STC’s Q1 earnings meet estimates, driven by higher other income: NCBC

Saudi Telecom Company’s (STC) net profit for the first quarter of 2018 of SAR 2.59 billion was in line with NCB Capital’s estimates, although it beat consensus projections of SAR 2.52 billion, the financial advisory firm said in an earnings review.

“We believe the higher than expected cost of services was offset by higher than expected other income,” NCB Capital said.

STC’s revenues of SAR 12.4 billion, down 1.1 percent year-on-year (YoY), were also in-line with estimates. NCB Capital said that higher income from data appears to have been mitigated by lower MTR income, a decline in mobile subscribers and the introduction of VAT. 

Gross margin of 56.5 percent in Q1 2018 was lower than NCB Capital’s estimate of 59.8 percent. “We believe the variance is due lower MTR income and the sale of low margin phones,” the report said.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) of SAR 4.64 billion were 5.4 percent lower than NCB Capital’s estimates, mainly due to lower cost of services.

STC announced a cash dividend of SAR 1 per share for Q1 2018, also in-line with estimates.

NCB Capital remains “neutral” on STC with a target price of SAR 80.2.

“STC is trading at a 2018E P/E of 17x, higher than the peers average of 14.5x, a premium that we believe reflects all the positives,” it said.