s SAR50bn liquidity support program and private sector financial support program continues to drive credit growth in the near term.

Al Rajhi was the top performer during the quarter. The bank’s market share (loans) increased by 190 bps to 18.5% as its loan book registered a staggering increase of 25.9% Y/Y. It also posted the highest operating income (SAR 5.79bn), contributing 22.2% to the sector’s overall earnings in Q4-20. With the outlook for the sector being positive, the bank seems to be in a good position to enhance its market share.

Demand deposits drive deposit growth: Total banking deposits grew 8.2% Y/Y to SAR 1.94tn in Q4-20. The growth was mainly due to demand deposits which rose 16.7%, while time and savings deposits fell 5.5% Y/Y.

Continued growth in real estate sector boosts loan growth: Loan growth remained robust, increasing 14.8% Y/Y to SAR 1.78tn in Q4- 20, led by a 59% Y/Y increase in real estate loans. All sectors registered positive Y/Y loan growth during the quarter. The miscellaneous sector was the standout, posting a 48.2% Y/Y growth in Q4-20.

Increase in provisions and higher NPLs impact net income: Most banks witnessed a significant increase in provisions during the quarter, as the government continued to extend the loan deferral program for MSME up-to 1H-2021. The low interest rate scenario, driven by the US Fed’s decision, is expected to continue into 2021 and to impact NIM. This coupled with the higher NPL ratio (2.2% in Q4-20) continues to pressurize the bottom line.

Saudi central bank extends deferred payments program to June 30, 2021: Saudi Central Bank extended the deferred payments program for MSMEs up to June 30, 2021. It also extended the Guaranteed Financing Program until March 14, 2022. The extension has been provided to support business continuity in the private sector, which in turn would aid economic growth and development. The deferred payments program was launched on March 14, 2020 and has benefitted 99,000 contracts amounting to SAR 124bn in deferred payments, exceeding the initial allocated amount of SAR 30bn. With the extension, provisions could remain low in H1-21 and increase significantly in H2-21 once this support is withdrawn.

NCB, SAMBA shareholders approve merger: Shareholders of NCB and Samba Financial Group approved the merger during their respective EGMs on March 1, 2021. Each SAMBA share would garner 0.739 NCB shares. NCB shareholders also approved increasing the company’s capital from SAR 30bn to SAR 44.78bn, as per the merger agreement. The merger is expected to be completed in H1-21 and could pave the way for further consolidation in the Saudi banking industry.

S&P states Saudi PIF Investments to spur corporate credit growth: S&P stated investments by Saudi Arabia’s sovereign wealth fund is likely to boost corporate credit growth in the kingdom in 2021. Domestic private-sector credit in Saudi Arabia is expected to exceed 80% of its GDP in 2021 as the PIF’s investment in construction-related sectors offsets the easing of government support provided in the pandemic. It expects credit growth to remain at 10% in 2021-22. The government’s efforts to meet the 2030 Vision targets is expected to boost the demand for housing, resulting in strong growth in mortgage and retail loans.

Fitch expects retail sector to drive banking growth in Saudi Arabia: The retail lending segment has been growing rapidly in Saudi Arabia in recent years; it is the key driver of growth of the Saudi banking sector. Fitch expects the growth momentum to continue due to high appetite among banks. Returns on retail portfolios have low funding costs, as retail loans are largely funded by retail non-interest- bearing deposits (NIBs). As there are no caps on retail loans, their pricing contributes to high margins. Hence, banks with a larger proportion of retail lending in their portfolios display higher profitability than their peers. This has led to banks actively chasing retail lending and accordingly adjusting their strategy and appetite for this segment.

