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Financial research report
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2.05 MB
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This document is page 40 of a Merrill Lynch financial research report ('GEMs Paper #26') dated June 30, 2016. It analyzes the 'National Transformation Program' (NTP) of Saudi Arabia, outlining sectors likely to benefit (Petrochemicals, Healthcare, Telecom) versus those likely to be negatively impacted. It highlights key investible themes such as the growth of religious tourism (Hajj/Umrah) and healthcare provision. The document bears a 'HOUSE_OVERSIGHT_016150' stamp, indicating it was part of evidence collected during congressional oversight, likely regarding Jeffrey Epstein's financial dealings or connections to Saudi Arabia.
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Key Quotes (4)
"Six key investible themes from the NTP are emerging"Source
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"Ambitious plans to grow religious tourism: with Hajj visitors set to increase from 1.5mn to 2.5mn"Source
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"Down trading as pressure mounts on the consumer"Source
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"Rising focus on healthcare provision"Source
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Full Extracted Text
Complete text extracted from the document (4,353 characters)
Table 13: Summary of key sectors likely benefiting from and impacted by the National Transformation Program
Sectors likely benefiting from NTP
Rationale
Rationale
Petrochemicals
With US$ 11bn being allocated to project development, downstream chemicals second largest focus of NTP; significant increase in natural gas availability (indigenous and imported); expansion opportunities
With US$ 11bn being allocated to project development, downstream chemicals second largest focus of NTP; significant increase in natural gas availability (indigenous and imported); expansion opportunities
Healthcare
Volume growth opportunities for private healthcare providers (management contracts); private health insurance growing; participation in privatisations; significant increase in local pharmaceutical production
Volume growth opportunities for private healthcare providers (management contracts); private health insurance growing; participation in privatisations; significant increase in local pharmaceutical production
Insurance (healthcare)
Private insurance coverage to increase to 31mn from 10.5mn currently; rising availability of private healthcare facilities
Private insurance coverage to increase to 31mn from 10.5mn currently; rising availability of private healthcare facilities
Real estate
Higher home ownership targeted; improved access to financing/housing subsidies to both developers and buyers; volumes set to expand as NTP targets higher real estate sector growth; increased opportunities for private sector investment
Higher home ownership targeted; improved access to financing/housing subsidies to both developers and buyers; volumes set to expand as NTP targets higher real estate sector growth; increased opportunities for private sector investment
Consumer staples
Demand growth from religious tourists; formalisation and Saudisation of retail sector; growth in locally produced poultry sales; longer-term private sector job creation
Demand growth from religious tourists; formalisation and Saudisation of retail sector; growth in locally produced poultry sales; longer-term private sector job creation
Telecom
Government spending US$2bn to enhance FTTH and Mobile networks; focus on increasing internet usage; religious tourism will boost demand
Government spending US$2bn to enhance FTTH and Mobile networks; focus on increasing internet usage; religious tourism will boost demand
Metals and mining
Provision of new mining licenses; potential investment opportunities for international mining companies
Provision of new mining licenses; potential investment opportunities for international mining companies
Defence
Increased localization will cut imports, develop local industrial capabilities and create jobs
Increased localization will cut imports, develop local industrial capabilities and create jobs
Sectors likely negatively impacted by NTP
Rationale
Rationale
Consumer discretionary
Near-term squeeze on consumer disposable income and sentiment; increased competition as foreign entities given 100% ownership entitlement; development of Saudi postal system possibly a precursor to online shopping increase
Near-term squeeze on consumer disposable income and sentiment; increased competition as foreign entities given 100% ownership entitlement; development of Saudi postal system possibly a precursor to online shopping increase
Petrochemicals
Potential reduction in feedstock subsidies; potential for increased competition from international companies
Potential reduction in feedstock subsidies; potential for increased competition from international companies
Real estate
Land tax on white land could impact cost base and prices in urban areas; higher competition from new entrants
Land tax on white land could impact cost base and prices in urban areas; higher competition from new entrants
All sectors
Rising costs on reduced subsidies (particularly water and energy); higher wage costs; increased financing burden on private sector as government partially shoulders NTP costs
Rising costs on reduced subsidies (particularly water and energy); higher wage costs; increased financing burden on private sector as government partially shoulders NTP costs
Source: National Transformation Program, BofA Merrill Lynch Global Research,
Six key investible themes from the NTP are emerging
Using this frame work we believe a number of investible themes are emerging including:
Using this frame work we believe a number of investible themes are emerging including:
1. Ambitious plans to grow religious tourism: with Hajj visitors set to increase from 1.5mn to 2.5mn and Foreign Umrah Pilgrims from 6mn to 15mn per annum, we see significant potential for the travel & tourism, transport sectors, consumer discretionary and telecom services sectors to benefit.
2. Down trading as pressure mounts on the consumer: With the NTP looking to reduce subsidies on energy (including transport fuels) and water, we see pressure on the disposable income of Saudi consumers rising in the short- to medium-term (although in the longer term, we expect higher employment levels, growing home ownership and accelerating growth to offset these factors). These issues could be further augmented by a slowdown in public sector wage growth and growth in the proportion of residents employed by the private sector,
In reflection, we believe that the consumer will likely become more value conscious in the near- to medium-term as stress on consumer discretionary spend mounts. As such, we continue to prefer the consumer staples and the grocery retailers in this environment. We also believe the grocery retailers will benefit from the government's focus on formalising the sector (it is highly fragmented currently and dominated by smaller independent stores) in an effort to increase Saudi participation. That said, we believe consumer discretionary companies which offer more affordable and economic goods could benefit as they take market share.
3. Rising focus on healthcare provision: Saudi Arabia is focused on significantly growing accessibility to healthcare for its residents. The provisions in the NTP include a significant increase in medical centres (hospitals and clinics), wider provision of private health insurance and an increase in the level of
40 GEMs Paper #26 | 30 June 2016
Merrill Lynch
HOUSE_OVERSIGHT_016150
Merrill Lynch
HOUSE_OVERSIGHT_016150
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