Zain posts record-high income on higher revenues, lower provisions: NCBC

Mobile Telecommunications Company Saudi Arabia (Zain Saudi) posted its highest net income since inception in the third quarter, with a net profit of SAR 3 million, NCB Capital said in an earnings review.

“The results compare to our estimates of a net loss of SAR 35 million and the consensus of a net loss of SAR 47 million,” the investment bank said, noting that the difference is due to higher revenues, expansion in margins, and lower provisions.

Adjusting for lower provisions, NCBC said it believes Zain reported a net loss of SAR 78 million.

The telecom operator’s revenues grew 8.0 percent year-on-year (YoY) AND 5.7 percent quarter-on-quarter (QoQ) to SAR 1.95 billion, 7.0 percent higher than the brokerage’s estimate.

The growth reflects the increase in the number of subscribers, higher prices and positive impact of the Hajj season, the report said.

“Adjusting for MTR, revenues grew +10.0 percent YoY. In comparison, Mobily’s revenues grew 6.1 percent YoY (+2.8 percent QoQ), while STC revenues grew 5.6 percent YoY (+1.1 percent QoQ),” NCBC said, adding that based on the Saudi telecom regulator’s data for the second quarter of 2018, mobile subscribers increased 6.9 percent year-to-date (YTD) to 43 million.

Zain’s goss profit came in at SAR 1.34 billion, 11.3 percent higher than NCBC estimates of SAR 1.20 billion.

Gross margin was 68.4 percent in Q3 2018, higher than the estimate of 65.8 percent.

“We believe the variance in margins is due to higher than expected contribution of the data segment,” analysts at NCBC said.

NCBC, the investment arm of National Commercial Bank, is neutral on Zain with a target price of SAR 6.9.

“The potential sale of towers and the success in capital restructuring are the key catalysts for Zain. However, increasing competition and high debt levels of SAR 10.9 billion (net debt/ EBITDA of 3.9x) are the key risks,” the report concluded.