AGM-Head of Research Talha Nazar +966 11 2256250

[email protected]

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Al Rajhi Bank: Stellar growth in loans driven by retail sector led to strong earnings growth in Q4-20; double-digit earnings growth expected in FY21, while loans growth rate could taper marginally

Al Rajhi Bank’s net profit increased 34.7% Y/Y to SAR 3,121mn, driven by an 8.9% Y/Y rise in net financing and investment income. Fee from banking services surged 89.6% Y/Y, resulting in a 15.8% increase in total operating income. The loan growth (up 26.5% Y/Y) was staggering and was driven largely by the retail sector (up 34.2% Y/Y). The strong retail sector performance can be attributed to mortgage financing (up 90% Y/Y). With this strong performance, Al Rajhi narrowed the gap between the top two players (NCB leads). The retail sector accounted for 79.5% of the bank’s total loan book in Q4-20. We expect the contribution of retail sector to decline in FY21 and tread close to the historical levels. The challenge for Al Rajhi would be to maintain the growth momentum witnessed in FY20 without the bottom line being affected.

Al Rajhi Bank’s TTM PE stood at 17.4x vis-à-vis the estimated forward PE of 18.3x. Retails loans have a lower probability of being repriced, whereas the low interest rate on Murabaha deposits would further pare the returns on customer deposits.

We estimate an EPS of SAR 4.91 in FY21, driven by a double-digit increase in loan growth and higher fee from banking services, offset by an increase in impairment charges. We maintain our “Neutral” recommendation for Al Rajhi Bank with a TP of SAR 87/share.

Alinma Bank: Higher impairment charges dent net profit in Q4-20; higher percentage of corporate loans could increase provisions in FY21

Alinma Bank’s earnings declined 22.5% Y/Y to SAR 394mn, driven by a significant jump (up 69%) in impairment charges. This was partially offset by a 41.6% increase in fees from banking services. The bank’s loan portfolio grew by 16.9% Y/Y, driven by corporate loans. Once the deferred payments program is complete, we expect the bank to post higher impairment charges.

Alinma Bank’s loan book contains 79% corporate loans and 42% of its deposits are Murabaha deposits. A higher concentration of corporate loans leaves the bank susceptible to higher NPLs, which increased to 2.6% in FY20 from 1.9% in FY19. Additionally, more corporate exposure could result in the re-pricing of loans, consequently impacting NIMs. We expect the bank to post earnings of SAR 2.1bn, an increase of 9.8% Y/Y. We maintain a cautious “Overweight” rating on Alinma Bank with a TP of SAR 19.0/share.

Bank Albilad: Double-digit earnings posted despite increase in provision; withdrawal of loan deferral program expected to hike provisions in FY21

Bank Albilad’s net income rose 15.5% Y/Y to SAR 377.8mn, driven by an 6.9% Y/Y increase in income from investing and financing assets. Loans grew 18.3% Y/Y to SAR 70.1bn. We expect loan growth in mid-single digits in FY20.

Bank Albilad has an even mix of corporate and retail loans, while almost 56% of its deposits are NIB. Its NPL ratio in FY20 stood at 1.2%, unchanged from the rate in FY19. As corporate loans account for close to 50% of loans, we expect higher provisioning once the loan deferral program is completed. We estimate an EPS of SAR 1.86 for FY21, an increase of 2.7% on expectations of higher provisions. We maintain our “Neutral” rating on Bank Albilad with a TP of SAR 28.0/share.

Company EPS (FY-21) ROE (TTM) ROA (TTM) TTM P/E(x) P/B(x) TP(Price/

share) Recommendation

Al-Rajhi 4.91 19.4% 2.5% 17.4 3.2 87.0 Neutral

Alinma 1.09 8.4% 1.4% 16.5 1.3 19.0 Overweight

Al-Bilad 1.86 13.4% 1.5% 15.8 2.0 28.0 Neutral

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Saudi Banking Sector Balance Sheet Growth – Q4-20

Saudi Banking Sector Liabilities Composition (Q4-20)

Distribution of Total Banking Assets (Q4-20)

Saudi Banking Sector Balance Sheet Growth – Q4-20

Banking Sector – Assets Breakdown (Q4-20)

Asset Market Share of Shariah-Compliant Banks (Q4-20)

