saudi arabia 2018 outlook | january 2018...saudi arabia 2018 outlook | january 2018 p a g e | 5 be...
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SAUDI ARABIA 2018 OUTLOOK | January 2018
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 2
Table of Content
A. Executive Summary .......................................................................................................................... 3
B. Saudi Economic Outlook 2018 ....................................................................................................... 6
C. Equities outlook ............................................................................................................................... 10
D. Real Estate Sector Outlook ........................................................................................................... 19
E. Private Equity Outlook.................................................................................................................... 26
F. Conclusion ....................................................................................................................................... 30
G. Annexure 1: Chart Pack ............................................................................................................... 31
I. Macroeconomic Indicators .................................................................................................. 32
II. Oil Indicators ............................................................................................................................ 38
III. Stock Market Indicators ......................................................................................................... 39
IV. Corporate earnings ................................................................................................................ 40
V. Tadawul Sector Earnings Performance................................................................................ 41
H. Annexure 2: Saudi Arabia Key Statistics ..................................................................................... 42
Executive Summary
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 3
A. Executive Summary Key factors Key positives Key Risks Outlook
Economic
Outlook
GDP Growth
Oil Prices
Oil Production
Fiscal policy
Credit growth
Monetary policy
Fiscal Deficit
Large government
spending
Oil prices on the rise
Room to raise debt and
preserve forex reserves
Entrenched slowdown
taking time to turnaround
economy
Production cut deal
collapse
Interest rate increases
Ca
utio
usl
y P
osi
tive
Equities
Outlook
Earnings growth
MSCI /FTSE inclusion
Trading volumes
Dividend yield
Valuations
Possible inclusion in FTSE
and MSCI indices
Consumption related
sectors to benefit from
government spending
Possible Aramco listing to
boost sentiment
Delay in inclusion in
benchmark indices
Price increases to impact
consumer sentiment
Low foreign investor
interest
Po
sitiv
e
Real Estate
Outlook
Demand Supply Balance
Occupancy levels
Rent growth
Economic Outlook
Government support
Government incentives for
affordable housing to
increase supply and
encourage demand
Rising rates
Rents stagnation
Lon
g t
erm
Po
sitiv
e
Private
Equity
Outlook
Number of funds
Deal activity
Exit via NOMU
Demand for private
capital
Economic revival leading
to greater investor interest
in Private Equity funds
High valuations; too many
funds chasing fewer
opportunities
Lon
g t
erm
po
sitiv
e
Executive Summary
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 4
Executive Summary
After a truly forgetful 2017, Saudi Arabia is looking forward to 2018 with renewed hope. Oil prices were
subdued for most part of the year. The government kept a tight leash on spending for first three
quarters (government expenditure for 9M2017 increased only 0.5% year-on-year), while private sector
also held back on investments, reflected in credit growth. However, the end of 2017 brought good
news. Oil prices started moving up, as the market realized the commitment of oil producers
participating in the production cut. Saudi government accelerated spending in Q4 2017 (38% year-on-
year increase), which has started to reflect in economic data being released now with a lag. The
prospects for 2018 look much better, owing to large government spending plans on both capital and
current account.
Economic prospects improve
The year 2017 saw an economy in decline -
GDP de-growth of 0.7% (Figure 31, Annexure 1),
consumer inflation in negative territory for 10
months (Figure 29, Annexure 1), declining credit
growth (Figure 44, Annexure 1) for most part of
the year, cement sales among the lowest in
past several years (Figure 32, Annexure 1) and
similar other macroeconomic indicators – partly
contributed by lower oil prices (Figure 78,
Annexure 1) and subsequent tightening of
government spending in first three quarters of
2017. However, with oil markets improving in last
few months of 2017, and government spending
in Q4 2017, few demand indicators have
started to improve. The PMI Index (Figure 31,
Annexure 1) started to move up consistently,
while non-oil GDP growth (Figure 27, Annexure)
also was on the up move. The year 2018 has
begun on a positive note, with the International
Monetary Fund (IMF) increasing its estimate of
GDP growth to 1.6% from 1.1% earlier (Figure 1,
Saudi Economic Outlook 2018 section).
Equity markets looking for key triggers
Equity markets, in spite of a late surge towards
end of the year, could only manage to end flat
for the year. However, a late boost to
government spending in December quarter, an
expansionary budget for 2018 (Figure 2, Saudi
Economic Outlook 2018 section) and rising oil
prices augur well for Saudi Arabian economy
and capital markets, notwithstanding the
introduction of Value Added Tax (VAT), fuel and
electricity price increases and expat tax. Saudi
equity markets look set to benefit from
generous government spending in 2018
(assuming it is fully realized), both in terms of
project/capital expenditure (beneficiaries –
construction, cement, capital goods) and
current expenditure in the form of special
allowances, citizens account program as well
as policy changes in housing sector
(beneficiaries – consumption related sectors
such as retail, food and beverages, real estate).
The increased possibility of inclusion of Saudi
Arabia in MSCI and FTSE indices in 2018 will start
attracting foreign institutional investments in to
Saudi equity markets. A possible IPO of Aramco
in second half of 2018 will be a landmark event.
Real Estate market to take its time to revive
Saudi Real Estate sector witnessed the
government’s renewed focus on affordable
housing and policy coordination in 2017. Saudi
Arabian Monetary Authority (SAMA) increased
the mortgage limit for housing loans from 75% in
2016 to 85% in 2017, and now 90% in early 2018.
In parallel, Real Estate Development Fund
(REDF) announced supporting interest
payments on mortgage loans for Saudi citizens
for up to SAR 500,000. More such coordinated
actions by multiple government agencies may
Executive Summary
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 5
be expected in 2018. These measures will help
towards meeting the large residential housing
demand. The office and retail space may take
time to improve as occupancy levels change
with greater economic activity, which should
reflect in rate levels (Figure 37, Annexure1). We
also witnessed in 2017 a growing trend of listing
of Real Estate Investment Trusts (REITs) towards
second half of 2017, which appears to continue
in 2018 as well.
Private Equity market long term prospects in
place
Saudi Private Equity space is also gaining
traction along with rest of economy. While the
government is encouraging small and medium
enterprises by having Public Investment Fund
(PIF) earmark part of their investment for such
enterprises, private equity investors are also
increasing fund raising and seeking investment
deals in specific sectors - such as consumption,
healthcare, education – which have long term
demographic drivers and appear relatively
insulated from the fluctuations in oil prices and
changes in fiscal policy. Valuations have also
become more attractive with the fall in public
equity markets. On the backdrop of Saudi
Vision 2030, which envisages a greater role for
private companies’ contribution to economy,
the need for capital by such companies will
provide opportunities for private equity
investors. The availability of NOMU as an exit
vehicle in the public equity space has also
improved attractiveness of private equity as a
viable investment route.
Key risks to watch
Notwithstanding the positive developments and
prospects, the Saudi Arabian markets will also
face key risks. Actual government spending
during the year needs to match the
announced allocations. Consumers, at least the
Saudi citizens need to respond positively to
government’s special allowances and
incentives by spending, instead of higher
savings in the wake of increased fuel and
electricity prices. Reduction in expat population
post the introduction of expat tax also reduces
consumer base. With the US Federal Reserve set
to raise rates at least thrice in 2018 and beyond,
SAMA will follow suit to maintain the peg,
thereby raising domestic rates. On the capital
market front, large IPOs in rest of GCC are lining
up, in addition to Aramco. And from equity
markets’ point of view, any further delay in
inclusion of Saudi Arabia in FTSE or MSCI indices,
keeps away foreign investors for longer period.
An eventful 2018 to look forward to
Overall, the year 2018 promises to be eventful for Saudi Arabian economy, starting with generous
government spending after last year’s constraints, higher inflation on account of VAT and reforms in
electricity and fuel prices to close gap with market rates. At the same time, the adverse impact of price
rise on consumption will be partly cushioned by government allowances and support in the form of
beneficial policies, made possible by higher crude oil prices. The key risk is that the economy either
doesn’t respond or responds late. Past data suggests otherwise, and therefore gives hope for a
turnaround in the Saudi economy in 2018 and stronger performance in capital markets.
.
Executive Summary
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 6
B. Saudi Economic Outlook
2018 Factors Negative Neutral Positive Outlook
GDP Growth C
au
tio
usl
y p
osi
tiv
e
Oil Prices
Oil Production
Fiscal policy
Credit growth
Monetary policy
Fiscal Deficit
Saudi Economic Outlook 2018
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 7
Saudi Economic Outlook 2018
Saudi Arabia’s economy contracted 0.7% in 2017. While the subdued oil prices for most part of the year
(average price USD 53/barrel during first nine months of 2017) played a part, the curtailed government
spending, albeit to control fiscal deficit, possibly played a bigger part. The result was slower economic
growth, reflected in several economic indicators (credit growth, inflation, money supply) as well as
industry demand indicators (cement sales, house rentals, ATM cash withdrawals, Point-of-Sales
transactions). On the positive side, the non-oil sector of the economy recorded positive growth during
the year, in spite of overall slowdown, thus indicating the relatively increasing resilience of the segment.
In the last quarter of the year, the government significantly stepped up its spending, to the extent that it
overshot its full year spending and deficit targets.
For 2018, the government has announced an expansionary budget with higher spending targeted
towards capital expenditure, and generous allowances to its employees. Some of the private sector
companies have followed suit, thus increasing the proportion of Saudi residents who will have greater
pay in hand. The effect of the higher spending may reflect in the economic indicators with a lag.
Nevertheless, Saudi government expects economic growth to revive to 2.7% in 2017. The World Bank
and International Monetary Fund (IMF) have more subdued growth estimates of 1.2% and 1.13%
respectively. We expect that greater government spending and oil prices on the rise will improve both
the economic prospects and consumer sentiment for the year 2018.
Figure 1: Saudi Arabia Annual GDP growth (%)
Source: General Authority for Statistics, The World Bank, IMF
Government spending to play a greater role in reviving the economy in 2018
Government spending in 2018 is set to increase 20% year-on-year (YoY) to SAR 1,111 bn, the highest
ever for Saudi Arabia. The capital expenditure will rise at a high rate of 13.9% to SAR 205 bn. Alongside
spending by NDF (SAR 50 billion) and PIF (SAR 83 bn), which is mostly expected to be on specific
projects/programs, the total capital expenditure for 2018 would equal SAR 338 bn, which is nearly
double of budget capital expenditure in 2017. We may expect that sectors requiring capital
expenditure, such as construction, utilities etc. would benefit from the capacity building investments by
the government.
