Mobily’s Q3 net loss in-line with estimates: Al Rajhi Cap

Etihad Etisalat Co.’s (Mobily) net loss of SAR 174.5 million for the third quarter of 2017 came broadly in-line with Al Rajhi Capital’s estimate of SAR 181 million, but missed the consensus projection of SAR 185 million.

Mobily managed to slightly improve its gross and EBITDA margins due to some renegotiation of cost contracts, the brokerage said in an earnings review on Monday.

However, while the improvement can be positive if sustained, key concerns in Q3 results include a 2 percent quarter-on-quarter (QoQ) decline in revenue, the sharp cut in capital expenditure, which could weaken growth further, as well as regulatory pressures.

“Though the overall results are slightly better than market expectations showing that the company is inching forward on cost savings, we believe there could still be some way to go before we view the stock favorably,” Al Rajhi Capital said.

Al Rajhi Capital maintained an “Underweight” rating on the stock with a target price of SAR12.5 per share.

“Given the persistent weakness in revenue and the recent regulatory changes that allow unencrypted VoIP based calls, we lower forecasts for topline growth and now assume decline in topline year-on-year (YoY) in 2018,” the report said.

Mobily’s EBITDA margin for the quarter is expected to extend to next year as the cost renegotiation may extend in 2018 helping the company to improve margins slightly as compared to the earlier estimates.

Al Rajhi Capital maintained a negative outlook for growth potential in the telecom sector over the near to medium term, given the expected decline in total market size, decline in international calls, gradual erosion of voice revenues (around 65 percent of total revenues for Mobily) due to increasing usage of VoIP based calling, and high competition.

The brokerage said it expects no dividends from Mobily for at least another three years, adding that if net profit improves over the next few years, it will mainly be from lower depreciation.