Saudi Banking Assets-LHS % Growth-RHS

In Bn SAR 13.2%

0%

5%

10%

15%

20%

25%

30%

- 500 1,000 1,500 2,000 2,500 3,000 3,500

2006 2008 2010 2012 2014 2016 2018 2020

Cash In Vault Deposits with SAMA

SAMA Bills Foreign Assets Loans to Private Sector Loan to Gov & Quasi- Gov

Fixed Assets Other Assets 17% 59%

8%

9% 4%

1%1%1%

22%

17%

10% 11%

11%

6%

7%

6%4%3% 3% NCB

Al Rajhi RIBL SABB SAMBA Arab National BSFR Alinma Saudi Investment BJAZ

Albilad

Saudi Banking Assets-LHS % Growth (YoY)-RHS

In Bn SAR

Q4-19 Q4-20

9.7%

13.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

- 500 1,000 1,500 2,000 2,500 3,000

19% 58%

12%

11%

Al Rajhi

Alinma

Albilad

BJAZ

KSA’s banking sector registered a CAGR of 7.7% during 2010-20.

The share of deposits (as a percentage of balance sheet liabilities) declined to 75.8% in Q4-20 from 76.0% in Q3-20.

NCB (assets over SAR 599bn) led the market with a share of 21.6% in Q4-20, an increase of 0.1% from 21.5% in Q3-20.

In Q4-20, the banking sector grew 13.2% Y/Y, while it advanced 3.5% Q/Q to SAR 2,980bn.

Loans to private sector decreased to 59.2% in Q4-20 as compared to 59.9% in Q3-20.

Al Rajhi is the largest Shariah-compliant bank in KSA. The bank holds 57.6% of the total market share in Q4-20, an increase of 0.6% from the previous quarter.

Source: SAMA, Argaam, Aljazira Research

Source: SAMA, Argaam, Aljazira Research 76%

17%

7%

Deposits

Other Liabilities

Foreign Liabilities

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Deposits Growth (Historical) (1996–2020) Deposits Breakup and Growth (Q4-20)

Deposits Breakdown (Q4-20)

Sector-Wise Deposits (Q4-20) Demand Deposits Breakdown (Q4-20)

Time & Savings Deposit Breakdown (Q4-20)

In Bn SAR

Deposits-LHS Money Supply(M3)-LHS Y/Y Growth in deposits-RHS 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0 400 800 1,200 1,600 2,000 2,400

Bn SAR

Demand-LHS Time & Savings-LHS Quasi-Monetary-LHS % Growth (Y/Y)-RHS

Q4-19-3.1% Q4-20

8.2%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

- 500 1,000 1,500 2,000 2,500

Demand Time & Savings Quasi-Monetary 66.0%

24.4%

9.6%

Business and Individuals Government Entities Others

76.0%

21.9%

2%

Business and Individuals Government Entities

89%

11%

Business and Individuals Government Entities 55%

45%

Deposits and money supply in KSA rose steadily at CAGRs of 7.0% and 7.1% over 10 years, respectively.

Businesses and individuals held 88.7% of demand deposits in Q4-20 compared to 88.3% in Q3-20.

Businesses and individuals held 55.3% of time and saving deposits in Q4-20 compared to 56.0% in Q3-20.

Total deposits increased 8.2% Y/Y to SAR 1.94tn in Q4-20 from SAR 1.80tn compared to Y/Y deposit growth of 10.7% in Q3-20.

Of the total deposits, demand deposits accounted for 66.0% in Q4-20 compared to 65.1% in Q3-20.

Business and individuals held 76.0% of total deposits in Q4-20, a decline of 0.2% from 76.2% in Q3-20.

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Bank-Wise Deposits Growth (Q4-20 vs Q4-19) Deposits Market Share Comparison (Q4-20 vs Q4-19)

Loan Growth Historicals (2007–20)

Loan Share According to Maturity Profile (Q4-20 vs Q4-19) Loan Maturity – Growth (Q4-20 vs Q4-19)

% Growth

Q4-19 Q4-20

In Bn SAR

Al Rajhi Albilad Arab

National BJAZ RIBL SABB SAMBA BSFR Saudi

InvestmentAlinma NCB 22.5%

6.6%

-9.0%

8.5%

4.4% 1.6%

15.3%

-4.3%

17.0%

17.8%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0 50 100 150 200 250 300 350 400 450

