Zain Saudi Q1 misses estimates on VAT one-off, higher opex: NCBC

Mobile Telecommunications Company Saudi Arabia (Zain Saudi) reported lower-than-expected results in Q1 2018 with a net loss of SAR 77 million, compared to NCB Capital and consensus estimated loss of SAR 20.3 million and SAR16.6 million, respectively, the brokerage firm said in a report on Tuesday.

"We believe the variance is due to value-added tax (VAT) one-off and additional spectrum costs. Adjusting for the one-off of SAR 7 million related to VAT and estimated annual additional spectrum cost of SAR 59 million, net loss came-in at SAR 11 million," the report noted.

The telco’s revenues, which slipped 12.1 percent year-on-year (YoY) and 1.7 percent quarter-on-quarter (QoQ) to SAR 1.70 billion, was in line with NCBC's estimate.

The annual and quarterly declines were due to lower MTR income, lower mobile users, and the introduction of VAT.

Zain subscribers declined 17 percent YoY to 8.4 million, NCBC said, citing data from Communications and Information Technology Commission (CITC). Overall, mobile subscribers declined 16.1 percent YoY to 40.2 million, reflecting a penetration rate of 127 percent versus 151 percent in 2016.

The company's gross profit of SAR1.2 billion came in-line with the brokerage firm's estimates. Gross margin was higher than the estimates, coming in at 68.6 percent in Q1.

NCBC recommended a “neutral” rating on Zain Saudi, with a target price of SAR 8.30.

"The progress of capital restructuring and the sale of towers are the key catalysts in 2018. However, increasing competition, impact of the recent economic reforms, and high debt levels of SAR 10.9 billion are the key risks," the report said.