Saudi Stock Market
...es that the banking sector is the main sector in the market, despite its clear retreat in leading the market and decrease in profits growth during 2003. However, the list indicates that these top 10 companies account for 84% of the total profits of all Saudi companies, which means that the remaining companies (total of 60 companies) have either lost or have very humble profits, which is a negative sign. 10 Most Profitable Companies Rank Company Sector 2003 2002 1 Saudi Telecom Company Telecommunications 8,525 3,546 2 SABIC Industry 6,716 2,849 3 Al Rajhi Banking & Investment Banks 2,038 1,413 4 Riyad Bank Banks 1,592 1,416 5 Saudi Electricity Co. Electricity 1,487 1,077 6 SAMBA Financial Group Banks 1,476* 1,857 7 Saudi British Bank Banks 1,258 972 8 Al Bank Al Saudi Al Fransi Banks 1,185 1,014 9 Arab National Bank Banks 767 584 10 Saudi Hollandi Bank Banks 601 555 Total of the 10 Companies 25,645 15,284 Total Market 30,391 18,984 * Profits of 12 month ended by the latest announced financial results (SAR Million) Source: Bakheet Financial Advisors In 2003, The Saudi Telecom Company ranked first with profits of SAR 8,525 million, which are the highest profits ever achieved by the company and an increase of 140% compared to 2002. SABIC ranked second with profits of SAR 6,716 million, followed by Al Rajhi Banking & Investment supported by its strong improvement in profits in 2003, which reached SAR 2,038 million, then Riyad Bank ranked fourth with profits of SAR 1,592 million. However, profits of SAMBA Financial Group (previously known as The Saudi American Bank) declined strongly to retreat the group to the fifth position where the profits of the first nine months were SAR 1,04 1 million. Expected profits for the group are SAR 1,476 million for 2003 (the bank has not yet disclosed its 2003 financial statements during this report preparation). 6. Shares with the Highest Risk: The degree of risk for a share is measured in several ways. Standard deviation is used to measure dispersion of the share price around its average over a five years period. The industrial sector, in addition to the agricultural and services sectors had the highest risk due to the sharp volatility and constant speculation. The highest degree of risk over the past 5 years was 25.1 for the Saudi Chemical, followed by Arabian Pipes with a standard deviation of 20.9. Top 10 Highest Risk Companies Rank Company Sector Degree of Risk 1 Saudi Chemical Industry 25.1 2 Saudi Pipes Industry 20.9 3 Bisha Agriculture Agriculture 19.6 4 Jarir Marketing Services 17.1 5 Lujain Industry 16.8 6 Eastern Agriculture Development Agriculture 16.4 7 Qassim Agriculture Agriculture 16.1 8 National Metal Industries Industry 15.7 9 United Mekairesh Livestock Services 14.4 10 Saudi Advanced Industries Industry 14.1 Total Market 4.9 Degree of Risk: standard deviation of stock price over 5 years Source: Bakheet Financial Advisors 7. Financial Indicators: This review is based on historical data and as such indicators do not reflect a company's future position. Our analysis will cover two indicators: price/earning ratio (PE), which is a significant indicator that measures the attractiveness of a share's price relative to the company's earnings (i.e. what price will the investor pay for the stock to receive one Riyal of profit). Five-year average is presented in our analysis for all listed firms. The second indicator considered is dividend yield ratio (DY), which relates annual dividends distributed by a company to its share price. A) Price/Earning Ratio (PE) The PE ratio sometimes and for certain circumstances, may not indicate whether a stock price is attractive. A stock could have a low PE ratio because investors are not optimistic about future profitability