-12.9%

Q4-20 Q4-19

Al Rajhi Albilad Arab National BJAZ RIBL SABB SAMBA BSFR Saudi Investment Alinma NCB

%17.3

%3.7

%7.9

%3.5

%10.8

%10.6

%10.0

%7.3

%3.8

%5.6

%19.5

%19.4

%3.6

%6.6

%3.4

%10.3

%9.6

%10.5

%6.4

%3.0

%6.0

%21.1

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Loans (SAR mn) % Growth-RHS

In Bn SAR

-5%

0%

5%

10%

15%

20%

25%

30%

0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000

2008 2010 2012 2014 2016 2018 2020

Less than 1 Year 1 to 3 Years Over 3 Years 0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Q4-19 Q4-20

44.0% 39.3%

15.1%

14.6%

40.9% 46.1%

Less than 1 Year 1 to 3 Years Over 3 Years

In Bn SAR

Q4-19 Q4-20

Growth 2.6%

Growth 29.5%

Growth 10.7%

683 701

235 260

635 822

- 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000

Al Rajhi recorded the highest growth (22.5% Y/Y) in deposits, while NCB stood second, increasing the deposit base by 17.8%

Y/Y.

Total loan book of the banking sector increased 14.8% Y/Y to SAR 1.78tn in Q4-20, clocking a 10-year CAGR of 8.7%.

Loans with maturity of over three years grew 29.5% Y/Y, while those with maturity of less than one year rose 2.6%.

NCB (deposit base of SAR 416bn) is the largest bank in Saudi Arabia, followed by Al Rajhi Bank (deposit base of SAR 383bn).

The commerce sector accounted for 16.8% of total loans, a decrease of 1.1% from the prior quarter.

The share of loans with maturity of more than three years rose to 46.1% in Q4-20 from 40.9% in Q4-19.

Sector-Wise Loan Distribution (Q4-20)

Manufacturing Construction Services Gov & Quasi Gov Miscellaneous Commerce

59.4%

16.8%

8.8%

5.2%

5.3%4.4%

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6

Retail Loans Breakdown (Q4-20 Vs. Q4-19) Real Estate Loan Historicals

Mortgage (Contracts and Total Value) Historicals Contract Value and Growth (Quarterly)

Q4-2019 Q4-2020

Home Renovation Vehicles Others Credit Cards/Total Retail Loans Credit Card

Includes RetailLoans,

acquired through credit

cards

7.3% 4.4%

82.9%

6.2% 3.8% 5.4%

85.2%

0.0% 4.8%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

In Bn SAR

Retail Corporate

% Growth-Total

% Growth-Corporate

% Growth-Retail

-20%

0%

20%

40%

60%

80%

100%

120%

140%

0 50 100 150 200 250 300 350 400 450

2012 2013 2014 2015 2016 2017 2018 2019 2020

Contracts Total Value (LHS) (SAR mn) - 50,000 100,000 150,000 200,000 250,000 300,000 350,000

- 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

2016 2017 2018 2019 2020

Total Value Contracts -% growth -50%

0%

50%

100%

150%

200%

250%

300%

350%

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q4-20Q3-20

In Q4-20, the retail sector accounted for 73.6% of loans, an increase of 2.4% from the previous quarter.

Mortgage contracts increased 70% Y/Y to 289.3k, while the total value rose 84% Y/Y to SAR 136.2bn.

Total credit facilities to SMEs increased 52.0% Y/Y to SAR 175.7bn, while those to medium enterprises rose 48.3% Y/Y to SAR 125.3bn in Q3-20.

Loans for home renovation financing accounted for 6.2% in Q4-20. Retail loans acquired through credit cards constituted 4.8% in Q4-20, a decline of 0.7% from Q3-20.

New contracts in Q4-20 stood at 85.5k with a value of SAR 42.9bn, an increase of 61.3% Y/Y.

The Tier 1 capital stood unchanged at 18.1% in Q3-20, compared to that a year ago, while the Tier 2 ratio increased to 19.6% in Q3-20 from 19.4% in Q3-19.

