NCB Capital - Tracker template

DECEMBER 2014
KSA TELECOM SECTOR
UNCERTAINTY SURROUNDS THE SECTOR
We remain Overweight on STC and Neutral on Zain, while
downgrading Mobily to Neutral. We are cautious on the sector due
to 1) uncertainty on Mobily’s outlook, 2) Zain vs. Mobily lawsuit, 3)
impact of changing interconnection charges and 4) MVNOs (Virgin
Mobile and Lebara) beginning operations. However, we believe
STC is the best pick in the sector due to the strong fundamentals
and positive dividend outlook. We expect earnings for the sector to
increase 12% YoY in 2015E, to SR15.5bn.
 Remain OW on STC, Neutral on Zain; Downgrade Mobily to Neutral: We




downgrade Mobily to Neutral with a PT of SR52.0 of the back off the ongoing
concerns regarding its financials as well as growth expectation. We maintain
our OW rating for STC with a PT of SR82.6, supported by strong
fundamentals. We remain Neutral on Zain with a PT of SR7.5. We believe
Zain’s outlook concerns are fairly reflected in the stock price.
Recent events at Mobily lead to cautious outlook: Although Mobily stock
price declined 48.9% since September due to the recent restatements and
accounting issues, we remain cautious on the company’s outlook. We have
reduced our net income estimates for 2015E by 42.7% to SR3.92bn. Net
income is expected to grow 9% in 2015E with a CAGR growth of 3.8% going
forward. Based on bear case scenario analysis, write-off and slower than
expected growth could reduce the PT to SR37.3 while the PT could increase
to SR58.9 if Mobily managed to return to pre-crisis profitability.
Mobily vs. Zain lawsuit negatively impacts the sector: We believe the
outcome of Mobily vs. Zain lawsuit is critical for the sector given its impact on
the outlook of both companies. If Zain wins the case, Mobily will write-off
SR1.1bn, adding more pressure on its uncertain outlook. While if Mobily wins
the case, Zain will be obligated to pay SR2.2bn and therefore have its breakeven point revised even further. Although we expect long procedures, the
outcome will negatively impact the overall sector outlook either way
MVNOs entry to impact MNOs: We believe competition in the sector will
increase, as Virgin Mobile and Lebara commence operations. Mobily and
STC are expected to benefit from MVNOs in the form of higher revenue from
unused infrastructure, however, Zain is at a disadvantage as it will be
competing with four players.
Sector earnings to grow 12% YoY in 2015E: We expect the sector
earnings to grow 12% YoY in 2015E to SR15.5bn, mainly driven by a 6.5%
growth at STC. With concerns surrounding other operators, STC remains our
top pick due to positive earnings outlook and higher dividend potential. The
sector is currently trading at 2015E P/E of 10.8x in-line with peers average.
Saudi Telecom companies – Valuation matrix
STC
Mobily
Zain KSA
MCap Stock perf (%)
$mn
Dec YTD
Rating
PT
(SR)
OW
N
N
82.6 37,586
52.0 9,775
7.5 1,961
7.3 31.6
(1.2) (44.4)
(14.4) (26.9)
P/E
EV/ P/BV
(x) EBITDA
(x)
’15
‘15
‘15
11.4
9.3
NM
7.1
5.7
4.7
2.2
1.3
1.6
DY ROE
(%) (%)
‘15
‘15
ROA
(%)
‘15
5.7 20.0
4.2 14.6
0.0 (14.3)
13.0
7.5
(2.8)
Iyad Ghulam
+966 12 690 7811
i.ghulam@ncbc.com
Source: NCBC Research, All prices as of 25 December 2014
N: Neutral, UW: Underweight, OW: Overweight, NC: Not Covered
Please refer to the last page for important disclaimer
www.ncbc.com
KSA TELECOM SECTOR
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTOR
NCB CAPITAL
Analysis of Mobily concerns
Overview on the latest developments at Mobily
 Mobily’s accounting issues impacted investors and lenders confidence
Mobily reported an unexpected poor set of 3Q14 results and restated the 2013
and 2014 financial statements. The revision was mainly due to an error in
revenue recognition. This was combined with higher bad debt provisions, higher
opex and depreciation costs which led to a restatement of around SR1,080mn.
On a restated basis, revenues declined by 14.8% YoY. The main issues
highlighted by the auditors include revenue recognition concern on loyalty
programs and capital lease related to fiber optics.