of the company although its present conditions appear to be good. There could also be other reasons. National Gas and Manufacturing had the best PE of 12.8x. Qassim Cement" ranked second with a PE of 13.8x, followed by Yamamah Cement with a PE of 13.9x. It is noted from the list that banks and cement companies had the lowest PE. This is due to the fact that profits of these companies have increased sharply, but the shares themselves did not, which might be caused by some investors' pessimistic outlook for the profit growth of these companies. Please note that companies reporting losses or new companies listed for less than 5 years where excluded from calculation. Top 10 Companies with the Highest PE Rank Company Sector PE 1 National Gas and Industrialization Industry 12.8x 2 Qassim Cement Cement 13.8x 3 Yamamah Cement Cement 13.9x 4 National Gypsum Industry 14.3x 5 Al Bank Al Saudi al Fransi Banks 14.7x 6 Saudi Investment Bank Banks 14.7x 7 Riyad Bank Banks 14.8x 8 Saudi Hollandi Bank Banks 14.8x 9 Arabian Cement Ltd. Cement 15.0x 10 Yanbu Cement Cement 15.1x Total Market 28.3x Average over the past 5 years 1999-2003 (companies reporting profits only) Source: Bakheet Financial Advisors B) Dividend Yield Ratio (DY): The Saudi Chemicals had the highest dividend yield of 9.1% (the company was listed on the exchange at the beginning of May 2001). In reality this does not reflect the correct situation of the company since it distributed 24% of its market price at the first year and has not exceeded 2% afterwards. Tabuk Agricultural Development which preserves good dividend yields, ranked second. Companies belonging to the cement sector ranked in the next three positions, namely: Yamamah Cement, Qassim Cement and Eastern Region Cement with dividend yields of 6.8%, 6.6% and 6.5% respectively. This is due to the fact that these companies have excellent profits and their preference is to distribute most of the profits to investors. In general, the cement sector is the best in terms of dividend yields. Top 10 Companies with the Best DY Rank Company Sector DY 1 Saudi Chemical Industry 9.1% 2 Tabuk Agricultural Development Agriculture 7.5% 3 Yamamah Cement Cement 6.8% 4 Qassim Cement Cement 6.5% 5 Eastern Region Cement Cement 6.5% 6 Saudi Real Estate Services 6.1% 7 Southern Region Cement Cement 5.8% 8 Arabian Cement Ltd. Cement 5.6% 9 Riyad Bank Banks 5.6% 10 SAPTCO Services 5.4% Total Market 4.1% Average over 5 years from 1999 to 2003 (Dividends for 2003 were estimated based on 2002 Payout Ratio for companies which did not yet disclose their dividend) Source: Bakheet Financial Advisors Expected Companies to be Listed in the Saudi Stock Exchange Due to the many requirements that companies must meet to be listed in Saudi Stock Exchange, only seven companies were listed in the past 5 years. The following table contains a list of expected companies to be listed in the coming years. Saudi Joint Stock Companies Not Listed in The Saudi Stock Exchange Company Name Sector Capital Shareholders Equity National Commercial Bank Banks 6,000 8,918 Saudi Arabian Mining Industry 4,000 4,918 Arabian Industrial Fibers Industry 3,550 2,557 Electricity and Water Facilities at Jubail & Yanbu Services 2,500 2,500 Saudi Research & Marketing Group Services 600 919 Saudi Industrial Investment Group Industry 550 678 Saudi International Petrochemicals Industry 500 549 National Industrialization for Petrochemicals Industry 500 523 Saudi Dairy & Food Products Industry 325 515 Jeddah Oil Refinery Industry 70 354 National Company for Cooperative Insurance Services 250 354 Abbar & Zainy Cold Stores Services 250 313 Jubail Chemical Industries Industry 240 219 Arabian Petroleum Products Trading Industry 6 159 Qassim Medical Services Services 47 124 Saudi