Credit Facilities to SMEs (SAR Mn) (Q3-20 vs Q3-19) Capital Adequacy Ratio (Historicals)

Small Medium

In Bn SAR

Micro

Q3-19 Q3-20

Growth 58.3%

Growth 48.3%

0 20 40 60 80 100 120

Tier 1 Tier 2 0.0

5.0 10.0 15.0 20.0 25.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q3-20 15.4 15.2 15.7 16.5 16.2 16.217.6 17.6 18.2 17.9 17.9 18.117.5 18.3 18.5 18.1 18.119.5 20.4 20.3 19.4 19.6 Source: SAMA, Argaam, Aljazira Research

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Bank-Wise Loan Distribution (Q4-20 vs Q4-19)

Performing Loans to NPLs Bank-Wise ADR ratio (Q4-20 vs Q4-19)

Q4-19 Q4-20 % growth

In Bn SAR

Al Rajhi Albilad ANB BJAZ RIBL SABB SAMBA BSFR SAUDI InvestmentAlinma NCB 25.9%

18.6%

-4.0٪

10.8% 10.8%

1.5%

10.6%

4.5%

-4.5%

17.6%

22.9%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

- 50 100 150 200 250 300 350 400

NPLs-Industry Average Q4-19, 1.9%

NPLs-Industry Average Q4-20 , 2.2%

Performing Loans Q3-20 Non-performing Loans- Q3-20 % Share of NPLs-RHS NPLs-Industry Average Q3-20 NPLs-Industry Average Q3-19

In Bn SAR

RIBL BJAZ Saib BSFR SABB ANB SAMBA Al Rajhi Albilad Alinma NCB 1.86% 2.21%

2.04%2.78%

6.16%

3.46%

1.49%

0.76% 1.17%

2.49%

1.72%

2.1%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

- 50 100 150 200 250 300 350 400

Of the 11 banks in the sector, 9 registered Y/Y increase in gross loans. Al Rajhi’s loan book registered the highest increase of 25.9% Y/Y in Q4-20, further strengthening its market share.

The industry ADR ratio stood at 88.5% in Q4-20 compared to 85.5% in Q4-19. BSFR posted the highest ADR ratio of 106.4%, followed by Bank Albilad with a ratio of 101.3% in Q4-20.

The sector’s average NIMs rose to 0.82% in Q4-20 from 0.77%

in Q4-19. Al Rajhi registered the highest quarterly NIM of 1.19%

in Q4-20, an increase from 1.03% in Q4-19.

Al Rajhi was the biggest gainer in the market share, witnessing a significant jump to 18.5% in Q4-20 from 16.6% in Q4-19.

NCB’s market share rose to 20.3% in Q4-20.

The sector’s NPL ratio jumped to 2.2% in Q4-20 from 2.07%

in Q4-19. The NPL coverage ratio increased to 131% in Q4-20 from 129% in Q4-19.

The sector’s quarterly return on savings and time deposits decreased 55.3% Y/Y in Q4-20. Bank Aljazira recorded the highest return on time and savings deposit expense at 0.68%.

Bank-Wise Market Share (Q4-20 vs Q4-19)

Q4-20 Q4-19

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

11.4%

3.3%

3.9%

8.4%

10.2%

7.9%

9.4%

16.6%

4.0%

6.3%

18.7%

%11.2

%3.2

%3.3

%7.7

%9.2

%6.7

%9.2

%18.5

%4.1

%6.6

%20.3

RIBL BJAZ Saudi Investment BSFR SABB Arab National SAMBA Al Rajhi Albilad Alinma NCB

Al Rajhi Albilad Arab

National BJAZ RIBL SABB SAMBA BSFR Saudi

InvestmentAlinma NCB

Q4-20 Q4-19

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

84.5%

101.3%

90.8% 82.6% 96.5%

84.8%

77.0%

106.4% 94.5% 95.8%

85.4%

82.2%

91.1%

86.0%

80.8%

90.9% 82.3%

80.3% 97.4% 86.2% 95.4%

84.8%

Bank-Wise NIM (Q4-20 vs Q4-19)