In terms of current expenditure (increase of 3.6% to SAR 773 bn), the government appears to continue
its path of disciplined expenditure. The new addition to current expenditure is the Citizens Account
5.4
2.7
3.7 4.1
1.7
-0.7
Ministry of Finance, 2.7
5.4
2.7
3.7 4.1
1.7
-0.7
The World Bank, 1.2
5.4
2.7
3.7 4.1
1.7
-0.7
IMF, 1.60
-1
0
1
2
3
4
5
6
2012 2013 2014 2015 2016 2017 2018E
Ministry of Finance The World Bank IMF
Saudi Economic Outlook 2018
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 8
Program which will add SAR 30 bn in 2018, but is deemed necessary by the government to minimize the
impact of higher fees, levies etc. on the lower and middle income households.
Figure 2: Estimated 2018 Expenditure vs. 2017 Expenditure (SAR bn)
Source: Ministry of Finance, E-Estimate
Special Allowances announced in January 2018 to put additional money in hands of
consumers
Saudi Arabia has announced a series of new allowances and tax breaks for state employees, military
personnel and some citizens, in order to offset for rising inflation. This is estimated to cost around SAR 50
bn (USD 13 bn) to the state exchequer in 2018. These allowances include: a monthly cost of living
allowance of SAR 1,000 for the government staff and military personnel for one year; a monthly
allowance of SAR 500 for one year to pensioners and to the beneficiaries of the social security system;
SAR 5,000 in bonus to military personnel serving in Yemen and also a 10% increase in the stipend paid to
students. In addition, the government would be bearing VAT expenses for the citizens using private
healthcare and education services and would also pay taxes for first-time homebuyers, which would
be capped at SAR 850,000.
The new allowances have been announced within few weeks of Saudi Arabia’s budget for 2018, in
which allocation to employee compensation had been maintained at nearly same level as in 2017. The
Minister of Finance Muhammad Al-Jadaan stated that the new allowances announced were
complementary to the expenditure budget. This indicates that the funding for the new allowances
would most likely be outside the budget. We consider the allowances to improve consumer sentiment,
which had been dampened in 2017 due to curtailed government spending in first three quarters of the
year, as reflected in various economic indicators.
Fiscal deficit target for 2017 exceeded, and shifted to 2018
The fiscal deficit for 2017 was SAR 230 bn, higher than full-year target of SAR 198 bn, and exceeding
analysts’ estimates by a wide margin. Considering the slowdown in the economy, partly due to
restricted fiscal spending in 9M2017, the government appears to have prioritized spending over fiscal
targets. The target for 2017 appears to have been shifted to 2018, with SAR 195 bn deficit aimed next
year.
440.0 438.0
135.0 143.0 9.0 14.0 44.0 65.0
118.0 112.0
180.0 206.0
0
200
400
600
800
1000
2017 2018ECompensation of Employees Use of Goods and Services Financing ExpensesSocial Benefits, Subsidies, Grants Other Expenses Non-Financial Assets (Capital)
Saudi Economic Outlook 2018
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 9
Figure 3: Annual Fiscal Balance (SAR bn)
Source: Ministry of Finance, E-Estimate
Fiscal Balance Program now extended to 2023
The government’s Fiscal Balance Program, with the earlier aim of balancing the budget by 2020, has
been extended to 2023, giving the government more room and time to focus on reviving near term
economic growth. The change was expected, as even IMF had suggested to the Saudi government
about recalibrating the pace of fiscal reforms, so as to allow the economy to adjust to the changes
introduced. Accordingly, the government has revised the program with gradual movement to fiscal
rebalancing by 2023. The fuel price related reforms have been spread out over 2018 to 2023 period,
with only jet fuel, benzene, diesel and electricity price revisions expected in 2018. Also, as part of the
program, the government has put a cap on debt-to-GDP ratio of 30% and total reserves drawdown to
USD 250 bn.
Figure 4: Revenue Expenditure and Fiscal deficit estimates till 2023 (SAR bn)
Source: Ministry of Finance, E-Estimate
-15
-5
5
15
25
-400
-200
0
200
400
6002000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018E
Fiscal Balance (SAR bn) - LHS Fiscal Balance (% GDP) - RHS
692
783
843
909
955
1,0
49
1,1
38
890
978
1,0
06
1,0
50
1,0
80
1,1
07
1,1
34
-230
-195
-163
-141
-125
-58
4
-250
-50
150
350
550
750
950
1150
2017 2018E 2019E 2020E 2021E 2022E 2023E
Revenue (SAR bn) Expenditure (SAR bn) Fiscal Balance (SAR bn)
Saudi Economic Outlook 2018
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 10
C. Equities outlook Factors Negative Neutral Positive Overall
Earnings growth trajectory
Po
sitiv
e MSCI and FTSE possible inclusion
Trading volumes
Dividend yield
Valuations
Equities outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 11
Equities outlook
Saudi equity markets look set to benefit from generous government spending in 2018 (assuming it is fully
realized), both in terms of project/capital expenditure (beneficiaries – construction, cement, capital
goods) and current expenditure in the form of special allowances, citizens account program as well as
policy changes in housing sector (beneficiaries – consumption related sectors such as retail, food and
beverages, real estate). The increased possibility of inclusion of Saudi Arabia in MSCI and FTSE indices in
2018 will start attracting foreign institutional investments in to Saudi equity markets. A possible IPO of
Aramco in second half of 2018 will be a landmark event.
Performance in 2017
The Tadawul All Share Index (TASI) ended flat for 2017. The index had a volatile year as evident from the
swings in Figure 5 and was lagging 4% year-to-date in October, before rebounding to end the year with
a marginal 0.2% growth. Since 2014, when oil prices started to fall, TASI has fallen by 15%, giving an
average annual return of -3.7%. Hopefully with oil prices moving up, TASI would follow suit.
Figure 5: TASI monthly movement (index points) Figure 6: TASI vs Oil
Source: Tadawul Source: Tadawul
The best performing sectors on TASI were Media, surging by 51%, and Retailing, gaining 14% over 2017.
Meanwhile, the worst performers were Pharma & Biotech falling by 27% and Consumer services losing
24%. Most of the consumer sectors, barring two were down in 2017 owing to controlled government
expenditure and salary cuts to public sector employees. These austerity measures, combined with the
drop in oil prices that prompted them caused the kingdom’s worst economic slowdown since the
global financial crisis. Media sector’s gain was driven by Saudi research & Marketing Group and Tihama
Advertising & Public Relations Co., both gaining more than 70% year-to-date in 2017. The decision to
reverse the salary and benefits cut for the public sector employees, improved oil prices, and TASI’s
possible inclusion to FTSE and MSCI indices were the chief reasons for the index to rebound in the latter
half of 2017.
6500
6700
6900
7100
7300
7500
2016
Jan
-17
Feb
-17
Ma
r-1
7
Ap
r-1
7
Ma
y-1
7
Jun
-17
Jul-1
7
Au
g-1
7
Se
p-1
7
Oc
t-1
7
No
v-1
7
De
c-1
7
2017
Rise in indext Fall in index
66.9
December
2017,
7226.3
0
5000
10000
15000
20000
25000
0
20
40
60
80
100
120
140
160
Jun
-97
Jul-9
8A
ug
-99
Se
p-0
0O
ct-
01
No
v-0
2D
ec
-03
Jan
-05
Feb
-06
Ma
r-0
7A
pr-
08
Ma
y-0
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1A
ug
-12
Se
p-1
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ct-
14
No
v-1
5D
ec
-16
Brent - USD/bl (LHS) TASI (RHS)
Equities outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 12
Figure 7: TASI Sector Indices’ performance 2017 (%)
Source: Tadawul
Performance vs rest of GCC and global peers
TASI performed better than most of its GCC peers, except Kuwait and Bahrain. While oil price volatility
played a part in affecting equity market performance, the rise in geopolitical tensions also played a
part. Most emerging and developed market peers recorded strong equity market performance in 2017,
led by improving economic prospects, benign monetary policies and relatively attractive valuations.
Figure 8: TASI vs rest of GCC and global peers (2017 index performance - %)
Source: Ministry of Finance
Overall TASI earnings trajectory
Growth trend – TASI and sector wise earnings for 9M2017
TASI earnings were inconsistent for three quarters of 2017. Two of the largest sectors on Tadawul index,
Materials and Banks’ PAT, increased 10% and 14% year-on-year respectively for Q3 2017. In terms of
sectors, Energy’s year-on-year earnings growth for Q3 2017 was the highest at 560%, while Media
-26.2
-23.7
-21.3
-19.2
-16.6
-15.0
-14.0
-13.0
-11.5
-10.9
-6.4
-6.2
-3.8
-0.1
1.4
8.2
11.0
14.7
51.1
-30 -15 0 15 30 45
Pharma & Biotech
Consumer Services
Transportation
Diversified Financials
Commercial Services
Telecommunication
Energy Industry
Capital Goods
Health Care
Consumer Durables
Real Estate
Utilities
Insurance
Food & Beverages
Materials Industry
Banks
Food retail
Retailing
Media
11.5 9.1
0.2
-3.3 -4.6 -5.5 -11.8
-18.3 -20
-10
0
10
20
30
40
Ch
ina
(H
on
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Bra
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uth
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Jap
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uth
Afr
ica
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it
Fra
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Ab
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Ru
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Om
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Qa
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GCC Countries
Equities outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 13
sector’s was turnaround story. Media sector’s PAT increased from SAR -69 million to SAR 18 million year-
on-year. The year-on-year PAT performance for consumer sectors was mostly muted or negative
mirroring the sector’s share price performance, mainly due to salary cuts and impending subsidy cuts.
Figure 9: TASI PAT and YoY growth (Quarterly)
Source: Reuters Eikon
Table 1: Tadawul Sector Earnings Performance (sorted by market cap)
Earnings (SAR mn) Market Cap (SAR mn) Q3 2017 Q3 2016 Q2 2017 % YoY % QoQ
Materials 575,453 8,702.4 7,908.4 6,077.1 10.0 43.2
Banks 508,526 11,374.1 9,951.1 11,324.0 14.3 0.4
Telecommunication Services 157,744 2,390.0 1,664.4 2,203.6 43.6 8.5
Real Estate 108,710 381.0 288.0 351.1 32.3 8.5
Utilities 89,143 5,300.6 4,434.4 2,269.4 19.5 133.6
Food, Beverage & Tobacco 87,531 1,585.0 952.1 1,011.0 66.5 56.8
Insurance 41,082 740.9 851.9 287.9 -13.0 157.3
Diversified Financials 36,181 261.5 134.3 227.2 94.7 15.1
Energy 31,846 784.9 118.9 486.8 560.4 61.2
Health Care 28,547 292.0 274.4 277.1 6.4 5.4
Retailing 26,822 295.9 348.3 275.6 -15.1 7.3
Transportation 13,949 285.8 341.6 243.8 -16.3 17.2
Consumer Services 13,525 232.9 355.7 314.2 -34.5 -25.9
Capital Goods 9,795 0.4 -33.9 28.2 -101.1 -98.7
Commercial Services 7,789 125.9 137.7 118.2 -8.6 6.5
Food & Staples Retailing 7,191 152.8 63.1 89.0 142.3 71.6
Media 5,674 17.9 -69.3 -16.0 -125.8 -212.1
Pharmaceuticals 3,749 7.9 6.8 46.6 17.3 -83.0
Consumer Durables & Apparel 3,223 -53.7 -40.5 -6.6 32.5 711.3
Total 1,756,477 32,878 27,687 25,608 18.7 28.4
Source: Reuters Eikon, Bloomberg, MCap as of January 21, 2018
Expectations in 2018
As per Bloomberg analysts’ consensus estimates, TASI is expected to record 13.7% year on year increase
in earnings in 2018. The book value per share for TASI in 2018 is estimated to increase 4.3%, while
dividends are expected to rise 10%.