Moreover, the significant increase in account receivables from SR5.7bn to
SR10.2bn during the last four years is also a concern. In 3Q14, Mobily reported
provisions of SR471mn related to impairments of inventory and goodwill.
Restatements and the further potential write-offs could trigger more problems
going forward.
Mobily has always been an attractive dividend paying company. However,
considering the recent events which could involve further provisions, the
sustainability of the current dividend policy is questionable as it could trigger
loans covenants. It could also restrict the company’s ability to raise more debt.
Mobily’s has a total debt of SR15.3bn with a 2015E debt to equity ratio of 0.44x.
 Mobily vs. Zain legal issues overshadow the sector
Mobily recently initiated arbitration proceedings against Zain in regards to a
network infrastructure agreement signed on May 6, 2008. Mobily claims that an
amount of SR2.2bn in exchange for services provided must be paid by Zain.
Mobily had to make a SR1.1bn provision due to the delay in receiving the
amount. The Company has requested arbitration proceedings in accordance
with the Service Agreement as Zain have not paid the amount.
Zain claims that the amount owed to Mobily is fully paid except for SR13mn
remains outstanding. Moreover, the company states that the claims made by
Mobily are against CITC regulations. We expect the trial to be lengthy putting
more negativity on the sector.
Sensitivity analysis on Mobily and Zain
We believe the current issues surrounding the sector reduce the clarity to
forecast its outlook. We have performed a sensitivity analysis on Mobily and
Zain, assuming different scenarios regarding 1) growth, 2) write-offs and 3)
outcome of the arbitration proceedings. We believe this gives a better clarity on
earnings and Price Targets for both companies.
 Three scenario analysis on Mobily
Base Case:
 Revenue to grow 7.3% YoY in 2015E and normalize thereafter at a
CAGR of 3.2%
 Net margin to rise from 18.1% in 2015E to 18.5% in 2019E
 Going forward, no additional write-offs assumed
Bull Case:
 Mobily achieves a high revenue growth of 7.3% + 8% going forward
from 2014 levels
 Margin expansion on decline in cost of services by 2%
2
KSA TELECOM SECTOR
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTOR
NCB CAPITAL
 Arbitration results go in favor of Mobily
 No additional write-offs against its receivables
Bear Case:
 Revenue growth remains flat after declining 7.6% in 2014E
 Margins decline on increase in cost of services
 Arbitration results go against Mobily – Mobily writes-off SR1.1bn
 Mobily faces additional write-offs of SR2.1bn related to high account
receivables
Exhibit 1: Impact on Mobily’s PT and Net Income
Scenarios
SR mn unless specified
2015 net profit
2016 net profit
2015 Net margin
Net Income CAGR (2015-2016)
PT (SR)
Bear
Base
Bull
1,613
1,702
8.1%
(31.2%)
37.3
3,916
4,012
18.1%
5.7%
52.0
4,689
4,791
20.0%
15.5%
58.9
Source: NCBC research
 Three scenario analysis on Zain
Base Case:
 Revenue to grow 10.1% YoY in 2015E and normalize thereafter at a
CAGR of 4.6%
 Net losses to decline by 45% in 2015E, with the company achieving
breakeven by 2020E
Bull Case:
 Arbitration results go in favor of Zain
 Zain benefits from decline in Interconnection charges
Bear Case:
 Arbitration results go against Zain – Zain pays SR2.2bn
Exhibit 2: Impact on Zain’s PT and Net Income
Scenarios
SR mn unless specified
2015 net profit
2016 net profit
2017 Net Profit
2020 Net Profit
PT (SR)
Bear
Base
Bull
(1,277)
(1,015)
(836)
102
6.2
(727)
(464)
(280)
119
7.5
(267)
18
227
690
11.8
Source: NCBC research
3
KSA TELECOM SECTOR
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTOR
NCB CAPITAL
Outlook summary
 High dividend yields no longer a key attraction in the sector
We highlighted in our previous report that the frequent and high dividend yields
being the key strengths of the sector. However, we believe the recent set of
incidents in the Saudi telecom sector could have an impact on the dividend
paying ability of the companies involved. Given Mobily’s failure to pay dividends
for 3Q14 and the lack of further clarity, we reduce Mobily’s dividends expectation
in 2015E to SR2/share with a dividend yield and payout ratio of 4.2% and 39%
respectively. The potential of not paying dividends at all remains an option. On
the other hand, STC have already increased its dividends to SR4/share with a
dividend yield of 5.7% and a payout ratio of 65% in 2015E. Further dividends
growth could be constrained if the company explores M&A opportunities in the
MENA region.
