Deporting migrant workers to impact Saudi retail sector
Analysys believe that over the long-run Saudization will be a positive for the retail sector. (Image credit: Shutterstock)
Click here to add Al Hokair as an alert
Disable alert for Al Hokair,
Click here to add Al Othaim as an alert
Disable alert for Al Othaim,
Click here to add Extra as an alert
Disable alert for Extra,
Click here to add Farouk Miah as an alert
Disable alert for Farouk Miah,
Click here to add NCB Capital as an alert
Disable alert for NCB Capital,
Click here to add Shaker as an alert
Disable alert for Shaker
Saudization will lead to a short-term slowdown in the Retail sector due to lower demand and higher wages pressuring margins, NCB Capital said in its Q4 update report on the Saudi Retail sector according to The Saudi Gazette.
“However, we view this period as an opportunity to enter stocks for the long-term,” said Farouk Miah, CFA, Head of Equity Research at NCB Capital. “Macroeconomic drivers in Saudi Arabia remain strong with consolidation of fragmented sectors supporting the long-term growth outlook for stocks under our coverage.”
“We upgrade Al Hokair to Overweight with a PT of SR146.7 as it should be amongst the least impacted by Saudization with multiple sources of growth supporting its outlook. We downgrade Extra to Neutral with a PT of SR109.9 as we believe it will be amongst the most impacted from Saudization in the short-term. Although the long-term drivers remain in-tact for Extra, we believe it lacks short-term positive catalysts.”
NCB Capital remains Neutral on Jarir and Al Othaim and Overweight on Shaker. “We believe Jarir is a “must own” as part of portfolio given the double-digit organic growth, dividend track record and strong balance sheet. However, we remain Neutral given the high 19.2x 2014E P/E,” Miah said. “Despite the poor recent results at Shaker, we remain Overweight as 2014E should record a significant YoY improvement given the implementation of the new energy regulations. We remain Neutral on Al Othaim; although the earnings outlook is strong, execution risks on new stores and margin vulnerability are key risks.”
Commenting further, Miah said: “As seen in 3Q13, we believe a slowdown in growth will continue to be recorded in the next few quarters due to the negative short-term impact of Saudization. These include one million fewer expatriates, the negative sentiment from remaining expatriates, slowdown in new store openings and higher staff costs for companies, leading to pressure on margins. From the companies under coverage, we believe Shaker and Extra will be negatively impacted the most.”
“We believe over the long-run Saudization will be a positive for the retail sector. Increased employment and disposable incomes for locals, particularly for women, should lead to higher sales for retail companies. Additionally, the longer term drivers for the sector such as consolidation of a fragmented sector, young and growing population and economies of scale aiding margins all remain.”
- Will terror attacks damper Arabs' appetite for European holidays?
- So cool it's hot: Saudi Arabia's $3.2B HVACR market driven by construction boom
- US, EU protectionist policies may be a blessing in disguise for GCC suppliers
- Dubai to Doha: How far can you stretch your dirham?
- OPEC's poor history of compliance will make production cut deal a challenge
- Business leaders fears of Saudi migrant-worker fines
- Saudi Arabia deports migrant workers as part of 'Saudization' efforts
- Executive calls for supporting Saudization even if it 'impacts businesses negatively'
- Saudi Arabia's mass deportations reveal the horrifying reality awaiting Yemenis sent home
- On the Middle East and deportation