Q3 2017 PAT
SAR 32.9 bn
Q3 2017 PAT growth,
18.75%
(150)
(100)
(50)
-
50
100
150
-30
-20
-10
0
10
20
30
40
Q1
20
08
Q2
20
08
Q3
20
08
Q4
20
08
Q1
20
09
Q2
20
09
Q3
20
09
Q4
20
09
Q1
20
10
Q2
20
10
Q3
20
10
Q4
20
10
Q1
20
11
Q2
20
11
Q3
20
11
Q4
20
11
Q1
20
12
Q2
20
12
Q3 2
012
Q4
20
12
Q1
20
13
Q2
20
13
Q3
20
13
Q4
20
13
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
14
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
15
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
16
Q1
20
17
Q2
20
17
Profit (SAR Bn) -LHS Profit (% yoy) - RHS
Equities outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 14
TASI and constituent sector indices valuation
TASI’s valuation has been flat for 2017, with historical price-to-earnings ratio at 16, price-to-book at 1.7
and dividend yield at 3.2%. A flat 2017 did have much bearing on TASI’s valuation. However, it
continues to be valued at a premium compared to rest of GCC valuation.
Materials, the largest sector in Tadawul All Share Index, is valued at a slight premium compared to TASI’s
with P/E of 19.1, P/B of 1.7 and dividend yield of 3.3%. Banking sector, which gained 8.2% in 2017, is
valued at a P/E of 12.2, P/B of 1.5 and dividend yield of 4%. Media sector which gained the most in 2017
is valued at a P/B of 5.7. Consumer and Retail sectors are valued at a premium compared to TASI’s
valuation.
Table 2: Tadawul Sector Valuation Table (sorted by market cap)
Index M.Cap $ Bn Last Close 2017 (%) P/E (TTM) P/B (TTM) D/Y (%)
Materials Industry 153.5 5239 1.4 19.1 1.7 3.3
Banks 135.6 5942 8.2 12.2 1.5 4.0
Telecommunication 42.1 4357 -15 14.6 1.6 4.1
Real Estate 29.0 4449 -6.4 51.0 1.7 1.0
Utilities 23.8 4523 -6.2 8.9 1.2 3.5
Food & Beverages 23.3 4955 -0.1 43.2 2.5 0.9
Insurance 11.0 4846 -3.8 14.0 2.7 1.8
Diversified Financials 9.6 4006 -19.2 47.0 1.1 4.7
Energy Industry 8.5 4465 -14 15.2 1.5 4.6
Health Care 7.6 4730 -11.5 22.5 2.9 2.4
Retailing 7.2 5906 14.7 17.5 4.2 3.8
Transportation 3.7 4082 -21.3 15.7 1.7 4.1
Consumer Services 3.6 3861 -23.7 11.9 1.3 2.4
Capital Goods 2.6 4321 -13 14.9 1.1 2.8
Commercial Services 2.1 4196 -16.6 13.4 3.8 6.1
Food retail 1.9 5565 11 21.2 3.2 3.0
Media 1.5 8422 51.1 NA 5.8 0.0
Pharma & Biotech 1.0 4123 -26.2 10.3 1.4 3.2
Consumer Durables 0.9 4038 -10.9 30.1 1.0 1.4
Source: Bloomberg, MCap, PE, PB, Dividend yield as of January 21, 2018
Comparison of TASI valuation with rest of GCC markets
Saudi Arabia, being the largest market in the GCC region, also has the most investor interest. However,
TASI’s valuation is relatively higher compared to most of its peers, which is partly explained by its
relatively higher earnings growth expectations, and also owing to its larger size of markets among peers.
Going forward, the similar pattern is expected to continue as the most of the major factors expected to
affect all GCC countries in 2018 (VAT and fuel price reforms, interest rate movements due to US Fed
rate hike, oil price changes) are of similar nature.
Equities outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 15
Figure 10: TASI vs rest of GCC valuations
Source: Ministry of Finance; Valuation as of January 15, 2018
Overall, the index is still attractively valued compared to historical levels among its peers. On the
backdrop of positive macroeconomic and policy action (expansionary government budget, progress
on possible inclusion of TASI index in FTSE and MSCI indices), TASI is expected to be an attractive market
for investors.
Tadawul’s total value traded and liquidity
Tadawul’s monthly stock market turnover has been on the decline for the past five years as can be
seen from Figure 11. The fall in oil prices and subsequent drying up of liquidity in the market mainly
appear to have resulted in lower investor and trading interest. However, the trend appears to be
reversing, although marginally. The average daily traded volume, which also reflects the overall activity
level, can be seen in Figure 8 to be distinctively on the decline. However, in 2018 till date (January YTD),
the average daily turnover has picked up and is above 2017 average. We expect the investment and
trading interest in 2018 to be revived on back of several key economic policy announcements.
Figure 11: Stock Market Turnover- monthly (SAR
bn) Figure 12: Average daily turnover (SAR bn)
Source: Tadawul, SAMA Source: Tadawul; Note: *-Till January 17, 2018
IPO action
Since 2012, the number of Initial Public Offerings (IPOs) on Tadawul was on a decline, in tandem with
lower sentiment following fall of oil prices and lower market activity. However, in 2017 Saudi IPO market
revived with 17 issuances. Out of the total issuances, nine were on the parallel market NOMU that
started in early 2017, and seven issuances were of Real Estate Investment Trusts (REITs), leaving only one
corporate listing on main Tadawul exchange (Zahrat Al Waha). In 2018 so far (as of January 17), there is
-5
0
5
10
15
20
25
Saudi Arabia Kuwait Qatar Oman Abu Dhabi Dubai Bahrain
PE Div Yield (%) PB Earnings growth (%) - 2017E RoE (%)
0
50
100
150
200
250
300
Jan
-13
Jul-1
3
Jan
-14
Jul-1
4
Jan
-15
Jul-1
5
Jan
-16
Jul-1
6
Jan
-17
Jun
-17
De
c-1
7
5.5
8.5
6.6
4.7
3.3 3.6
0
2
4
6
8
10
2013 2014 2015 2016 2017 2018*
Equities outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 16
only one more company with its prospectus filed (AlBaha Investment & Development). However, as the
government envisages the economy to revive and private sector companies to play a greater role in
economic contribution, the number of companies seeking the public markets route to raise
capital/provide exit to private equity investors will rise, thereby leading to a more vibrant IPO market. In
2018, the biggest watched IPO will be of Saudi Aramco, expected in second half of the calendar year.
Figure 13: Saudi Arabia Initial Public Offerings
Source: Tadawul
SAUDI ARAMCO IPO in 2H 2018?
The mega IPO of Saudi Aramco is expected to occur in the second half of 2018. The listing of the
world’s largest oil company will be a landmark event for Saudi Arabia and equity markets around the
world. While the listing was first talked about in 2016, it is only now that related activities have started to
pick up.
As of January 1, 2018, the company was constituted as a joint stock company, with a corporate
structure including a Board of Directors as the governing body. The listing will be most likely a dual listing
with the local portion being on Tadawul and the international one on one of the three developed
market exchanges of New York, London and Hong Kong. Further, bankers will be finalized in the coming
months and roadshows will begin.
NOMU has been underwhelming, but could be here to stay
Another feature of 2017 was the start of parallel market NOMU, which witnessed 9 listings. The platform
was started to encourage small and medium enterprises to list with easier listing norms than those of
Tadawul. The platform provides an opportunity for private equity investors to use the public listing route
to exit their investments. However, the performance of stocks on NOMU has been underwhelming. The
NOMU index recorded a nearly 50% drop by end of the year, which will weigh on the mind of potential
corporates aiming for listing as well as potential investors in IPOs. Further, trading volumes on NOMU has
been lesser than expected. We expect CMA or another government body to further promote NOMU
by some form of market making incentive mechanism.
7 5 6
4 3 1
7
9
0
4
8
12
16
20
2012 2013 2014 2015 2016 2017
TASI REITs NOMU
Equities outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 17
REITs take the spotlight
The listings of Real Estate Investment Trusts (REITs) were in vogue in 2017, with as many as seven listings in
2017 and another one in January 2018, with total size of funds SAR 5.1 bn. There are seven more REITs in
the wings waiting for their listing turn, with total size SAR 7.4 bn.
Table 3: REITs listed in 2017 and 2018 (Till January 24, 2018)
REIT Listing date Fund Size (SAR mn)
Al Ahli REIT (1) Jan. 8, 2018 1375
Musharaka REIT Oct. 2, 2017 880
Mulkia REIT Nov. 5, 2017 677*
Jadwa REIT AlHaramain April 30, 2017 660
AlMa'athar REIT Aug. 22, 2017 613.7
Al Masha’ar REIT Jan. 18, 2018 572.4
Riyadh REIT Nov. 13, 2016 500
Taleem REIT May 30, 2017 285
AlJazira Mawten REIT Feb. 15, 2017 118
Source: Argaam.com; *Acquired a property on Jan. 8 thereby increasing fund size to SAR 677 million from SAR 600 million.
Table 4: REITs in the pipeline to be listed (status as on January 24, 2018)
REIT Status Fund Size (SAR mn)
Al Rajhi REIT Open for subscription 1621.9
Jadwa REIT Saudi Subscription Closed 1580
Derayah REIT Subscription Closed 1172
Wasatah REIT Open for subscription 1080
AlNefaie – Umm Alqura REIT Fund Open for subscription 692
SEDCO Capital REIT Not listed yet 650
Source: Argaam.com; Swicorp Wabel REIT was not included for lack of information.
The total SAR 12.5 bn funds either listed or to be listed have investments across a range of properties
spanning residential, commercial, office, warehousing and other end-uses. These funds have total 81
fully-developed properties, two usufructs, and three real estate projects under development.