 Top-line pressures expected as the sector approaches maturity
We expect total revenue of the three stocks under coverage to rise by 4.7% YoY
in 2015E and expand at a CAGR of 3.3% thereafter. This compares to a CAGR
of 9.4% between 2008–13. While growth in data remains the key sector driver,
voice is approaching maturity given the expected increase in penetration from
169% in 2014 to 180.7% in 2018E along with ARPU pressure. We believe the
operators will seek to grow through improving operational efficiencies and
implementing cost optimization programs. We expect earnings of the covered
stocks to increase 12.0% in 2015E, with a CAGR of 4.8% thereafter.
Exhibit 3: Total mobile subscribers (mn) and Penetration rate %
70
190%
60
185%
180%
50
175%
40
170%
30
165%
20
160%
10
155%
0
150%
2009 2010 2011 2012 2013 1Q14 2Q14 2014E 2015E 2016E 2017E 2018E
Mobile Subscribers (mn)
Penetration (RHS)
Source: CITC 2Q14 report, NCBC Research
 The increase in mobile subscribers signals an end to SIM cancellations
According to the latest CITC data, the total number of mobile subscribers in
Saudi increased for the first time in two years, to 51mn in 2Q14. This implies a
penetration level of 169.3%. CITC regulations and restricted free international
roaming had resulted in a decline in mobile subscriptions from a peak of 53.7mn
in 2011 to 49.8mn in 1Q14 (with penetration rates dropping from 188% to
165.1%). However, as stated in our previous update, we believe the effect of
these one-offs has ended and we expect the mobile subscriber count to grow at
a CAGR of 2.9% for the period 2014-18E, with penetration levels stabilizing at
180.7% by 2018E.
4
KSA TELECOM SECTOR
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTOR
NCB CAPITAL
Exhibit 4: Wireless broadband subscriber and Penetration rate %
30
90%
80%
25
70%
20
60%
50%
15
40%
10
30%
20%
5
10%
0
0%
2009 2010 2011 2012 2013 1Q14 2Q14 2014E 2015E 2016E 2017E 2018E
Wireless broadband subscribers (mn)
Penetration (RHS)
Source: CITC 2Q14 report, NCBC Research
 Revision in interconnection charges could re-shape the sector
CITC recently announced its plans to reconsider interconnection charges
between the telecom operators in the Kingdom. The current charges for mobile
at SR0.25/min are considerably higher than the global average of SR0.08/min.
As mentioned in our previous sector update, we believe these charges play a
significant role in determining the profitability of the sector.
We believe STC and Mobily benefit the most from the current interconnection
charges due to their large market share. Zain, on the other hand, has the lowest
market share and is required to pay a high off-network minute charge of SR0.25.
This forms the bulk of Zain’s expenses (54.3% of cost of services). Based on our
assumption of a decline in charges to SR0.08, we believe Zain’s cost of service
will drop by SR558mn, thereby enabling it to achieve break-even faster than
expected (2017E). We also expect STC and Mobily to be negatively impacted
with their revenues declining by SR321mn and SR236mn, respectively. Overall,
we believe any revision in charges to have a significant positive impact on Zain,
thereby improving the outlook of the company.
However, if changing interconnection charges was followed by a reduction of
end-user minutes prices, the picture will be different. We believe the sector
profitability will be negatively impacted, putting further pressure on stock prices.
 Virgin Mobile and Lebara launch operations as first Saudi MVNOs
Virgin mobile, in partnership with STC (STC owns 10%), was the first MVNO to
launch its services in Saudi. The company targets the youth and expatriate
segment. Under this partnership, Virgin Mobile will have access to STC’s
network and infrastructure. Jawraa Lebara has also started its operations
targeting the expat community in the kingdom. The company had initially
planned to launch its service in March 2014 but issues related to interconnection
charges led to subsequent delays. Axiom Telecom is the third MVNO expected
to enter the Saudi telecom space with a partnership with Zain. However, no
progress has been announced recently.
5
KSA TELECOM SECTOR
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTOR
NCB CAPITAL
In the past five years, the global MVNO markets grew rapidly. Virgin Mobile has
successfully managed to grow in the UK with over 4mn customers, gaining more
than 8% market share in its five years of operations. This was supported by its
strategy to target the young customer base, a model the company plans to
replicate in Saudi. We believe the entry of MVNOs will benefit end users due to
availability of a wide range of competitive and innovative services. However, it
will increase competition for existing players in an already saturated market.
