The National Shipping Co. of Saudi Arabia - Bahri 24 June 2014

Recommendation Fair Value (SR)

Neutral 31.00

rd

Price as of 23 of June 2014 (SR) Expected return

34.33 -8.2%

Company data Tadawul symbol 52- week high (SR) 52-week low(SR) YTD change Average trading volume (thousand shares) Market Cap (million SR) Market Cap (million USD) Number of shares issued (million) Free float

4030.SE 39.20 19.20 16.0% 2,082 10,634 2,836 315.0 65.4%

Financial indicators

2011

2012

3102

Revenues (million SR) Net Income (million SR) EPS (SAR) PE ratio (x) P/BV (x) Dividend yield Net Income growth *Ending Q1 2014

1,991 288 0.91 37.58 2.02 1.5% %4.79-

2,465 504 1.60 21.46 1.89 2.9% %..77

2,847 752 2.39 14.38 1.75 2.9% %3674

Bahri

Transportation Index

210 190 170 150

LTM* 3,019 809 2.57 13.36 1.78 2.9% %9.76

Tadawul Index

The Merger with Vela The report outlines the major developments in the merger between Al Bahri and Vela`s fleet. On the 19th of June, Bahri’s general assembly approved the acquisition of Vela`s fleet and the increase of the company’s capital by 20%. In July 2012, the two companies signed the memorandum of understanding to merge both fleets and operations. In November 2012, the two companies signed the final agreement whereby Saudi Aramco would transfer its entire Vela fleet — 14 double-hull very large crude carriers (VLCCs), one VLCC used as a floating storage; five refined products carriers; all Vela’s ship-based cadres and some of its land-based personnel; and a part of its operations systems —to Bahri. The merge also concluded a ten year shipping agreement, as Bahri will become the exclusive transporter of crude oil sold by Saudi Aramco on a delivered basis via VLCCs. Under the terms of the agreement, Bahri will enjoy protected rates when global shipping rates sink below an agreed minimum. If shipping rates exceed agreed limits, Bahri will compensate Saudi Aramco for amounts previously paid to Bahri when shipping rates were below the floor. We think the agreement will minimize shipping rates volatility risk for Bahri and will secure a stable demand for Bahri`s fleet. It is worthwhile mentioning that crude oil shipping constitutes 54% and 63% of Bahri`s revenues and operating profits, respectively. In return Bahri would pay Vela a total consideration of about SAR 4.9 billion made up of a cash payment of SAR 3.12 million in addition to 78.75 million new Bahri shares to be issued to Aramco at an agreed price of SAR 22.25 per share, representing a 20% shareholding in Bahri. The former will pay the above stock compensation after Aramco transfer entire Vela`s fleet while the cash portion will be paid on transfer of each vessel. Vela will transfer the first vessel within one month while the remaining vessels are expected to be transferred within six months. Revenues Breakdown - Q1 2014

130 110

17%

90

4% 54%

25%

Sources: Albilad Capital estimates, Tadawul

For more information you may contact: Turki Fadaak Research & Advisory Manager [email protected]

Crude Oil

Petrochemicals

General Cargo

Bulk

Operating Profit Breakdown - Q1 2014

Or Albilad Capital Head Office: Tel : +966 11 203 9892 Fax : +966 1479 8453 P.O. Box 140 Riyadh 11411

7% 12% 18%

63%

Our website: www.albilad-capital.com/en/research Crude Oil

Petrochemicals

General Cargo

Bulk

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The National Shipping Co. of Saudi Arabia - Bahri 24 June 2014 Due to the oversupply of vessels, the three main shipping Indices edged lower. The Baltic Dirty Index declined by 23% in the past six months before stabilizing during the last 90 days. While the Baltic Clean Index showed 17% and 19% declines in the past 180 days and 90 days, respectively. In addition, the Baltic Dry index showed the sharpest declines of 59% and 44% in the last six months and three months, respectively.

Valuation and Recommendation We think the deal will have a positive impact on Bahri`s earnings as it will reduce exposure to shipping rates volatility. Moreover, the agreement will secure a stable demand for Bahri`s fleet throughout the year, in a highly competitive market with vessel oversupply, and will increase the company`s revenue with the gradual transfer of fleet. Thus, we reiterate our fair value for Bahri`s at SAR 31 per share.

Baltic Dry Index 2500 2300 2100 1900 1700 1500 1300 1100 900 700 500

Baltic Clean Tanker 1000 900 800 700 600 500 400

Baltic Dirty Tanker 1400 1300 1200 1100 1000 900 800 700 600 500

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The National Shipping Co. of Saudi Arabia - Bahri 24 June 2014

Balance Sheet (million) Current Assets Investment in Affiliated Companies Fixed Assets Other Long Term Assets Total Assets Current Liabilities Long Term Debt Other Long Term Liabilities Shareholders' Equity Total Liabilities and Shareholders' Equity

2010 1,578 456 7,419 513 9,966 736 3,819 33 5,378 9,966

2011 1,042 561 8,490 530 10,623 944 4,295 28 5,356 10,623

2102 1,143 652 8,676 592 11,063 1,006 4,254 77 5,726 11,063

2102 1,427 842 9,189 539 11,997 1,355 4,377 77 6,187 11,997

Change 24.8% 29.1% 5.9% -8.9% 8.4% 34.7% 2.9% 0.7% 8.1% 8.4%

Balance Sheet (million) Current Assets Investment in Affiliated Companies Fixed Assets Other Long Term Assets Total Assets Current Liabilities Long Term Debt Other Long Term Liabilities Shareholders' Equity Total Liabilities and Shareholders' Equity