Table 5: REITs with the underlying properties held
REIT Property Segment Number of Assets
Al Rajhi REIT Commercial, offices, educational,
warehouses 13 fully developed and owned properties
Derayah REIT Residential, offices, stores, warehouses
and hospitality
12 fully developed and owned, 2 usufructs, 1
under development
AlMa'athar REIT Office, warehouses, residential, stores 11 fully developed and owned, 1 under
development
SEDCO Capital REIT Hotels, commercial, offices, residential 7 fully developed and owned
Riyadh REIT Offices, hospitality and hotels, stores 6 fully developed and owned, 1 under
development
Mulkia REIT Residential, industrial, offices, stores 4 fully developed and owned, 1 fully
developed, 76% owned *
Musharaka REIT Residential, warehouses, hospitality and
hotels 5 fully developed and owned
Jadwa REIT Saudi Residential, commercial, warehouses,
educational 5 fully developed and owned
AlNefaie – Umm Alqura
REIT Fund Hotels, commercial 4 fully developed and owned
Al Masha’ar REIT Hospitality and hotels, stores 3 fully developed and owned
Equities outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 18
REIT Property Segment Number of Assets
Wasatah REIT Hotels 2 fully developed and owned
Jadwa Reit AlHaramain
Fund Hospitality and hotels, stores 4 fully developed and owned ***
Al-Ahli REIT (1) Hospitality and hotels, stores 2 fully developed and owned
AlJazira Mawten REIT Warehouses 1 fully developed and owned (Contains 6
warehouses)
Taleem REIT Educational 1 fully developed and owned
Source: Argaam.com; * Acquired 76% of a property in Riyadh post listing; ** Acquired a property in Riyadh post listing; ***
acquired two properties in Makkah post listing.
Possible inclusion of TASI in FTSE and MSCI benchmark indices draws near
One of the major landmark events for Saudi Arabian equity market to look forward to in 2018 would be
possible inclusion in FTSE and MSCI Emerging Market benchmark indices. The formal inclusion in these
indices would lead to global asset management firms to increase their exposure to Saudi Arabian
equities in order to align their portfolios to these benchmarks. While the possible inclusion of Saudi
Arabia in the benchmark indices has been on the cards since 2015, it is only now that the
developments are accelerating towards actual inclusion.
In case of FTSE indices, during its review in September 2017 country classification annual review, the
index provider refrained from adding Saudi Arabia, while also expecting that it expects the country to
soon meet the criteria to be promoted from unclassified status to secondary emerging market. The next
review is due in March 2018. The inclusion of Saudi Arabia is expected to lead to passive fund inflows,
presuming Saudi Arabia has 2.7% weight in the index, as per analyst estimates. The estimated weight is
excluding possible Aramco listing, which could increase Saudi Arabia’s weight in the index to close to
5%.
With respect to MSCI, in June 2017, Saudi Arabia was added to its watch list for a potential upgrade in
June 2018. If the upgrade materializes, the actual inclusion of Saudi Arabia in the MSCI Emerging
Market Index would happen in two phases – in May 2019 and August 2019. The inclusion of Saudi
Arabia is expected to lead to active fund inflows in to its equity market up to an estimated USD 9 bn,
presuming Saudi Arabia has 2.4% weight in the index, as per MSCI indications. The weight would be
distributed across 32 Saudi stocks, excluding Aramco. With Aramco, Saudi Arabia’s weightage would
nearly double to close to 5% in the benchmark index.
Saudi Arabia has been vying for inclusion in benchmark indices since 2015, as part of larger plan of
diversification of the economy and ensuring a vibrant capital market as a key feature of the economy.
It has taken a series of steps to pursue its goals. The market was opened to Qualified Financial Investors
(QFIs) to directly take stake in listed equities, in 2015. The permitted stake, in individual companies and
in the market as whole, has been gradually increased. The qualification criteria, such as minimum Assets
under Management (AUM), have also been progressively relaxed. QFIs have been now allowed to
participate in IPOs. While QFIs have been allowed to take stakes in Saudi Arabian listed companies up
to 49% of equity, the actual percentage holding has been quite low so far. The inclusion in benchmark
indices would lead to net inflows of funds in to Saudi equities, similar to the inflows witnessed in case of
UAE and Qatar at the time of their inclusion in benchmark indices.
Equities outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 19
D. Real Estate Sector
Outlook Factors Negative Neutral Positive Overall
Demand Supply Balance Lo
ng
te
rm P
osi
tiv
e
Occupancy levels
Rent growth
Economic Outlook
Government support
Demographic demand drivers
Real Estate Sector Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 20
Real Estate Sector Outlook
Saudi Real Estate sector witnessed the government’s renewed focus on affordable housing and policy
coordination in 2017. Multiple official agencies – Saudi Arabian Monetary Authority (SAMA), Real Estate
Development Fund (REDF) – announced policies and measures encouraging home ownership. A new
entity - Saudi Real Estate Refinance Company (SRC) – was formed by Public Investment Fund (PIF) to
support the real estate sector. The past year also witnessed a growing trend of listing of Real Estate
Investment Trusts (REITs), especially towards second half of 2017, which appears to continue in 2018 as
well. Overall, multiple agencies appear to work towards the goals of National Transformation Program
2020, under which the government plans to increase Saudi home ownership to 52% from 47% earlier.
More such coordinated action by multiple government agencies may be expected in 2018. The
construction and infrastructure sectors also appear set for more activity in 2018, due to large capital
allocation by the government in the budget.
Credit from banks to real estate and GDP growth
Credit loan to real estate sector grew 8.7% YoY to SAR219.9 bn in Q3 2017 with retail credit growing 7.5%
YoY to SAR117.7 bn and corporate credit rose 10.0% YoY to SAR102.1 bn. The proportion of retail credit
in total real estate loan declined to 53.6% in Q3 2017 from 60.3% in 2011 while corporate loan accounts
for 46.5% in Q3 2017, higher than 39.7% in 2011. With increase in real GDP over the past 7 years, the
proportion of total real estate loan from bank has also raised to 8.5% in Q3 2017 of overall total bank
loans as compared to just 3.0% in 2010.
Figure 14: Real estate loans by banks Figure 15: Proportion of loans grew with GDP
Source: SAMA Source: SAMA, IMF October 2017 report
Moreover, Saudi central bank introduced various measures to support mortgage financing. Under its
National Transformation Program 2020, the government plans to increase Saudi home ownership to 52%
from 47% earlier, and also aims to increase the percentage of real estate financing to non-oil GDP to
15% from 8%. The Saudi Arabian Monetary Authority (Sama) plans to exempt administrative fees to
mortgage holders when they switch between floating loan rate to fixed loan rates. Furthermore, SAMA
stated Mortgage holders can also move from one mortgage lender to another at no extra cost.
0%
20%
40%
60%
80%
100%
2010 2011 2012 2013 2014 2015 2016 9M
2017Retail Corporate
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0
500
1000
1500
2000
2500
3000
2010 2011 2012 2013 2014 2015 2016 9M
2017Real GDP (SAR bn)Loans/GDP
Real Estate Sector Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 21
Favorable demographics form the base for demand
Saudi Arabia’s working population increased at a CAGR of 3.4% from 2010 to 2017, faster than the
Kingdom’s total population (CAGR of 2.7%). Moreover, people less than 25 years of age represent 40%
of the aggregate population, indicating continued demand for housing. Rising income, urbanization,
and increasing nuclear families are expected to support the demand for the real estate sector in the
long term.
The Saudi population is highly skewed toward Riyadh, Jeddah, and Makkah, with more than 50% of the
total population situated here. Riyadh and Jeddah have a large population mainly due to intense
business and political activity, while Makkah and Madinah are popular tourist destinations. These
regions present an attractive opportunity for real estate sector to further flourish in the coming years.
Figure 16: Saudi population age group wise (million)
Source: The World Bank
Saudi Arabia regulations and reforms support the demand
While there exists a secular demand for residential/housing units, the demand supply mismatch has
required Saudi Arabian government to intervene in the form of regulations to boost
demand/encourage supply. These measures vary from imposing of tax on vacant land to
establishment of specialized credit institutions supporting the financing of real estate.
White Land Tax
White Land tax was introduced in 2015 and regulations were released in June 2016. White land is
defined as any idle land designated for residential or residential/commercial use within urban
boundaries. The regulation is aimed at addressing the housing shortage in urban areas. According to
JLL, the tax would be imposed on the following four phases:-
Phase 1: Undeveloped land with area exceeding 10,000 sq m.
Phase 2: Developed land with area exceeding 10,000 sq m.
Phase 3: Developed land with area exceeding 5,000 sq m from one plan
Phase 4: Developed land with area collectively exceeding 10,000 from one city
The Saudi government introduced the first phase by imposing 2.5% land tax on undeveloped urban
land larger than 10,000 sq. m planned for residential use in areas such as Riyadh, Jeddah, and Makkah.
-
5
10
15
20
25
30
35
2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
0-14 15-59 60+
Real Estate Sector Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 22
Landowners are required to pay the fees within one year of being issued the tax invoice. Moreover, the
housing ministry is expected to impose white land tax on commercial areas in the near future. Revenue
generated from white land tax would be utilized to fund the Ministry of Housings’ projects. However, the
second phase of white land tax would not be introduced before 2020.
Saudi Real Estate Refinance Company
In October 2017, the Public Investment Fund (PIF) announced the establishment of the Saudi Real
Estate Refinance Company (SRC) to boost the real estate market, increase its contribution to the GDP,
and raise the rate of ownership among Saudi nationals from 47% in 2017 to 52% by the end of 2020. The
demand for real estate financing in the Kingdom is expected to increase from SAR280 bn in 2017 to
SAR500 bn by 2026. SRC was launched in partnership with the Ministry of Housing and is expected to
refinance up to SAR 75 bn for the housing sector over the next five years, reaching SAR170 bn by 2026.
Off-plan Sales
Saudi Arabia, in 2016, lifted the ban it had introduced in 2009 on the purchase of properties that are in
the planning stage and permitted real estate developers to sell off-plan units. Strict measures were put
in place by the ministry for such transactions. Down payments should be made by a check or bank
transfer to escrow accounts, and cannot exceed 20% of the unit’s cost.
Saudi Arabia mandated that developers must guarantee structural and insulation works for buildings for
at least 10 years from the property’s completion date, in addition to the guarantee of at least a year for
electrical and mechanical works. Developers were also directed to pay 5% of the unit’s value if they fail
to deliver the property for 12 months or more.
“Wafi”, Saudi Arabia’s electronic program set up by the housing ministry, recorded around SAR60 bn in
off-plan sales with the number of applicants from Al Madinah amounting to 45,200 in October 2017.
Going forward, the majority of the new projects are expected to be delivered by the Ministry of Housing
focus on off-plan sales basis to increase residential flat affordability. By selling off-plan units, developers
receive direct payments from buyers, dispensing the need for interest-laden loans from banks,
expected to reflect in unit prices.