While partnership with MVNOs could lead to an additional source of revenue
that helps support revenues, the risk of strong competition remains with a
potential margin contraction.
 Telecom sector the worst performer on sector-specific concerns
Mobily and Zain declined 48.9% and 39.8%, respectively since the highest point
recorded by the TASI in September 2014. We believe these declines were due
to the recent weakness in oil prices, but more importantly the recent events at
both companies. The concerns surrounding the two stocks and the decline in oil
prices negatively impacted the price of STC, which declined 7.2% from its high
of SR75.8. The Telecom index declined 33.7% since Sep-2014 and is down
21.5% YTD. This compares to a decline of 21.5% for the TASI, which is up 2.5%
YTD. The sector is trading at 2015E P/E multiple of 10.8, in-line with peers
average.
Exhibit 5: 3-month return of covered stocks, sector and TASI
STC
TASI
Sector
Zain
Mobily
-6%
-22%
-34%
-40%
-49%
Source: Tadawul
6
KSA TELECOM SECTOR
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTOR
NCB CAPITAL
Recent company events
 Zain proposes restructuring program through capital reduction
Zain proposed a capital restructuring program which will reduce the capital by
SR4.9bn and the number of shares by 496.3mn shares i.e. 45.9% of total
capital. We believe this is purely an accounting measure. It aims to prevent Zain
from falling into CMA’s radar with respect to new regulations implemented in
July 2014, regarding companies with accumulated losses of over 50% of their
paid up capital. This is the second time Zain involves in a capital restructuring
program. In July 2012, Zain reduced its capital by SR9.1bn or 65.7% of capital.
Since then, Zain reported significant losses as a result of higher D&A charges
and other financial costs. Consequently, the company’s accumulated losses
surged.
 STC international investments at risk of FX losses
Other than its operations in Bahrain and Kuwait, STC has international
operations in Turkey, Malaysia and South Africa. Given the recent strength in
the US$, currencies in these countries have depreciated 7.9%, 6.6% and 10.5%
YTD, respectively. We believe STC’s exposure to these countries could result in
short-term margin pressures on account of FX volatility, thereby impacting its
bottom-line. Historically, STC has faced currency pressure, with losses from FX
for 2013 coming-in at SR5mn in 2013 vs. SR153mn in 2012.
7
KSA TELECOM SECTOR
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTOR
NCB CAPITAL
Changes to estimates
In the table below, we have highlighted the changes to our 2014E and 2015E
numbers and price targets since our last update on the sector in September
2014.
Exhibit 6: Changes to estimates
In SR mn, unless otherwise stated
Saudi Telecom Co.
Revenue
Gross profit
EBITDA
Adjusted EBIT
Adjusted net profit
Price target
Mobily
Revenue
Gross profit
EBITDA
EBIT
Net profit
Price target
Zain KSA
Revenue
Gross Profit
EBITDA
EBIT
Adjusted net profit
Price target
Old
2014E
New
2014E
%
Chg
%
Gr
Old
2015E
New
2015E
%
Chg
%
Gr
46,513
28,003
18,850
11,978
11,440
45,846
28,351
19,445
12,465
11,594
(1.4)
1.2
3.2
4.1
1.3
0.5
3.4
5.3
3.1
5.4
48,003
28,951
19,446
12,332
12,252
84.8
47,121
29,055
19,763
12,892
12,348
82.6
(1.8)
0.4
1.6
4.5
0.8
(2.7)
2.8
2.5
1.6
3.4
6.5
26,115
13,606
9,541
6,637
6,547
20,208
10,952
6,770
3,610
3,592
(22.6)
(19.5)
(29.0)
(45.6)
(45.1)
(7.6)
(7.6)
(16.5)
(35.7)
(35.8)
27,756
14,427
10,078
6,911
6,834
104.9
21,674
11,719
7,396
3,921
3,916
52.0
(21.9)
(18.8)
(26.6)
(43.3)
(42.7)
(50.4)
7.3
7.0
9.2
8.6
9.0
6,263
3,218
1,194
(498)
(1,272)
6,268
3,247
1,076
(557)
(1,318)
0.1
0.9
(9.8)
NA
NA
(3.9)
3.6
20.9
NA
NA
6,884
3,788
1,723
(32)
(621)
10.6
6,902
3,678
1,564
(140)
(727)
7.5
0.3
(2.9)
(9.2)
340.1
17.0
(29.3)
10.1
13.3
45.3
NA
NA
SR
SR
SR
Source: NCBC Research estimates
8
KSA TELECOM SECTOR
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTOR
NCB CAPITAL
Summary of changes to estimates
STC

Changes in the P/E based peer valuation have led to a 3.1% reduction in our
PT.

