Saudi Telecom’s Q3 beat estimates, says NCBC

Saudi Telecom Co.'s (STC) Q3 2017 net profit of SAR 2.6 billion topped NCB Capital and consensus estimates of SAR 2.3 billion, the brokerage firm said in an earnings review.

Revenue dropped 8.5 percent year-on-year (YoY) and 2.8 percent on a quarterly basis to SAR 12.8 billion, missing the brokerage firm’s forecast by 4.9 percent.

The telecom giant’s revenues were hit by the application of the fingerprint verification system and economic slowdown, but this was mitigated by an expansion in gross margins and lower opex, NCB Capital said.

Gross profit of SAR 7.7 billion broadly matched the brokerage’s expectations of SAR 7.4 billion.

Gross margin rose to 59.6 percent in the third quarter from 50.7 percent in Q3 2016, beating the brokerage firm's estimate of 54.6 percent.

STC’s operating income stood at SAR 3 billion, 22.3 percent above the brokerage’s expectations, driven by lower-than-expected selling, general and administrative expenses.

Earlier this month, Saudi Arabia’s Communication and Information Technology Commission (CITC) cut wholesale local voice call termination rates on mobile networks (MTR) to SAR 0.055 from SAR 0.10, while land line charges will decline to SR0.021 from SR0.045.

CITC stated that higher competition and lower end-user prices are the main reasons for the revision.

Also in October, STC announced that Oman’s Telecommunications Regulatory Authority decided not to proceed with the award process for the sultanate’s third telecom license. STC was in the running for the license, along with the UAE’s Etisalat and Kuwait’s Zain Group.

NCB Capital maintained a "neutral" rating on the stock, keeping its price target unchanged at SAR 72.1.

Going forward, key advantages for the stock are a strong balance sheet and attractive dividend yield of 6.1 percent. STC's progress in the sale of its towers is also a key catalyst.