Saudi Arabia: View on key real estate markets
Saudi Arabia’s key real estate markets span Riyadh, Jeddah, Dammam, Madinah and across segments
of office space, retail and residential. Demand was subdued in 2017 due to overall economic
slowdown. Especially in case of office segment, additional supply is expected to cause more vacancies
and lower rents. The residential market is facing a mixed impact on demand because of expat exits as
well as push on affordable housing. Retail real estate demand is relatively resilient and can benefit from
government’s spending towards special allowance and generally expansionary budget.
Real Estate Sector Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 23
Table 6: Saudi Arabia Real Estate Market Outlook 2018
Office Market Residential Market Retail Market
Demand/Supply
Higher supply would
continue to outpace
subdued demand in 2018.
Total supply would grow
15.0% YoY to 6.7 mn sq. m.
in 2018 in Riyadh, Jeddah,
and DMA (combined).
The number of new
projects in 2018 would be
limited due to continued
departure of expatriates
and increased charges on
dependents. However, the
affordable housing sector
would witness more activity
in terms of government
incentives. Total supply
would grow 2.2% YoY in
2018 to 2.4 mn sq. m. units
in Riyadh, Jeddah, and the
DMA region (combined).
Supply would grow 10.6%
YoY to 4.5 mn sq. m. in 2018
in Riyadh, Jeddah, and the
DMA region (combined).
Demand for retail space
would improve due to the
anticipated rise in
spending.
Occupancy Rates
Vacancies are likely to
increase further in 2018 on
higher supply and weak
demand.
The vacancy rates would
recover slightly, mainly in
the apartments market due
to a shift in focus from villas.
Vacancy rates are likely to
increase due to higher
supply. However, an
increase in demand mainly
shopping malls would
partially offset higher
supply.
Rents
Rents would continue to
deteriorate in 2018.
Rents would continue to
slow down in the near term.
However, increasing
activity in the affordable
market would provide
some cushion.
Rents would remain stable
due to more uptake of
retail space in the near
term.
Source: JLL reports.
Public Private Partnerships: New financing tool for infrastructure projects
In the infrastructure sector, public-private partnerships (PPPs) provide investors the opportunity to
access parts of the market once available only to the public sector. The demand for reforming
infrastructure across Saudi Arabia has increased, providing considerable incentive to attract more
private sector involvement and, in turn, investment. With the government now determined to shift from
oil dependency and introduce the National Transformation Program (NTP) and the Saudi Vision 2030,
the PPP model provides an important framework for international and regional investors and
developers to tap into a wide range of opportunities in the housing, education, and healthcare sectors
of the Kingdom.
The PPP model largely contributes to Saudi Arabia’s Vision 2030 aimed at increasing the share of private
sector investment in the country’s GDP from 40% in 2016 to 65% in 2020. Moreover, the plan intends to
increase the contribution of real estate partnerships from the current level of 5% to 10% by 2020.
According to MEED Projects, Saudi Arabia has the highest value of PPPs in the region, with 18 projects
with total value of USD42.9 billion announced as of September 2017. These investments are bifurcated
Real Estate Sector Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 24
mostly into housing (54%) and transport sectors (37%). However, this is likely to change with the
extensive use of the PPP model in the aviation, housing, education, and healthcare sectors over the
next five years as the Saudi Arabian General Investment Authority (SAGIA) stated it would privatize
parts of these sectors.
Figure 17: Value of PPP projects Figure 18: PPP Sector contribution
Source: MEED Projects * IWPPs and IPPs are excluded, JLL Source: MEED Projects * IWPPs and IPPs are excluded, JLL
The legal and regulatory frameworks in Saudi Arabia continue to evolve and develop to provide an
environment that would encourage and facilitate the use of the PPP model. There are some challenges
to overcome, but significant progress was made in the last 18 months. The public and private sectors
show substantial interest in PPPs. The developing phase of the legislative structure did not discourage
early investors and developers from entering the PPP market to explore potential opportunities in real
estate, but some concrete steps would be needed in the near future to maintain the momentum.
Construction sector expected to recovery in 2018
Saudi Arabia’s construction sector is stagnating due to low public spending on projects, but is expected
to recover in 2018. In 2016, revenue from the construction sector declined to SAR159.64 bn. The
economic slowdown and the government's delay in payments to contractors negatively impacted the
sector and pushed some companies out of the market. Although several projects were executed over
the last few months, the sector remains sluggish compared with that in the previous years.
Figure 19: Construction industry value and Real Growth
Source: SAMA, BMI
The construction sector continued to gradually grow in 2017 as it began to recover from an expected
contraction in 2016. According to Faithful+Gould's report, contract awards remained flat at USD22 bn in
05
101520253035404550
KSA
Lib
ya
Ku
wa
it
Mo
roc
co
UA
E
Ira
n
Ba
hra
in
Tun
isia
Ira
q
Eg
yp
t
Om
an
Jord
an
Qa
tar
USD
bn
54%
26%
11%
5% 2%
2% Housing
Transport
Airports
Utilities
Education
Healthcare
USD 42.9 bn
-5.0%
-3.0%
-1.0%
1.0%
3.0%
5.0%
7.0%
9.0%
0
50
100
150
200
250
300
350
400
2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E
SA
R b
n
Construction industry value Construction industry value real growth
Real Estate Sector Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 25
2017 compared with that in the previous year. However, contract awards gathered pace in 2H 2017. In
2018, the sector is expected to grow at 3.5%, as a result of increased government expenditure. Project
implementation would continue to recover and reach previous growth peak of 7.6% in 2020.
Real Estate Market Summary View
The Saudi real estate market’s performance remained subdued in 2016 and 2017 due to weak
economic conditions with negative sentiment further impacting activity levels and sales prices.
Occupancy levels had a negative impact across most asset classes, leading to reduction in rent.
However, we believe the current situation is short term and the market is reaching the bottom of the
cycle. The government is undertaking various initiatives to stimulate the real estate sector and
encouraging the private sector to play a key role in the process. Saudi Arabia’s focus on diversification
to the non-oil sector is defined by the Saudi Vision 2030 and the National Transformation Plan. Thus,
recovery in GDP in the coming years and the government’s aim to increase non-oil sector growth are
expected to support the real estate market in the coming years. However, oil prices, regional tension,
and the extent to which reforms impact the economy would pose as downside risks in the recovery of
the economy and real estate sector.
Real Estate Sector Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 26
E. Private Equity Outlook Factors Negative Neutral Positive
Number of funds
Lon
g t
erm
po
sitiv
e
Deal activity
Exit via NOMU
Demand for private capital
Private Equity Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 27
Private Equity Outlook
Saudi Private Equity space is also gaining traction along with rest of economy. While the government is
encouraging small and medium enterprises by having Public Investment Fund (PIF) earmark part of their
investment for such enterprises, private equity investors are also increasing fund raising and seeking
investment deals in specific sectors - such as consumption, healthcare, education – which have long
term demographic drivers and appear relatively insulated from the fluctuations in oil prices and
changes in fiscal policy. Valuations have also become more attractive with the fall in public equity
markets. On the backdrop of Saudi Vision 2030, which envisages a greater role for private companies’
contribution to economy, the need for capital by such companies will provide opportunities for private
equity investors. The availability of NOMU as an exit vehicle in the public equity space has also
improved attractiveness of private equity as a viable investment route.
Private Equity Funds Assets under management
Private Equity as an investment asset class is attractive to investors for several reasons such as
comparatively higher returns, better visibility on assets through greater access to managements and
better forecasting capabilities than public equities. As a result, the asset values of private equity funds
as well as number of subscribers have grown steadily over the years.
Figure 20: PE Fund Assets and No. of subscribers (SAR bn)
Source: CMA
Although the no. of PE funds have remained more or less steady after the considerable decline in 2015,
asset value of PE funds has continued to witness sharp growth (except for a small QoQ decline in Q3
2017), with a CAGR of around 60% over 2013—17, reaching SAR 76 bn in Q3 2017. Number of subscribers
has also increased from 723 in H1 2013 to 1301 in Q3 2017.
10.9 11.5 13.3 13.7 13.8 22.9 23.5 25.8 26.2 27.4 62.3 62.2 77.1 75.9
600
800
1000
1200
1400
0
20
40
60
80
100
H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
Asset Value (SAR bn) - LHS No. of subscribers - RHS
Private Equity Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 28
Figure 21: Breakup of sector focused funds, KSA
Source: CMA, based on 66 sample funds
Based on the sample of 66 currently active PE funds, just over half of them (34) are sector focused, with
the predominant sector being Healthcare, followed by Industrials, Food & Beverages and Education
Sector. Average term of these funds is 7.8 years, while average term extension is 2.2 years. 14 of the 66
funds are foreign-based, while the rest 52 are local.
Private Equity Deals
Private Equity deals space in Saudi Arabia is relatively smaller as compared to its GCC peers, both in
terms of value and volume (number of deals), with only about 36 disclosed deals closed in last five
years (2012—17). In 2016, 63% of the value invested in PE firms went to those in UAE, with Saudi Arabia
having 9% of the share. UAE also led in terms of deal volumes that year, accounting for 34% of the deals
while Saudi Arabia accounted for 8% of those.
Typical private equity deals in Saudi Arabia are structured as acquisitions of controlling interests or 100%
acquisitions, although there have been instances of acquisition of significant minority interest. Private
equity deals to acquire listed companies are very rare. The prominent target sectors for the deals have
been Retail, Financial Services, Healthcare, Education, and Food & Beverages.
Figure 22: Key PE Deals 2012—17: Top Sectors
Source: Capital IQ, Thomson Reuters
Private Equity Exit: NOMU Parallel Market
The Saudi Stock Exchange Tadawul launched the NOMU parallel market in February 2017, listing nine
Saudi companies out 77 that applied. NOMU is an alternative equity market with lighter listing
Healthcare
35%
Industrials
21% Food & Beverages
9%
Education
12%
Others
23%
7
5
4 4 4
3
2
0
1
2
3
4
5
6
7
8
Retail Financial
Services
Health Care Education Food and
Beverages
Consumer
Goods
Real Estate
Private Equity Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 29
requirements than the main market. It would function as an alternative platform for private companies
to go public, while investment in this market is restricted to qualified investors only. Due to lighter listing
requirements, NOMU can be an attractive exit route for private equity firms to offload their invested
stake and generate returns.
Table 7: Key Differences between Main Market and NOMU
Criteria Main Market NOMU
Minimum Market Cap SAR 100 mn SAR 10 mn
Public Shareholders At least 200 At least 35
Continuous Obligations
Disclosure of quarterly financial
statements within 30 calendar days from
the end of the period and year-end
financial statements within 90 calendar
days from the end of the period.
Disclosure of quarterly financial
statements within 45 calendar days from
the end of the period and year-end
financial statements within 90 calendar
days from the end of the period
Daily Fluctuation Limits ±10% ±20%
Source: Tadawul
Risk:
NOMU Parallel market Index has fallen 49% since its inception last year, indicating significantly poor
performance of the underlying stocks in the market, as compared to the main market. Due to this,
investors may be wary of investing in IPO’s of companies listing in NOMU.