Q1 2013 1,277 642 8,649 590 11,158 1,431 4,106 72 5,550 11,158

Q1 2014 1,434 906 9,411 551 12,302 1,650 4,499 77 6,076 12,302

Change 12.4% 41.0% 8.8% -6.6% 10.2% 15.3% 9.6% 7.8% 9.5% 10.2%

Income Statement (million) Revenues Cost of Revenues Gross Profit Selling, General, and Admin. Expenses Net Interest Expense Other Expenses/(Income) Total Other Expenses/(Income) Net Income Before Zakat and Taxes Zakat and Taxes Minority Interest Net Income

2010 2,050 1,492 557 104 50 (66) 88 470 36 19 415

2011 1,991 1,652 339 110 52 (160) 1 338 25 25 288

2102 2,465 1,928 537 83 60 (168) (25) 562 36 22 504

2102 2,847 2,250 596 94 60 (397) (243) 839 50 37 752

Change 15.5% 16.7% 11.1% 13.3% 1.1% 136.7% 871.7% 49.3% 37.4% 71.3% 49.3%

Income Statement (million) Revenues Cost of Revenues Gross Profit Selling, General, and Admin. Expenses Net Interest Expense Other Expenses/(Income) Total Other Expenses/(Income) Net Income Before Zakat and Taxes Zakat and Taxes Minority Interest Net Income

Q1 2013 599 497 101 23 13 (92) (56) 157 9 10 138

Q1 2014 771 577 194 27 17 (64) (20) 214 11 8 195

Change 28.8% 16.0% 91.7% 18.4% 25.8% -30.2% -63.8% 36.4% 21.7% -17.6% 41.3%

Cash Flow Statement (million) Net Income Depreciation and Amortization Inventory Accounts Receivable Accounts Payable Other Changes in Cash Flow From Operations Change in Fixed Assets Other Changes in Cash Flow From Investing Activities Change in Debt Dividends Paid Other Changes in Cash Flow From Financing Activities Beginning Cash Balance Ending Cash Balance

2010 415 361 (17) 29 41

2011 288 381 (12) (113) 35

2102 504 430 13 6 (60)

2102 752 470 (91) (346) 52

Change 49.3% 9.1%

Q1 2013 138 114 (67) (181) 35

Q1 2014 195 128 19 (28) 58

(47) (271)

(180) (1,417)

(206) (608)

(197) (997)

-4.1% 63.9%

(1) (110)

(46) (367)

234.3%

670 (620) (317)

(23) 672 (311)

(50) 65 (157)

232 398 (314)

514.2% 99.6%

126 (78) (0)

18 37 (0)

-85.7% -147.9% -41.1%

80 762 1,085

(20) 1,085 385

0 385 320

(10) 320 270

-16.7% -15.9%

Cash Flow Statement (million) Net Income Depreciation and Amortization Inventory Accounts Receivable Accounts Payable Other Changes in Cash Flow From Operations Change in Fixed Assets Other Changes in Cash Flow From Investing Activities Change in Debt Dividends Paid Other Changes in Cash Flow From Financing Activities Beginning Cash Balance Ending Cash Balance

(10) 320 286

0 270 284

-15.9% -0.6%

Change 41.3% 12.5% -84.5% 68.1%

Source: Bahri Filings

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The National Shipping Co. of Saudi Arabia - Bahri 24 June 2014

Definitions 

Earnings Per Share It is an indicator of the company's profit in Saudi Riyals per each outstanding share. It is calculated by dividing the company’s net income of by the number of outstanding shares.



Revenue Is the amount of income that is brought into a company by its business activities.



Gross profit A company’s profit after deducting the cost associated directly with its sales or production. Does not include indirect cost like depreciation, interest, tax and non-operating expense.



Price-to-earnings (P/E) Ratio It is the price paid by the company’ shareholders for the earnings of one of its shares. It is used to compare the prices of the company’s shares with that of another company within the same sector. If the P/E is higher than the sector’s average, it indicates either the share is overpriced or that there is a greater expectation for the company to generate more profits in the future, and vice versa. It is calculated by dividing the price of a share by the share’s earnings in Saudi Riyals



Book value per share The company's book value represents the value of the company in the event of liquidation or exit. Dividing the shareholders’ equity by the company’s outstanding shares represents the book value per share.



Price-to-book (P/B) ratio It represents the market price per share vis-à-vis its book value. It is used to compare between companies within the same sector and comparing them to the sector’s average. If the number is higher than the average, it means that the company’s price is traded higher than its book value. This means that either the share is overpriced or that the company is in a growth state; and vice versa. The number is calculated by dividing the share’s market price by its book value.

Return on equity



It is a percentage representing the extent of the company's efficiency in achieving earnings from the shareholders’ investment. It is calculated by dividing the company’s net income by Shareholders' equity. The higher the percentage, the higher the efficiency, and vice versa.



Net Debt Total long-term debt after deducting cash on hand and in banks.



Enterprise Value It is the market capitalization plus net debt.



Time horizon We recommend using a Time horizon of 9 to 12 months, during which the current price might reach the Target price

Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent. Overweight:

The Target share price exceeds the current share price by ≥ 10%. We expect the share price to reach the Target price over the next 9-12 months

Neutral:

The Target share price is either more or less than the current share price by < 10% We expect the share price to reach the Target price over the next 9-12 months

Underweight:

The Target share price is less than the current share price by ≥ 10%. We expect the share price to reach the Target price over the next 9-12 months

To be Revised

No target price had been set for one or more of the following reasons: waiting for more analysis, waiting for detailed financials , waiting for more data to be updated, major change in company`s performance, change in market conditions or any other reason from Albilad Capital Research.

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The National Shipping Co. of Saudi Arabia - Bahri 24 June 2014

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