Food aggregators to experience high growth as the market remains underpenetrated
➢ Jahez’s GMV growth drivers have been organic till now, going forward growth could also be
driven by PIK and Go Kitchen operations
➢ Supply constraints driven by driver unavailability on account of increased government
regulation to be offset by increased focused on logistics arm -Logi.
We initiate coverage on the Jahez International Company for Information System Technology
(Jahez) with a target price (TP) of c. SAR 671 per share, implying an upside of 14.0%, a P/E’23e and
EV/EBITDA’23e of 27.7x and 18.0x, respectively. We are optimistic on the online food aggregator
services industry considering the robust demand and the potential for higher scale of operations
as the market is still underpenetrated. We have used Discounted Cash Flow (DCF) and EV/Sales
based relative valuation methodology to value the company.
• Improving economy conducive to the Online Food aggregator market. Lower unemployment,
higher disposable income, increased female labor participation and relatively low inflation are
some of the key factors which drive the demand for discretionary spends, such as pre-cooked
meals. With IMF’s real GDP projection for KSA of 3.7% in FY23, the unemployment rate (as on
3Q22) and inflation rate (as on Dec-2022) of 9.9% and 3.3% respectively and higher Saudi female
labor force participation at 37%, (as on 3Q22), we see the key macro-economic variables fairly
aligned for backing the growth of food aggregators. While inflation is on rise amid concerns of
global recession, we expect KSA economy to be resilient and as such do not expect any negative
surprises.
• Aggressive expansion is noteworthy: Jahez has quickly expanded its market share from 13% in
FY19 to c.30% by FY21 to become the second largest player in the industry. The company
currently operates in 47 cities (vs. 22 cities in FY19), which covers c.74% of KSA population and is
focused to further improve its presence in eastern and western part of the kingdom. In terms of
customer acquisition (0.5mn in FY19 vs 2.4mn as on 1H22) as well as merchant onboarding (1,780
in FY19 to 8,273 as on 1H22) the company has exhibited stellar growth and we expect this trend
to continue, albeit at a slower rate, as the company charges one of the lowest merchants take
rates, has a reasonable delivery fee per order and a track record of high-quality service.
• Logi – the logistics arm to aid with operations of Jahez in addition to improving diversification.
The company has off late witnessed some supply constraints due to unavailability of driver
partners on account of increased stringent government regulations. In order to mitigate this
impact, the company is accelerating its operation in Logi, its logistics arm. Logi aims to be a
leading force behind last mile delivery in the Kingdom there by diversifying the business of Jahez
and serve as a centralized platform to support Jahez in its logistical and operational needs.
• Margins likely to improve. The delivery fee (c.65% of revenue) has been falling marginally short
of covering the delivery cost and we do not expect this trend to reverse in the mid-term.
However, the take rate from merchants have room for increasing and along with continued
operational efficiency and a prospective higher scale of operations, the margins could see
improvement.