Private Equity Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 30
F. Conclusion Overall, the year 2018 promises to be eventful for Saudi Arabian economy, starting with
generous government spending after last year’s constraints, higher inflation on account of
VAT and reforms in electricity and fuel prices to close gap with market rates. At the same
time, the adverse impact of price rise on consumption will be cushioned by government
allowances and support in the form of beneficial policies. The key risk is that the economy
either doesn’t respond or responds late. Past data suggests otherwise, and therefore gives
hope for a turnaround in the Saudi economy in 2018.
Private Equity Outlook
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 31
G. Annexure 1: Chart Pack
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 32
Annexure 1: Chart Pack
I. Macroeconomic Indicators
Figure 23: GDP (Constant prices) growth (quarterly
-% YoY) Figure 24: GDP growth (annual - % YoY)
Source: General Authority of Statistics Source: General Authority of Statistics
Figure 25: Non-oil GDP growth (quarterly - % YoY) Figure 26: Non-oil GDP growth (annual - % YoY)
Source: General Authority of Statistics Source: General Authority of Statistics
Figure 27: Inflation (% YoY) Figure 28: Food inflation (% YoY)
Source: Saudi Arabia Monetary Authority (SAMA) Source: SAMA
Figure 29: PMI index Figure 30: Cement Sales (Mn tons)
Source: Bloomberg Source: Bloomberg
Q3 2017,
-0.4%
(5)
-
5
10
15
Q1
20
11
Q3
20
11
Q1
20
12
Q3
20
12
Q1
20
13
Q3
20
13
Q1
20
14
Q3
20
14
Q1
20
15
Q3
20
15
Q1
20
16
Q3
20
16
Q1
20
17
Q3
20
17
2017,
-0.7%
-25
-15
-5
5
15
25
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Q3 2017,
3.7%
(5)
-
5
10
15
Q1
20
11
Q3
20
11
Q1
20
12
Q3
20
12
Q1
20
13
Q3
20
13
Q1
20
14
Q3
20
14
Q1
20
15
Q3
20
15
Q1
20
16
Q3
20
16
Q1
20
17
Q3
20
17
2017,
1.0%
-5
5
15
25
35
45
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
November
2017,
0.1%
-1
0
1
2
3
4
5
Jan
-12
Ma
y-1
2
Se
p-1
2
Jan
-13
Ma
y-1
3
Se
p-1
3
Jan
-14
Ma
y-1
4
Se
p-1
4
Jan
-15
Ma
y-1
5
Se
p-1
5
Jan
-16
Ma
y-1
6
Se
p-1
6
Jan
-17
Ma
y-1
7
Se
p-1
7
November
2017,
-0.8%
-6-4-202468
Jan
-12
Ma
y-1
2
Se
p-1
2
Jan
-13
Ma
y-1
3
Se
p-1
3
Jan
-14
Ma
y-1
4
Se
p-1
4
Jan
-15
Ma
y-1
5
Se
p-1
5
Jan
-16
Ma
y-1
6
Se
p-1
6
Jan
-17
December
2017,
57.3
485052545658606264
Ma
y-1
4
Au
g-1
4
No
v-1
4
Feb
-15
Ma
y-1
5
Au
g-1
5
No
v-1
5
Feb
-16
Ma
y-1
6
Au
g-1
6
No
v-1
6
Feb
-17
Ma
y-1
7
Au
g-1
7
No
v-1
7 1
2
3
4
5
6
Ja
n
Fe
b
Ma
r
Ap
r
Ma
y
Ju
n
Ju
l
Au
g
Se
p
Oc
t
No
v
De
c
2012 2013 2014
2015 2016 2017
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 33
Figure 31: Oil vs Non-oil revenues (% share) Figure 32: Annual fiscal balance (SAR bn)
Source: Saudi Arabia Finance Ministry, E- Estimate Source: Saudi Arabia Finance Ministry, E-Estimate
Figure 33: Current account balance - quarter (USD
bn) Figure 34: Current account balance -yearly (USD
bn)
Source: SAMA Source: SAMA
Figure 35: Current Account Balance (%GDP) Figure 36: Trade balance (SAR bn)
Source: SAMA Source: SAMA
Figure 37: Trade balance change (% YoY) Figure 38: KSA breakeven oil price (USD/bl)
Source: SAMA Source: Ministry of Finance, Thomson Reuters, MEFIC estimate
0%
20%
40%
60%
80%
100%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018E
Oil revenues Non-oil revenues
-15
-5
5
15
25
-400
-200
0
200
400
600
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17E
Fiscal Balance (SAR bn) - LHS
Fiscal Balance (% GDP) - RHS
Q3 2017,
10.0
-25-15-55
15253545
Q1
20
10
Q3
20
10
Q1
20
11
Q3
20
11
Q1 2
012
Q3
20
12
Q1
20
13
Q3
20
13
Q1
20
14
Q3
20
14
Q1
20
15
Q3
20
15
Q1
20
16
Q3
20
16
Q1
20
17
Q3
20
17
66.8
158.5 164.8
135.4
73.8
-56.7
-24.9
-100
-50
0
50
100
150
200
2010 2011 2012 2013 2014 2015 2016
Q3 2017,
5.9
-15
-5
5
15
25
35
Q1
20
10
Q3
20
10
Q1
20
11
Q3
20
11
Q1
20
12
Q3 2
012
Q1
20
13
Q3
20
13
Q1
20
14
Q3
20
14
Q1
20
15
Q3
20
15
Q1
20
16
Q3
20
16
Q1
20
17
Q3
20
17
143
198
97
144
233 233
208
169
29 43
0
50
100
150
200
250
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
50.3%
-85
-65
-45
-25
-5
15
35
55
2008
2009
2010
2011
2012
2013
2014
2015
2016
69
.7
79
.4
74
.3
86
.0
10
4.8
88
.3
59
.5
67
.9
0
20
40
60
80
100
120
2010 2011 2012 2013 2014 2015 2016 2017F
Breakeven oil prices (USD) Average brent price (USD)
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 34
Figure 39: Total External Debt (SAR bn) Figure 40: SAMA Reserve Assets* (USD bn)
Source: SAMA Source: SAMA,*- includes special drawing rights
Figure 41: Reserve Assets (% MoM) Figure 42: Bank credit growth (% YoY)
Source: SAMA Source: SAMA
Figure 43: Bank credit across major sectors (SAR
bn) Figure 44: Bank Deposits (SAR bn)
Source: SAMA Source: SAMA
Figure 45: Loan-to-Deposit Ratio (%) Figure 46: NPL-to-Total Loans (%)
Source: SAMA Source: SAMA
411.6
0
100
200
300
400
500
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
November
2017,
494
400 450 500 550 600 650 700 750 800
Jan
-10
Jul-1
0
Jan
-11
Jul-1
1
Jan
-12
Jul-1
2
Jan
-13
Jul-1
3
Jan
-14
Jul-1
4
Jan
-15
Jul-1
5
Jan
-16
Au
g-1
6
Feb
-17
Au
g-1
7
November
2017,
0.2
-4-3-2-1012345
Jan
-10
Jul-1
0
Jan
-11
Jul-1
1
Jan
-12
Jul-12
Jan
-13
Jul-1
3
Jan
-14
Jul-1
4
Jan
-15
Jul-1
5
Jan
-16
Au
g-1
6
Feb
-17
Au
g-1
7
November
2017,
-1.0
-20
-10
0
10
20
30
40
50
Jan
-98
Ap
r-9
9
Jul-0
0
Oc
t-0
1
Jan
-03
Ap
r-0
4
Jul-05
Oc
t-0
6
Jan
-08
Ap
r-0
9
Jul-1
0
Oc
t-1
1
Jan
-13
Ap
r-1
4
Jul-1
5
Oc
t-1
6
0
150
300
450
600
Q1
19
96
Q2
19
97
Q3
19
98
Q4
19
99
Q1
20
01
Q2
20
02
Q3
20
03
Q4
20
04
Q1 2
006
Q2
20
07
Q3
20
08
Q4
20
09
Q1
20
11
Q2
20
12
Q3
20
13
Q4 2
014
Q1
20
16
Q2
20
17
Manufacturing and Processing Buiding and Construction Commerce Services
November
2017,
1,599.6
0
500
1,000
1,500
2,000
Jan
-93
Jan
-95
Jan
-97
Jan
-99
Jan
-01
Jan
-03
Jan
-05
Jan
-07
Jan
-09
Jan
-11
Jan
-13
Jan
-15
Jan
-17
November
2017,
87.9
0.5
0.6
0.7
0.8
0.9
1.0
Jan
-93
Jan
-95
Jan
-97
Jan
-99
Jan
-01
Jan
-03
Jan
-05
Jan
-07
Jan
-09
Jan
-11
Jan
-13
Jan
-15
Jan
-17
Q3 2017,
1.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Q1
20
09
Q4
20
09
Q3
20
10
Q2
20
11
Q1
20
12
Q4
20
12
Q3
20
13
Q2
20
14
Q1
20
15
Q4
20
15
Q3
20
16
Q2 2
017
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 35
Figure 47: Money Supply/M3 growth (% YoY) Figure 48: Composition of M3 money supply (%
share)
Source: SAMA Source: SAMA
Figure 49: Currency Outside Banks (% share of
M3) Figure 50: Time & Savings Deposits/Total Deposits
(%)
Source: SAMA Source: SAMA
Figure 51: 3M SIBOR (%) Figure 52: Short term interest rate curve
(1w to 52 w)
Source: SAMA Source: SAMA
Figure 53: Inflation (major sub-indices) Figure 54: House Rent Index (100=2007)
Source: SAMA Source: General Authority for Statistics
November
2017,
-1.4
-10
-5
0
5
10
15
20
25
30
Jan
-94
Jan
-96
Jan
-98
Jan
-00
Jan
-02
Jan
-04
Jan
