Implications of allowing women to drive in Saudi Arabia
Saudi Arabia issued a Royal Decree allowing women in the country to drive. A committee has been formed to implement the ruling and it will present recommendations within 30 days. Then the government will have until June 24, 2018, to implement the new decree.
We believe it is just a series of changes that will come forth in the coming months and also be- lieve that these changes will have huge implications for the Saudi Arabia’s economy and some particular sectors such as banking, insurance, retail and some standalone companies such as Aldrees Petroleum and Budget Saudi. Saudi Arabia’s female population on an average has grown by 2.6 per cent every year since 1990 to 13.6mn in 2015. Of the total female population of 13.6mn, 6.9mn are in the age bracket of 20-50 years which will be potential vehicle purchasers.
Beneficiary sectors
We believe the news would not only be welcomed by the female population but also by companies in banking, insurance, retail and some standalone companies.
Banking sector
We believe the banking sector will be one of the top beneficiaries of the ruling. It will increase the retail loan segment because of expected increase in auto loans. Banking sector at Tadawul is currently up 7.3 per cent Yearto-date and is trading at PE and Pbv multiple of 12.1x and 1.3x respectively. However, the other amendment announced on Tuesday would be tad negative for the sector related to changes in mortgage law. Saudi Arabia’s central bank scrapped administrative fees for mortgage holders if they switch between fixed and floating rate loans and also allowed mortgage holder to move to a new lender without additional costs.
Insurance sector
Companies who extend motor insurance policies for motor in- surance will be large beneficiary of the ruling issued. Motor segment in Saudi Arabia recorded highest premiums growth in 2016 at 12.6 per cent compared to overall gross written premiums (GWP) growth of one per cent. Motor segment premiums account for 33 per cent of total GWP in Saudi Arabia. Number of policies issued have grown from 3.67mn in 2012 to 3.90mn in 2016.
Outlook
Apart from banking and insurance sector we believe ALDREES Petroleum & Transport Services Company and Budget Saudi could be a beneficiary as well. At the country level, kingdom’s push for saudisation will also materialise as many expat drivers job will become redundant. Lastly women will be more active in the labour force which will increase their disposable income which will be positive for retail sector.
FTSE decision
FTSE annual country classification review results will be released after the US market close on Friday. Investor and analyst community expect a favourable decision and we believe a combination of allowing women to drive and FTSE inclusion will take Tadawul to new levels.