Q4-19 Q4-20

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

Al Rajhi Albilad Arab National BJAZ RIBL SABB SAMBA BSFR Saudi Investment Alinma NCB

Absolute Return on Savings and Time Deposits

Q4-19 Q4-20 % Change

IN Mn SAR

-59%

-48%

-61%

-71%

-54%

-67%

-33%

-20%

-66%

-45% -59%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

- 200 400 600 800 1,000 1,200

RIBL BJAZ Saudi Investment BSFR SABB Arab National SAMBA Al Rajhi Albilad Alinma NCB

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Bank-Wise Lending Rates (Q4-20 vs Q4-19)

Operating Income Breakdown (Q4-20 vs Q4-19)

Q4-19 Q4-20

%1.72 %1.51 %1.49 %1.80 %1.51 %1.51 %1.45 %1.38 %1.60 %1.48 %2.04

%1.47

%1.24

%1.13

%1.47

%1.17

%1.05 %1.07 %1.05 %1.24 %1.22

%1.44

0.00%

0.40%

0.80%

1.20%

1.60%

2.00%

2.40%

Al Rajhi Albilad Arab National BJAZ RIBL SABB SAMBA BSFR Saudi Investment Alinma NCB

Retail Corporate Treasury

Investment Services and Brokerage

Others Q4-20

Q4-19 %46.0

%30.4

%17.2

%4.4 %1.9

%44.1

%26.0

%23.1

%6.1 %0.7

Company-Wise Operating Income (Q4-20)

In MN SAR

Retail Corporate Treasury Investment Services and Brokerage Others -

1,000 2,000 3,000 4,000 5,000 6,000 7,000

Al Rajhi Albilad Arab National BJAZ RIBL SABB SAMBA BSFR Saudi Investment Alinma NCB

The average lending rate stood at 1.23% in Q4-20 compared to 1.59% in Q4-19. Al Rajhi and Bank Aljazira had the joint highest lending rate of 1.47%.

The sector’s operating income increased 2.9% Y/Y to SAR 26.1bn in Q4-20, with the retail sector accounting for 44.1%.

On a Q/Q basis, operating income rose 2.2%.

Al Rajhi, with an operating income of SAR 5.79bn, contributed 22.2% to total sector earnings in Q4-20, followed by NCB (22.0%) with earnings of SAR 5.75bn.

The average cost of risk increased to 0.45% in Q4-20 from 0.30% in Q4-19. Bank Aljazira posted the highest cost of risk of 1.96% in Q4-20, a significant increase from 0.15% in Q4-19.

Company-Wise Cost of Risk (Q4-20 vs Q4-19)

Q4-20 Q4-19

BSFRBJAZ Alinma

0.00%

0.40%

0.80%

1.20%

1.60%

2.00%

2.40%

RIBL SAMBA Albilad Al Rajhi Saudi Investment NCB SABB

Arab National

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Asset Management

|

Brokerage

|

Corporate Finance

|

^Custody

|

^Advisory

Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068

Al-Jazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37

RESEARRESEARCH DIVISIONRATING TERMINOLOGYBROKERAGE AND INVESTMENT CENTERS DIVISION

Disclaimer

AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business.

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.

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Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months.

3. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months.

4. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.

The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Al-Jazira Capital from sources believed to be reliable, but Al-Jazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Al-Jazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Al-Jazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Al-Jazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Al-Jazira Capital. Funds managed by Al-Jazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Al-Jazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Al-Jazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Al-Jazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Al-Jazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.

Faisal Alsuwelimy +966 11 2256115

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General Manager – Brokerage Services &

sales Alaa Al-Yousef +966 11 2256060

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AGM-Head of international and institutions

Ahmad Salman, CFA +966 11 2256201

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AGM-Head of Qassim & Eastern Province

Abdullah Al-Rahit +966 16 3617547

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AGM-Head of Central & Western Region Investment Centers

Sultan Ibrahim AL-Mutawa +966 11 2256364

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