-06
Jan
-08
Jan
-10
Jan
-12
Jan
-14
Jan
-16
0
20
40
60
80
100
Jan
-93
Jun
-94
No
v-9
5
Ap
r-97
Se
p-9
8
Ma
r-0
0
Au
g-0
1
Jan
-03
Jun
-04
No
v-0
5
Ma
y-0
7
Oc
t-0
8
Ma
r-1
0
Au
g-1
1
Feb
-13
Jul-1
4
De
c-1
5
Ma
y-1
7
Currency Outside bank Demand Deposits
Time and Savings Deposits Other Quasi Money Deposits
November
2017,
9.6
0
5
10
15
20
25
Jan
-93
Jun
-94
No
v-9
5
Ap
r-97
Se
p-9
8
Feb
-00
Jul-0
1
De
c-0
2
Ma
y-0
4
Oc
t-0
5
Ma
r-0
7
Au
g-0
8
Jan
-10
Jun
-11
No
v-1
2
Ap
r-1
4
Se
p-1
5
Feb
-17
15
20
25
30
35
40
45
Jan
-93
Jul-9
4
Jan
-96
Jul-9
7
Feb
-99
Au
g-0
0
Feb
-02
Se
p-0
3
Ma
r-0
5
Se
p-0
6
Ap
r-0
8
Oc
t-0
9
Ap
r-1
1
Oc
t-1
2
Ma
y-1
4
No
v-1
5
Ma
y-1
7
November
2017,
1.81
0
1
2
3
4
5
6
Jan
-200
7
Se
p-2
00
7
Ma
y-2
008
Jan
-200
9
Se
p-2
00
9
Ma
y-2
010
Jan
-201
1
Se
p-2
01
1
Ma
y-2
012
Jan
-201
3
Se
p-2
01
3
Ma
y-2
014
Jan
-201
5
Se
p-2
01
5
Ma
y-2
016
Jan
-201
7
Se
p-2
01
7 1.0
1.5
2.0
2.5
3.0
1M
3M
6M
12M
Dec-2016 Dec-2017
-0.8
November
2017
-0.5
-2.0 -5
0
5
10
15
Jan
-12
Se
p-1
2
Ma
y-1
3
Jan
-14
Se
p-1
4
Ma
y-1
5
Jan
-16
Se
p-1
6
Ma
y-1
7
Food and beverages
Transport
Housing , Water, Electricity, Gas, and other fuels
84.9
80
85
90
95
100
105
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
14
Q1
20
15
Q2 2
015
Q3 2
015
Q4
20
15
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
16
Q1
20
17
Q2
20
17
Q3
20
17
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 36
Figure 55: ATM Cash Withdrawals (SAR bn) Figure 56: Saudi unemployment rate (%)
Source: SAMA Source: Bloomberg
Figure 57: Competitiveness ranking/indicator Figure 58: FDI (accumulated, SAR billions)
Source: World Economic Forum (2016-2017) Source: SAMA
Figure 59: External debt-to-GDP (%) Figure 60: POS Transactions Sales (SAR bn)
Source: International Monetary Fund Source: SAMA
Figure 61: Mobile/Telecom Subscribers (mn) Figure 62: Automobile Sales (‘000s)
Source: Ministry of Communication and IT, Q3 2016 taken as
average of Q2 and Q4 2016 Source: Car Sales Base
November
2017,
58.6
01020304050607080
Jul-9
6
Oc
t-9
7
Jan
-99
Ap
r-0
0
Jul-0
1
Oc
t-0
2
Jan
-04
Ap
r-0
5
Jul-0
6
Oc
t-0
7
Jan
-09
Ap
r-1
0
Jul-1
1
Oc
t-1
2
Jan
-14
Ap
r-1
5
Jul-1
6
Oc
t-1
7
Q3 2017,
12.8
10.5
11.0
11.5
12.0
12.5
13.0
Q1
20
12
Q3
20
12
Q1
20
13
Q3
20
13
Q1
20
14
Q3
20
14
Q1
20
15
Q3
20
15
Q1
20
16
Q3
20
16
Q1
20
17
Q3 2
017
16 18
29
38
48
66
0
10
20
30
40
50
60
70
United
Arab
Qatar Saudi
Arabia
Kuwait Bahrain Oman
868.1
0
200
400
600
800
1000
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017,
18%
0.0
0.1
0.1
0.2
0.2
0.3
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0
5
10
15
20
Jan
-95
Jun
-96
No
v-9
7
Ap
r-9
9
Se
p-0
0
Feb
-02
Jul-0
3
De
c-0
4
Ma
y-0
6
Oc
t-0
7
Ma
r-0
9
Au
g-1
0
Jan
-12
Jun
-13
No
v-1
4
Ap
r-16
Se
p-1
7
November 2017,
16.8
0
5
10
15
20
Jan
-95
Jun
-96
No
v-9
7
Ap
r-9
9
Se
p-0
0
Feb
-02
Jul-0
3
De
c-0
4
Ma
y-0
6
Oc
t-0
7
Ma
r-0
9
Au
g-1
0
Jan
-12
Jun
-13
No
v-1
4
Ap
r-1
6
Se
p-1
7
November 2017,
16.8
679.5
0.0
200.0
400.0
600.0
800.0
1,000.0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 37
Figure 63: Electricity Generation (TWh) Figure 64: Electricity Generation - Quarterly (TWh)
Source: Electricity and Cogeneration Regulatory Authority Source: Saudi Electric Company
Figure 65: Cement Prices (SAR, 50kg) Figure 66: Steel Prices (SAR/ton)
Source: General Authority of Statistics Source: General Authority of Statistics
Figure 67: Expat Remittances (SAR bn)
Source: SAMA
287.4
0
50
100
150
200
250
300
350
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
103.6
0
20
40
60
80
100
120
Q1 2
015
Q2
20
15
Q3
20
15
Q4
20
15
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
16
Q1
20
17
Q2
20
17
Q3
20
17
November
2017,
13.0
10
11
12
13
14
15
16
Jan
-07
Se
p-0
7
Ma
y-0
8
Jan
-09
Se
p-0
9
Ma
y-1
0
Jan
-11
Se
p-1
1
Ma
y-1
2
Jan
-13
Se
p-1
3
Ma
y-1
4
Jan
-15
Se
p-1
5
Ma
y-1
6
Jan
-17
Se
p-1
7
November
2017,
2,361
8
1,008
2,008
3,008
4,008
5,008
6,008
Jan
-07
Se
p-0
7
Ma
y-0
8
Jan
-09
Se
p-0
9
Ma
y-1
0
Jan
-11
Se
p-1
1
Ma
y-1
2
Jan
-13
Se
p-1
3
Ma
y-1
4
Jan
-15
Se
p-1
5
Ma
y-1
6
Jan
-17
Se
p-1
7
November
2017
12.0
0
5
10
15
20
Jan
-95
Jan
-97
Jan
-99
Jan
-01
Jan
-03
Jan
-05
Jan
-07
Jan
-09
Jan
-11
Jan
-13
Jan
-15
Jan
-17
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 38
II. Oil Indicators
Figure 68: Saudi Oil Production (mbpd) Figure 69: Saudi Domestic Consumption (mbpd)
Source: Bloomberg Source: Reuters Datastream
Figure 70: Saudi Oil Export (mbpd) Figure 71: OPEC Oil Production (mbpd)
Source: Ministry of Petroleum, JODI, Source: Bloomberg
Figure 72: Global Oil Supply/Demand (mbpd) Figure 73: US Oil Production (mbpd)
Source: Bloomberg Source: Bloomberg
Figure 74: US Oil Inventory (mb) Figure 75: US Rig Count
Source: Reuters Eikon Source: Bloomberg
December
2017,
9.95
0
2
4
6
8
10
12
De
c-7
0
Au
g-7
3
Ap
r-7
6
De
c-7
8
Au
g-8
1
Ap
r-8
4
De
c-8
6
Au
g-8
9
Ap
r-9
2
De
c-9
4
Au
g-9
7
Ap
r-0
0
De
c-0
2
Au
g-0
5
Ap
r-0
8
De
c-1
0
Au
g-1
3
Ap
r-1
6
June 2016,
3.9
0
1
2
3
4
5
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
October 2017,
6.9
4
5
6
7
8
9
Jan
-02
Oc
t-0
2
Jul-0
3
Ap
r-0
4
Jan
-05
Oc
t-05
Jul-0
6
Ap
r-0
7
Jan
-08
Oc
t-0
8
Jul-0
9
Ap
r-1
0
Jan
-11
Oc
t-1
1
Jul-1
2
Ap
r-1
3
Jan
-14
Oc
t-1
4
Jul-15
Ap
r-1
6
Jan
-17
Oc
t-1
7
November
2017,
32.5
10
15
20
25
30
35
40
De
c-8
7
Au
g-8
9
Ap
r-9
1
De
c-9
2
Au
g-9
4
Ap
r-9
6
De
c-9
7
Au
g-9
9
Ap
r-01
De
c-0
2
Au
g-0
4
Ap
r-0
6
De
c-0
7
Au
g-0
9
Ap
r-1
1
De
c-1
2
Au
g-1
4
Ap
r-1
6-6
-4
-2
0
2
4
Ma
r-9
5
Jul-9
6
No
v-9
7
Ma
r-9
9
Jul-0
0
No
v-0
1
Ma
r-0
3
Jul-0
4
No
v-0
5
Ma
r-0
7
Jul-0
8
No
v-0
9
Ma
r-11
Jul-1
2
No
v-1
3
Ma
r-1
5
Jul-1
6
No
v-1
7
November
2017,
1.0
November
2017,
9.68
2
4
6
8
10
Jan
-97
Ma
r-9
8
Ma
y-9
9
Jul-0
0
Se
p-0
1
No
v-0
2
Jan
-04
Ma
r-0
5
Ma
y-0
6
Jul-0
7
Se
p-0
8
No
v-0
9
Jan
-11
Ma
r-1
2
Ma
y-1
3
Jul-1
4
Se
p-1
5
No
v-1
6
November
2017,
453.7
0
100
200
300
400
500
600
Au
g-8
2
Se
p-8
4
Oc
t-8
6
No
v-8
8
De
c-9
0
Jan
-93
Feb
-95
Ma
r-9
7
Ap
r-9
9
Ma
y-0
1
Jun
-03
Jul-0
5
Au
g-0
7
Se
p-0
9
Oc
t-1
1
No
v-1
3
De
c-1
5
December
2017,
747
0
400
800
1200
1600
Jul-8
7
Ma
y-8
9
Ma
r-9
1
Jan
-93
No
v-9
4
Se
p-9
6
Jul-9
8
Ma
y-0
0
Ma
r-02
Jan
-04
No
v-0
5
Se
p-0
7
Jul-0
9
Ma
y-1
1
Ma
r-1
3
Jan
-15
No
v-1
6
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 39
III. Stock Market Indicators
Figure 76: TASI and Oil Figure 77: TASI Price-to-Earnings Ratio (x)
Source: Bloomberg Source: SAMA, Tadawul
Figure 78: Stock Market Turnover (SAR bn) Figure 79: Domestic Shares held by Domestic
Investment Funds (SAR bn)
Source: Tadawul, SAMA Source: SAMA
Figure 80: Share Ownership Status Figure 81: Total Assets of Investment funds (SAR
bn)
Source: SAMA Source: SAMA
66.9
December
2017,
7226.3
0
5000
10000
15000
20000
25000
0
50
100
150
Jun
-97
No
v-9
8
Ap
r-0
0
Se
p-0
1
Feb
-03
Jul-0
4
De
c-0
5
Ma
y-0
7
Oc