Arabian Company for Lubricants Industry 110 116 Saudi White Cement Cement 103 100 Saudi Industries Development Industry 100 87 Saudi Travelers Cheques Services 25 84 Jeddah Holding for Development Services 100 78 National Petrochemicals Industries Industry 57 65 Mecca Medical Center Services 152 64 Taif Investment & Tourism Services 54 63 Saudi Orix Leasing Co. Services 60 62 Gulf Technological Industries for Optical Fibers Industry 100 52 Arabian Tourist Resorts Services 50 43 Medina Industrial Investments Industry 50 33 Agricultural Marketing “Tasweeq” Agriculture 40 17 Total 20,385 24,465 Figures are in SAR Million Source: Bakheet Financial Advisors Saudi Stock Exchange Vs. Emerging Markets The Saudi stock market ranks 1st in the Arab region and 8th among emerging markets in terms of market capitalization. It also ranks 23rd worldwide. These are the results of the fact that the Saudi stock market lists the largest Arab banks and very large companies such as the Saudi Telecom Company (STC), Saudi Basic Industries Corporation (SABIC) and Saudi Electricity Company. Moreover, the Saudi market is expected to enhance its ranking with the listing of more Saudi joint stock companies such as the National Commercial Bank, which is the most important of them. In terms of annual turnover value, the Saudi market ranks 4th among emerging markets and 21st among international markets. This is a significant ranking for a market that is closed to foreign investment and allows only Saudis or Gulf Cooperation Council (GCC) nationals to trade. Moreover, approximately 54% of the total market value of shares are not traded because ownership by government or semi-government entities (i.e. Pensions Fund and GOSI), or by foreign partners and other joint stock companies. According to the World Exchanges Union's definition of average company market capitalization, the Saudi stock exchange also ranks 1st among emerging markets and 2nd among international markets. The average company market capitalization in emerging countries is US$ 210 million, whereas the average in international markets is US$ 1110 million. However, the average in the Saudi market is US$ 2,247 million. This is due to the relatively large capitalization of several Saudi companies. As stated earlier, the top 10 companies listed on the exchange represent 81% of the total Saudi market capitalization. In addition, the number of listed companies is relatively low which prompts us to advocate the importance of listing more medium and small size companies. The Saudi market ranks 4th among emerging markets in terms of turnover ratio. The Saudi market had a ratio of 101% (in 2003), whereas emerging and international markets which have ratios of 73% and 109%, respectively. Emerging Markets Statistics Rank Country Market Capitalization Turnover Value Turnover Ratio Number of Companies Average Company Capitalization 1 Taiwan 379,023 592,534 156% 674 562 2 China 360,106 255,966 71% 780 462 3 Korea 298,248 459,191 154% 684 436 4 India 279,093 89,618 32% 5,644 49 5 South Africa 260,748 102,173 39% 411 634 6 Brazil 234,560 67,987 29% 369 636 7 Malaysia 168,376 52,233 31% 901 187 8 Saudi Arabia 157,302 159,059 101% 70 2,247 9 Mexico 122,533 25,867 21% 237 517 10 Thailand 119,017 105,065 88% 418 285 11 Greece 106,644 40,087 38% 340 314 12 Chili 86,526 6,833 8% 240 361 13 Turkey 68,379 99,727 146% 285 240 14 Indonesia 54,659 14,772 27% 333 164 15 Poland 37,020 9,696 26% 189 196 16 Argentina 34,995 3,110 9% 110 318 17 Egypt 25,984 4,503 17% 978 27 18 Philippines 23,176 2,654 11% 236 98 19 Hungary 16,663 8,296 50% 51 327 20 Peru 14,125 1,140 8% 227 62 21 Morocco 13,258 6,158 46% 53 250 22 Jordan 10,986 2,399 22% 157 70 23 Bahrain 9,708 271 3% 44 221 24 Oman 7,246 1,540 21% 103 70 25 Srilanka 2,711 