Zain Saudi’s Q2 better than expected on higher revenues: NCBC

Mobile Telecommunication Company Saudi Arabia’s (Zain Saudi) second-quarter net loss of SAR 38 million was lower than NCB Capital and consensus estimates of a loss of SAR 53 million and SAR 58 million respectively.

“The variance is due to higher than expected revenues and lower than expected selling, general, and administrative (SG&A) expenses,” NCB Capital said in an earnings review on Sunday.

The telecom operator’s revenue declined -1.0 percent year-on-year (YoY) to SAR 1.8 billion, 8.8 percent higher than the brokerage firm’s estimate of SAR 1.7 billion, reflecting an increase in the number of subscribers and higher prices.

Based on data from the Saudi Communication and Information Technology Commission (CITC) for Q1 2018 data, mobile subscribers increased 4.5 percent quarter-on-quarter (QoQ) to 42 million, reflecting a penetration rate of 129.2 percent vs 127 percent in 2017.

“As Zain subscribers remain unchanged QoQ at 8.4 million, we believe the company increased its prices,” NCBC said, adding that based on the management feedback, the company is focusing on higher value services and segments which include data, youth and B2B.

Zain Saudi’s’ gross profit came-in at SAR 1.2 billion, slightly higher than the research firm’s estimates of SAR 1.16 billion.

Gross margin stood at 64.6 percent in 2Q18, lower than the estimate of 68.4 percent and compared to 68.6 percent the previous quarter.

NCBC maintained its ‘Neutral’ rating on Zain with a price target of SAR 8.3.

“The progress of capital restructuring and the sale of towers are key catalysts in 2018E.  However, increasing competition, impact of the recent economic reforms, and high debt levels of SAR 10.9 billion (net debt/ EBITDA of 4.0X) are key risks,” the report concluded.