MEGA Trade --> Long Saudi...

Opening New MEGA Trade:  
Long Saudi Equities ( Buy M1SAP on Swap / Liquidity $100mm a Day)  
- Potentially the EM Flow Story of 2018... if FTSE addition is announced on March 28th we expect an inflow of 
$5bn on a basket which trades 100mm USD a day (50X ADV)... this is even before MSCI announcement in June 
where inflows could be substantially higher 
The Most Powerful Macro Trades are when Macro Fundemantals + Flow Meet... This is Saudi in 2018 
Key Points:  
1. Saudi has significantly underperformed Oil by 14% last 6 months. With the recent introduction of the citizens account programme, 
subsidy cuts, pushing out the budget balance to 2023, and the news of increased handouts, Saudi should re correlate with oil and move higher 
from here. 
2. Saudi equities remain under-owned globally --) foreign ownership of Saudi equities is at 1.3% vs Russia 70%, Turkey 55%, South Africa 
50%, Brazil 45%, UAE 20%, Qatar 10% 
3. Good liquidity vs other EMs but volume trading at lows relative to history -4 Tadawul ADV close to all-time lows at $1bn (10yr range is 
$1-8bn) 
4. Major index events in 2018/19 with FTSE announcement on 28th March next catalyst-4 FTSE announcement could trigger inflows of up 
to $5bn . Combined with the MSCI announcement later this year, potential active and passive inflows can total $15-$40bn. So the potential of at  
least $20bn inflows on a basket which trades 100mm USD a day (200 Days Volume) ?  
5. In comparison, during the MSCI UAE and Qatar inclusions, UAE was trading 10% below historic avg @14x PE and rerated to 22x into MSCI 
EM inclusion with Dubai up +110% (vs +47% prey year). Qatar was trading inline with historic avg @11x PE and rerated to 18x MSCI EM inclusion 
with Qatar up +60% (vs +9% prey year) 
6. Saudi risk indicators at 2015 pre-crisis levels 4 Saudi 5yr CDS is trading at 76 vs 40-210 3yr range; SAR 2yr fwd suggests market is less 
worried about depeg fears and forward points can be used as a macro hedge 
7. Valuations & dividend yields remain attractive 4 Market trades at a 10% discount (13.5x) to its historic PE (Saudi PE range is 10-
26x). Avg dividend yield is 3.6% with 45 stocks yield more than 4%. 
Our Middle East Team ready for Calls - Ha mdy Hamoudi in London next week 19th-23rd March. Talal marketing in US 23rd-27th April. Marwan in 
Trading

Hootan Yazhari, CFA 
Research Analyst 
Merrill Lynch (DIFC)

Saudi trade continues to gain momentum as we head into March 28 FTSE decision, followed by MSCI in June. 
Our base case is for a positive outcome for both EM index reviews. 
• Tadawul +5% past 3 sessions printing new 3 year highs, Foreign inflows YTD at $1.35bn 
• Recent headline on Aramco: Saudi Aramco likely to be delayed to 2019. Delay not all together surprising giving complexity of the transaction, delays in choosing 
the trading venues, as well as to better align the IPO with potential MSCI / FTSE index inflow timelines 
• Crown Prince MBS will appear on '60 Minutes' on March 18th, one day before he lands in the US for a 10 day tour, meeting Trump on the 20th. 
• Reform agenda picking up speed: Women Driving; Entertainment/Movie Theaters; Welfare Programs; Market access reforms & Intl debt issues 
Saudi Fundamentals are strong (see Jean-Michel Saliba's report from Jan. 29th below): 
• Growth has bottomed out 
• OPEC is succeeding at rebalancing the oil market. Fiscal adjustment now sufficient to safeguard stability at cUS$60/bbl. 
• Equity strategy: remain positive, outlook gains momentum - We retain our positive view on the Saudi market as we see strong earnings 
momentum as well as increasing appetite for Saudi equities amongst global investors: 
Best way to access the trade: IX/MAP (MSCI Saudi Provisional Index) 
• 32-name MSCI-owned index, that will rebalance into the full MSCI EM index upon inclusion 
• Trades $90m/ day based on bottleneck liquidity 
• Tradable on swap at lmL+90bps, std comm applies; also accessible on fully funded Luxembourg-listed warrant (MERRI1DT LX) 
10 single stock names to own in Saudi 
• Al Rajhi: BAML Top pick for 2018 » Largest bank in Saudi » Reflation trade beneficiary » We see the bank continuing to deliver strong earnings momentum on 
the back of: (1) Stand out NIM expansion given a unique cost of funding position and further policy rate hikes (2) a continued normalization in asset quality 
driving CoR lower; (3) Higher loan growth than peers as it benefits from consumer loan growth (particularly housing) whilst taking share in the corporate market and 
(4) Al Rajhi is set to be a key beneficiary from the potential forthcoming Saudi index inclusions. 
• NCB: We see NCB as a key beneficiary from the economic diversification program the Government has introduced. Its large balance sheet and resulting ability to 
finance mega projects should allow it to capture market share in the coming years. Further support will come from having the PIF as a major shareholder. We also see 
a sublime margin outlook given NCB's ability to benefit from rising interest rates and bond yields. 
• SABIC: Expect strong earnings momentum in FY18E driven by robust product prices as well as solid plant operations. View company's intent to expand 
internationally as a catalyst for unlocking balance sheet value. The company is expected to be the largest constituent of Saudi MSCI EM Index (-16%). Shares trade at a 
2018E EV/EBITDA of 7.4x, —20% discount vs global peers. 
• Yansab: Given robust MEG pricing outlook (40% of profits, prices up 18% YTD) providing a healthy tailwind to earnings this year, we expect an attractive dividend 
yield of 6% (top quartile globally) in FY18E/19E well supported by FCF yields of 9% and a net cash position. 
• SIC: One of the main beneficiaries of index inflows into Saudi. STC has finally improved management representation to investors with the departure of the 
previous IR, and new team in place. Significant government receivables recovery to drive stock price for next two quarters, while Careem stake can provide some 
positive headline risk on valuations. 
• Jarir: We like Jarir for its potential to increase its market penetration having increased its store count by 13% since August 2017 while maintaining its premium 
ROE of 53% and attractive dividend. 
• Al Tayyar : Stock will see a slew of positive catalysts over the next two quarters, particularly a second tranche of substantial gov receivable recoveries in Ql. 
130mn SAR loss from associates in 2017 is a one off and should make comps easier this year. Q1 earnings should see the first earnings growth after a very difficult 2 
years. Makkah real estate REIT will also provide an uplift. 
• Al Hokair: has massively under performed in Saudi index and consumer sector and should see substantial improvement in business in 2018 as LFL turns the 
corner and the company businesses a beneficiary from social reforms in the country. Debt restructuring concerns likely behind us at this point, relief there would be 
the main catalyst for the name. 
• Malath / Alrajhi Takaful: 2 of the top motor insurers in Saudi secular growth trend in motor insurance sector over the next two years as the regulator clamps 
down on more than 50% uninsured drivers while women driving to present multiyear volume growth story.

Cole Mackay, CFA, Director 
Emerging Europe, Middle East & Africa Equity Sales 
Bank of America Merrill Lynch

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