Saudi plan may mean new chapter for Jarir

Jarir Marketing Company's latest results bode well for shares as a Saudi Arabian spending plan boosts the likelihood of discretionary spending at the stationary and bookseller.

Saudi Arabia's bumper infrastructure spending plan could provide a boost to Jarir Marketing Company as economic recovery increases discretionary spending.

Saudi Arabia's largest stationery and bookseller by market value yesterday announced a 15.4 per cent jump in first-quarter profit to 136.8 million riyals from 118.5m riyals a year earlier.

Much of this gain came from the sale of electronic items such as laptops, tablet computers and smartphones, which the company also sells.

The retailer accounts for half of laptop sales in Saudi Arabia, and analysts expect shares to remain solid as the kingdom's young demographic profile and increase in household disposable income bode well for discretionary purchases. Shares in the company climbed 2.1 per cent to 146 riyals yesterday.

"Based on conversations with management this morning, most of the extra spending based on the government bonus payments to Saudis will come through for Jarir in the second quarter of 2011," said Farouk Miah, an equity research analyst at NCB Capital in Riyadh.

Saudi Arabia announced at least 485 billion riyals of new spending this year, and although the expenditure is to take place over five years, much of it is expected to come this year.

"At current prices, Jarir is our top pick in the retail sector, and the results support this call," said Mr Miah, who upgraded the stock on March 13 to "overweight" from "neutral" with a target price of 162 riyals.

However, a sales mix geared to lower-margin electronic items remains a hindrance to the stock. Laptops and smartphones account for just 15 per cent of Jarir's sales, versus 25 per cent for school supplies and computer accessories.

Gross margins continued to decline - by 77 basis points to 17.2 per cent - in the first quarter of this year, compared with the same period last year.

Al Mal Securities said it expected margins for Jarir to decline for the next three years and then stabilise. But the opening of four new stores this year could boost sales growth and offset a weak retail mix.