Riyadh - Mubasher: Al Rajhi Capital said in a report on Tuesday that the Saudi telecom sector earnings in the fourth quarter of 2016 were better than consensus and the research firm expectations.
Al Rajhi also revised its target price (TP) for STC to SAR 68 per share with a Neutral rating. Meanwhile it has maintained Mobily’s TP at SAR 27 per shar, with an Over Weight rating, and raised Zain’s TP to SAR 8.5 with another Neutral rating due to improving financials.
“At the net profit level, STC came inline while Mobily and Zain came above our expectations. However, a closer look at the numbers reveal a few emerging trends for the sector as Q4-16 was a period of normalized performance without one-offs after last two quarters of uncertainty,” the report added.
STC’s top line declined by 9 % quarter-on- quarter, below consensus expectation, while both Zain and Mobily grew by 10% quarter-on- quarter.
“As this was the first quarter after cut on allowances and cap on mobile payments for some government employees, mostly STC customers in our view, this could be the new base for STC.”
“Secondly, after a few quarters of revenue declines, Mobily may have started to follow Zain’s approach of gaining market share by incurring higher customer acquisition costs.”
“As a result, Mobily grew its revenue by double digits sequentially but saw its gross profit declined 4% compared to the previous quarter, while Zain’s performance was above peers as gross profit grew 7.6%,” the report indicated.
According to Al Rajhi Capital, Mobily is likely to focus on maintaining its market share at higher customer acquisition costs but its priority will be on operating cost savings.