t-0
8
Ma
r-1
0
Au
g-1
1
Jan
-13
Jun
-14
No
v-1
5
Ap
r-1
7Brent - USD/bl (LHS) TASI (RHS)
December
2017,
15.4
0
20
40
60
80
100
120
Au
g-0
5
Ma
y-0
6
Feb
-07
No
v-0
7
Au
g-0
8
Ma
y-0
9
Feb
-10
No
v-1
0
Au
g-1
1
Ma
y-1
2
Feb
-13
No
v-1
3
Au
g-1
4
Ma
y-1
5
Feb
-16
No
v-1
6
Au
g-1
7
December
2017,
87.4
0
200
400
600
800
1,000
Jan
-04
No
v-0
4
Se
p-0
5
Jul-0
6
Ma
y-0
7
Ma
r-0
8
Jan
-09
No
v-0
9
Se
p-1
0
Jul-1
1
Ma
y-1
2
Ma
r-1
3
Jan
-14
Oc
t-1
4
Au
g-1
5
Jun
-16
Ap
r-1
7
0
20
40
60
80
100
Q1
19
98
Q1
19
99
Q1
20
00
Q1
20
01
Q1
20
02
Q1
20
03
Q1
20
04
Q1
20
05
Q1
20
06
Q1
20
07
Q1
20
08
Q1
20
09
Q1
20
10
Q1
20
11
Q1
20
12
Q1
20
13
Q1
20
14
Q1
20
15
Q1
20
16
Q1
20
17
0%20%40%60%80%
100%
Jul-2
01
5
Se
p-2
01
5
No
v-2
01
5
Jan
-201
6
Ma
r-2
01
6
Ma
y-…
Jul-2
01
6
Se
p-2
01
6
No
v-2
01
6
Jan
-201
7
Ma
r-2
01
7
Ma
y-…
Jul-2
01
7
Se
p-2
017
No
v-2
01
7
Individuals Institutions Govt. Related Entities
GCC Investors Foreign Investors
87.8
0
20
40
60
80
100
120
140
160
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 40
IV. Corporate earnings
Figure 82: TASI Revenue and YoY growth
(Quarterly) Figure 83: TASI Revenue and YoY growth (Annual)
Source: Reuters Eikon Source: Reuters Eikon
Figure 84: TASI EBITDA and YoY growth (Quarterly) Figure 85: TASI EBITDA and YoY growth (Annual)
Source: Reuters Eikon Source: Reuters Eikon
Figure 86: TASI PAT and YoY growth (Quarterly) Figure 87: TASI PAT and YoY growth (Annual)
Source: Reuters Eikon Source: Reuters Eikon
Figure 88: TASI EBITDA and PAT margin (%) -
Quarterly Figure 89: TASI EBITDA and PAT margin (%) -
Annual
Q3 2017,
169.2 3.5%
(20) (10) - 10 20 30 40
0
50
100
150
200
250
Q1
20
08
Q3
20
08
Q1
20
09
Q3
20
09
Q1
20
10
Q3
20
10
Q1
20
11
Q3
20
11
Q1 2
012
Q3
20
12
Q1
20
13
Q3
20
13
Q1
20
14
Q3
20
14
Q1
20
15
Q3
20
15
Q1
20
16
Q3
20
16
Q1
20
17
Rev (SAR bn)- LHS Rev (%yoy) - RHS
682.5
4.4
(10)
-
10
20
30
0
200
400
600
800
2008
2009
2010
2011
2012
2013
2014
2015
2016
Rev (SAR bn)- LHS Rev (%yoy) - RHS
Q3 2017
61.1 9.12
(40)
(20)
-
20
40
60
0
20
40
60
80
Q1
20
08
Q3
20
08
Q1
20
09
Q3
20
09
Q1
20
10
Q3
20
10
Q1
20
11
Q3 2
011
Q1
20
12
Q3
20
12
Q1
20
13
Q3
20
13
Q1
20
14
Q3
20
14
Q1
20
15
Q3
20
15
Q1
20
16
Q3
20
16
Q1
20
17
EBITDA (SAR bn) - LHS EBITDA (%yoy) - RHS
208.7
4.9
(20)
(10)
-
10
20
30
0
50
100
150
200
250
2008
2009
2010
2011
2012
2013
2014
2015
2016
EBITDA (SAR bn) - LHS EBITDA (%yoy) - RHS
Q3 2017
32.9 18.75
(200)
(150)
(100)
(50)
-
50
100
150
-40
-20
0
20
40
Profit (SAR Bn) -LHS Profit (% yoy) - RHS
100.0
0.2
(20)
(10)
-
10
20
30
40
0
50
100
150
2008
2009
2010
2011
2012
2013
2014
2015
2016
Profit (SAR Bn) -LHS Profit (% yoy) - RHS
Q3 2017, 36.1
19.44
-40
-20
0
20
40
60
Q1
20
08
Q3
20
08
Q1
20
09
Q3
20
09
Q1
20
10
Q3
20
10
Q1
20
11
Q3
20
11
Q1
20
12
Q3
20
12
Q1
20
13
Q3
20
13
Q1
20
14
Q3
20
14
Q1 2
015
Q3
20
15
Q1
20
16
Q3
20
16
Q1
20
17
Q3
20
17
EBITDA margin Net profit margin
35.5 31.5 31.9 30.9 29.1 29.9 29.5 30.4 30.6
11.7 15.6 16.8 16.9 16.5 16.9 17.2
15.3 14.6
0
10
20
30
40
2008
2009
2010
2011
2012
2013
2014
2015
2016
EBITDA margin (%) PAT margin (%)
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 41
V. Tadawul Sector Earnings Performance
Earnings (SAR mn) Market Cap (SAR mn) Q3 2017 Q3 2016 Q2 2017 % YoY % QoQ
Materials 575,453 8,702.4 7,908.4 6,077.1 10.0 43.2
Banks 508,526 11,374.1 9,951.1 11,324.0 14.3 0.4
Telecommunication Services 157,744 2,390.0 1,664.4 2,203.6 43.6 8.5
Real Estate 108,710 381.0 288.0 351.1 32.3 8.5
Utilities 89,143 5,300.6 4,434.4 2,269.4 19.5 133.6
Food, Beverage & Tobacco 87,531 1,585.0 952.1 1,011.0 66.5 56.8
Insurance 41,082 740.9 851.9 287.9 -13.0 157.3
Diversified Financials 36,181 261.5 134.3 227.2 94.7 15.1
Energy 31,846 784.9 118.9 486.8 560.4 61.2
Health Care 28,547 292.0 274.4 277.1 6.4 5.4
Retailing 26,822 295.9 348.3 275.6 -15.1 7.3
Transportation 13,949 285.8 341.6 243.8 -16.3 17.2
Consumer Services 13,525 232.9 355.7 314.2 -34.5 -25.9
Capital Goods 9,795 0.4 -33.9 28.2 -101.1 -98.7
Commercial Services 7,789 125.9 137.7 118.2 -8.6 6.5
Food & Staples Retailing 7,191 152.8 63.1 89.0 142.3 71.6
Media 5,674 17.9 -69.3 -16.0 -125.8 -212.1
Pharmaceuticals 3,749 7.9 6.8 46.6 17.3 -83.0
Consumer Durables & Apparel 3,223 -53.7 -40.5 -6.6 32.5 711.3
Total 1,756,477 32,878 27,687 25,608 18.7 28.4
Source: Reuters Eikon, Bloomberg, MCap and results as of January 21, 2017
Annexure 1: Chart Pack
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 42
H. Annexure 2: Saudi Arabia
Key Statistics
Annexure 2: Saudi Arabia Key Statistics
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 43
Annexure 2: Saudi Arabia Key Statistics
Data 2011 2012 2013 2014 2015 2016 2017E 2018F
Economic Output
Nominal GDP (USD bn) 669.5 734.0 744.3 753.8 653.2 646.4 678.5 708.5
Nominal GDP YoY (%) 27.1 9.6 1.4 1.3 -13.3 -2.1 5.0 4.4
Real GDP YoY (%) 10.0 5.4 2.7 3.6 3.4 1.2 1.9 1.1
Budget
Revenue (SAR bn) 1117.8 1247.4 1156.4 1044.4 615.9 519.0 696.0 783.0
Oil Revenue (SAR bn) 1034.4 1144.8 1035.0 913.3 446.4 329.0 440.0 492.0
Non-oil Revenue (SAR bn) 83.4 102.6 121.3 131.0 169.5 190.0 256.0 291.0
Expenditure (SAR bn) 826.7 873.3 976.0 1109.9 978.1 830.0 926.0 978.0
Surplus/(Deficit) (SAR bn) 291.1 374.1 180.3 -65.5 -362.2 -311.0 -230.0 -195.0
Surplus/(Deficit) (% GDP) 11.6 13.6 6.5 -2.3 -15.0 -12.8 -8.9 -7.3
Gross Public Debt (SAR bn) 135.5 83.8 60.1 44.3 142.3 316.5 438.0 555.0
Gross Public Debt (% GDP) 5.4 3.0 2.2 1.6 5.9 12.3 17.0 21.0
Oil statistics
Production (mbpd) 9.3 9.8 9.6 9.7 10.2 10.2 10.3 9.7
Exports (mb) 2634.6 2783.8 2763.3 2611.0 2614.5 2799.0 2557.9 2584.6
Domestic consumption (mb) 1321.4 1408.6 1423.8 1516.8 1586.5 1535.1 1583.2 1609.1
Trade & External sector
Exports (US$ bn) 364.7 388.4 375.9 342.4 203.6 183.6 239.8 242.2
Oil Exports (US$ bn) 317.6 337.5 321.9 284.6 152.9 136.2 136.3 147.3
Imports (US$ bn) 131.6 155.6 168.2 173.8 174.7 140.2 204.3 208.1
Trade surplus/(deficit) (US$ bn) 233.1 232.8 207.7 168.6 28.9 43.4 35.5 34.1
Current Account (US$ bn) 158.5 164.8 135.4 73.8 -56.7 -24.9 10.8 15.1
Current Account (% GDP) 23.7 22.4 18.2 9.8 -8.7 -3.9 1.5 2.0
SAMA forex reserves (US$ bn) 544.0 656.6 725.7 732.4 616.4 535.8 NA NA
Inflation (%) 3.7 2.9 3.5 2.7 2.2 3.5 1.0 1.7
Demographics
Population (mn) 28.4 29.2 30.0 30.8 31.4 31.7 32.7 33.3
Saudi unemployment rate
(% population) 12.4 12.1 11.7 11.7 11.5 12.3 12.3 12.0
Source: SAMA, General Authority of Statistics, Reuters, IMF, MEFIC Research, E- Estimate, F- Forecast
Notes
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 44
Notes
Disclaimer
SAUDI ARABIA 2018 OUTLOOK | January 2018 P a g e | 45
Disclaimer
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whom it is addressed and may not be reproduced, further distributed to any other person or published,
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