769 28% 244 11 Average 115,643 84,466 73% 551 210 USD as at the end of 2003 Source: World Exchange Union and Bakheet Financial Advisors Saudi Stock Market Characteristics 1. Main Events During the Past 5 Years: Securities Exchange Regulations: The Saudi Shura (Consultative) Council passed in June 2003 The Security Exchange Law, which is an important decision affecting the Saudi market. The law calls for an independent securities exchange to be established, as well as an independent commission to oversee the exchange. We anticipate that the market will react positively to this law in the coming year. This law will also pave way for new financial intermediaries to enter the market to compete with local banks which are currently the only entities allowed to trade in the stock exchange. Saudi Telecom Company (STC): On December 2002, in an initial public offering (IPO), the Saudi government offered 90 million shares of STC that represent 30% of the company's total shares. 60 million of these shares were allocated to Saudi citizens and 30 million equally split between GOSI and the Pension Fund. The IPO price was set at SAR 170 per share. The IPO was very successful where it was covered 3.6 times. STC was listed on the Saudi stock exchange during late January 2003, and shares of STC increased to SAR 423 resulting in a market capitalization of SAR 127 billion. Privatization Resolution: On 11 November 2002, the Saudi government approved the privatization of 20 government organizations and entities. The government is expected to offer parts of its ownership in a number of Saudi joint stock companies for sale to investors. The government has majority ownership stake in major companies like SABIC, Saudi Electricity, and Riyad Bank, of 71%, 76% and 43%, respectively. Saudi Basic Industries Corporation (SABIC): On February 2002, SABIC announced the finalization of an agreement to own the petrochemical sector of DSM of the Netherlands in a deal worth Euro 2,25 billion (approximately SAR 7.4 billion). In addition, SABIC has returned to generating profits following the loss of SAR 99 million suffered during the last quarter of 2001. In 2003, gains in profits of SAR 6.7 billion were highly visible and the highest in its history. SAMBA Financial Group (previously known as Saudi American Bank): In a surprise move, Citibank, which holds 22.8% of SAMBA Financial Group, sold 2.8% of its ownership share to the Saudi Pension Fund in a deal worth USD 230 million. Citibank now owns 20% of the group. 2. Government and Foreigners' Ownership of Saudi Companies: The Saudi stock market is closed for trading to non-Saudis with the exception of GCC nationals who can trade in selected stocks. However, there are foreign investments in all Saudi banks with the exception of Riyad Bank and Al Rajhi Banking and Investment Corp. There are also limited foreign investments in other companies. The Saudi government, represented by Public Investments Fund, owns majority holding in several companies, mainly SABIC with a 70% stake. It also holds approximately 74% of the Saudi Electricity Company. In addition, the government owns 46.5% of the shares listed in the Saudi market. Foreign ownership of Saudi joint stock companies amounts to 5.6%. Cross ownership of joint stock companies is about 2.2% Percentage Shareholding in Joint Stock Companies Company Market Capitalization Government & Semi-government Joint Stock Companies Non Saudi Total Banking Sector Riyad Bank 27,840 42.7% 0.0% 0.0% 5.6% Jazira Bank 2,997 4.0% 10.3% 0.6% 0.7% Saudi Investment Bank 7,673 28.6% 8.6% 10.0% 2.8% Saudi Hollandi Bank 9,374 0.2% 0.0% 40.0% 3.4% Al Bank Al Saudi Al Fransi 18,495 8.4% 0.0% 31.1% 3.9% The Saudi British Bank 20,200 6.2% 0.0% 40.0% 3.8% Arab National Bank 14,220 3.7% 