We upgrade Taiba to Overweight with a PT of SAR35.6. We believe Taiba is a key beneficiary from the increase in the number of pilgrims and positive outlook of the Saudi tourism sector. We expect this should result in a return to profitability in 2022f vs net losses in 2021 which was impacted by COVID crisis. Moreover, company’s expansion plans which include addition of 1,490 rooms by 2026f is expected to drive earnings going forward. The stock trades at 2022f P/B of 1.4x, lower than the peers average of 1.5x.
Religious tourism to drive recovery: After two years of COVID-19 restrictions, the Ministry of Hajj and Umrah raised the number of Hajj pilgrims to 1.0mn in 2022f (vs c60,000 in 2021, c10,000 in 2020, and 2.49mn in 2019). We believe the recovery in religious tourism will reflect positively on Taiba. Moreover, the Crown Prince’s launch of a major expansion of the Qubaa Mosque in Madinah, increasing its capacity by ten folds, will position it as a key destination for Madinah visitors further supporting the sector's and Madinah’s long-term outlook.
Expansion plans to fuel growth: Taiba has embarked on an expansion strategy, which is expected to add 1,490 rooms by 2026f to a total of 3300 rooms. Although Madinah will remain the main focus, Taiba is diversifying its offering by expanding in Riyadh and Jeddah (500+ rooms). Based on an occupancy rate estimate of 64%, we expect earnings to grow at 5-year CAGR of 28%. However, we expect the company to incur CAPEX of SAR1.5bn-SAR1.7bn which we believe will be mainly financed through debt. We expect the total debt level to increase from SAR65mn in Q1 22 (debt free in 2021) to SAR1.5bn by 2024f.
Back to profits in 2022f: As a result of the recovery in religious tourism, the company started to see improvement in its financial performance, which was reflected in Q1 22. For 2022f, we expect the company to post earnings of SAR83mn, against losses of SAR117mn for 2021, backed by improved higher occupancy rates and higher revpar (SAR200.0 vs SAR255.0 in 2019 and SAR118.0 in 2021).
Upgrade to Overweight with PT of SAR36.2: We upgrade our rating on Taiba to overweight with a PT of SAR36.2 mainly due to 1) the positive outlook of the Saudi tourism sector 2) expansion of Qubaa mosque in Madinah which is further expected to drive tourism and 3) Taiba’s expansion plans. Moreover, the implementation of the regulation to exempt listed companies in Makkah and Madinah from the prohibition of foreign investments will be a key driver. The stock trades at 2022f P/B of 1.4x vs 1.5x for the sector.