0.0% 40.0% 3.8% SAMBA Financial Group 31,520 15.6% 0.0% 26.4% 4.7% Al Rajhi Banking & Investment 43,875 7.4% 0.0% 0.0% 4.2% Total Banking Sector 176,194 14.6% 0.6% 18.4% 4.3% Industrial Sector Saudi Basic Industries Corp. 98,925 70.8% 0.0% 0.0% 2.5% Saudi Arabian Fertilizers 9,940 6.2% 43.2% 0.0% 3.6% Saudi Arabian Refineries 150 0.0% 4.7% 0.0% 3.9% Saudi Ceramics 963 20.5% 10.0% 0.0% 1.7% Savola Group 5,596 6.2% 0.0% 0.0% 4.9% National industries 2,901 1.9% 2.5% 0.0% 1.4% SPIMACO 1,926 0.0% 0.0% 20.0% 4.7% National Gas and Industrialization 2,355 15.5% 0.0% 0.0% 3.8% National Gypsum 1,603 0.0% 1.9% 0.0% 4.7% Food Products 230 0.0% 7.5% 0.0% 0.0% Saudi Cables 675 0.0% 5.2% 0.0% 0.0% Saudi Advanced Industries 140 0.0% 6.5% 0.0% 0.0% Saudi Industrial Development 502 0.0% 10.0% 0.0% 0.0% Al Hasa Development 359 7.0% 0.3% 0.0% 1.1% National Glass Industries 504 0.0% 35.8% 0.0% 0.0% Saudi Arabian Amiantit 3,000 0.0% 0.0% 0.0% 1.6% Lujain 300 0.0% 10.6% 0.0% 0.0% Packing and Packaging Materials 232 0.0% 0.0% 0.0% 4.4% Saudi Industrial Services 281 0.0% 14.9% 0.0% 0.0% Arabian Pipes 252 0.0% 0.0% 0.0% 0.0% Arabian Industrial Development 358 0.0% 0.0% 0.0% 2.1% National Metal Industries 143 0.0% 0.0% 0.0% 0.0% Saudi Chemical 1,374 0.0% 0.0% 0.0% 9.1% Zamil Industrial Investment 1,326 0.0% 0.0% 0.0% 3.1% Total Industrial Sector 134,033 53.5% 3.6% 0.3% 2.7% Cement Sector Arabian Cement 3,726 0.0% 5.5% 0.0% 5.6% Yamamah Cement 5,499 1.1% 3.8% 0.0% 6.8% Saudi Cement 7,191 1.9% 0.4% 0.0% 5.2% Qassim Cement 3,868 37.5% 3.8% 0.0% 6.5% Southern Region Cement 8,568 39.9% 2.9% 0.0% 5.8% Yanbu Cement 6,783 21.1% 0.0% 0.0% 5.1% Eastern Province Cement 4,618 30.0% 0.0% 0.0% 6.5% Tabuk Cement 2,709 0.0% 0.6% 0.0% 3.2% Total Cement Sector 42,962 18.3% 2.0% 0.0% 5.8% Services Sector Saudi Hotels & Tourist Resorts 905 40.3% 0.0% 0.0% 4.3% Saudi Real Estate 2,256 72.9% 4.7% 0.0% 6.1% Saudi National Shipping 4,125 31.6% 0.6% 0.0% 0.0% SAPTCO 2,090 30.0% 4.6% 0.0% 5.4% Saudi Vehicles and Equipment Service 405 0.0% 0.0% 0.0% 1.8% United Mekairesh Livestock 918 0.0% 0.0% 0.0% 0.0% Tihama Advertising and Public Relations 211 0.0% 0.0% 0.0% 2.3% Assir Trade, Tourism and Industry 625 0.0% 0.0% 0.0% 0.4% Taiba Investment and Real Estate Development 1,399 11.5% 0.7% 0.0% 1.8% Mecca Construction 4,886 6.2% 0.0% 0.0% 4.4% Saudi Land Transport 398 0.0% 1.5% 0.0% 0.0% Baha Investment & Development 131 0.0% 0.0% 0.0% 0.0% Saudi Industrial Exports 140 0.0% 6.4% 0.0% 4.8% Riyadh Construction 2,065 0.0% 0.0% 0.0% 1.4% National Agriculture Marketing 67 0.0% 1.9% 0.0% 0.0% Tourism Projects 109 0.0% 0.0% 0.0% 3.0% Ahmad Hassan Fetaihi and Partners 508 0.0% 0.0% 0.0% 1.5% Jarir Marketing 1,841 0.0% 0.0% 0.0% 5.2% Total Services Sector 23,079 19.1% 1.1% 0.0% 3.1% Electricity Sector Saudi Electricity Co. 84,374 74.3% 6.9% 0.0% 5.4% Total Electricity Sector 84,374 74.3% 6.9% 0.0% 5.4% Agricultural Sector National Agricultural Development 798 20.0% 0.0% 0.0% 0.0% Qassim Agriculture 225 0.0% 2.4% 0.0% 0.0% Hail Agricultural Development 320 0.0% 0.0% 0.0% 0.0% Tabuk Agricultural Development 269 2.5% 0.0% 0.0% 7.5% Saudi Fisheries 198 40.0% 0.0% 0.0% 1.1% Eastern Agricultural Development 85 0.0% 1.7% 0.0% 1.2% Jouf Agricultural Development 268 0.0% 0.0% 0.0% 1.4% Bisha Agricultural Development 17 0.0% 6.0% 0.0% 0.0% Jazan Agricultural Development 271 0.0% 0.5% 0.0% 0.0% Total Agricultural Sector 2,450 10.0% 0.4% 0.0% 1.2% Telecommunications Sector Saudi Telecom Company 126,825 80% 0.0% 0.0% 0.0% Total Telecommunications Sector 126,825 80% 0.0% 0.0% 0.0% Total Market 589,916 46.5% 2.2% 5.6% 4.0% Market Capitalization as of 31 December 2003 (SAR Million) Saudi Stock Exchange Statistics Company Market Price 31/12/03 % Change Five Years Market Cap. (SR M) Turn-over Value ...