We have revised downwards our revenue estimates slightly by 1.4-1.8% for
2015E-16E on the back of lower-than-expected revenue growth in 3Q14. This
has slightly reduced our PT by 0.4%
Mobily

We have revised down our revenue estimates by 22-23% for 2015-16E as well
as declined our estimates along all the profit lines by 19-43% for the same
period, on the back of the significantly poor 3Q14 results which saw
restatements in the top-line as well as higher opex leading to margin pressure.
We have also reduced our EBIT-Net margin estimates by 613-681bps for 2015–
16E. These changes in the fundamentals led to a decline in our PT by 50.2%.

We have reduced the premium over peers to -5% from 10% taking into account
the recent concerns. Changes in the P/E based peer valuation have led to a
2.1% reduction in our PT.
Zain

We have revised downwards our revenue estimate by around 4% for 2014E
while keeping it flat for 2015–16E, mainly due to slowdown in the Telecom
sector due to increasing competition.

We have reduced the premium over peers to 20% from 50% given the issues
surrounding the stock. Changes in the P/B based peer valuation have led to a
6.3% reduction in our PT.
9
TELECOM  DECEMBER 2014
SAUDI TELECOM COMPANY
COMPANY UPDATE
Defensive name, top pick in the sector
OVERWEIGHT
We remain Overweight on STC with a PT of SR82.6. We expect
STC’s net income to grow 6.5% in 2015E of the back off improved
revenues and lower costs. Growth through potential expansion
opportunities in MENA remains key driver. The performance of
international subsidiaries and higher dividends are key catalysts.
The stock currently trades at a 2015E P/E of 11.4x, compared to
peers average of 9.2x which we believe is justified given the strong
fundamentals and attractive dividend yield of 5.7%.
 STC revenues marginally impacted by lower interconnection charges:
CITC is planning to reduce interconnection charges. The current
interconnection charge placed by CITC is SR0.25/min. This compares to a
global average of SR0.08/min. Provided that STC has the biggest market
share in Saudi, we believe STC is the biggest beneficiary of interconnection
charges. Therefore, we expect the reduction to reduce STC’s revenues by
approximately 0.4% or SR321mn, if charges decline to SR0.08/min.
Target price (SR)
Current price (SR)
70.4
STOCK DETAILS
M52-week range H/L (SR)
76/54
Market cap ($mn)
37,586
Shares outstanding (mn)
2,000
Listed on exchanges
TADAWUL
Price perform (%)
1M
3M
12M
Absolute
6.2
(4.2)
28.5
Rel. to market
9.8
13.8
25.4
Avg daily turnover (mn)
 Expansion within the MENA region; potential catalyst: STC has
SR20.5bn in cash and ST investments on its balance sheet. We believe the
potential use of this cash reserve is a key determinant for STC’s outlook.
Based on the management feedback, we believe STC is looking for
expansion opportunities both locally and within the MENA region. With
revenues from international operations increasing 66.7% YoY in 3Q14 and
the maturity of the Saudi market, we believe expansion will be a key catalyst
for growth going forward.
 Best dividend yield in the sector: In-line with our expectations, STC
increased its quarterly dividend to SR1.0/share, taking its DPS to SR3.5 for
2014E. Mobily’s recent issues which restricted its ability to pay dividends,
which in turn increased the attractiveness of STC as a key dividend name in
the sector. We expect a DPS and dividend yield of SR4.0 and 5.7% in
2015E, increasing to SR5.0/share and 7.1% in 2016E, respectively.
 Remain Overweight on STC with PT of SR82.6: We maintain our
Overweight rating on STC with a PT of SR82.6. This is mainly driven by
strong fundamentals and attractive dividend outlook. However, the
performance of controlled subsidiaries, strong domestic competition, and FX
exposure are the key risks. The stock currently trades at 2015E P/E of 11.4x,
a premium to peers average of 24%, which we believe is justified.
SR
US$
3M
64.6
17.2
12M
77.9
20.8
Reuters code
7010.SE
Bloomberg code
STC AB
www.stc.com.sa
VALUATION MULTIPLES
13A
14E
15E
Reported P/E (x)
14.2
12.1
11.4
Adjusted P/E (x)
12.8
12.1
11.4
P/B (x)
2.5
2.3
2.2
EV/EBITDA (x)
7.6
7.2
7.1
Div Yield (%)
3.2
5.0
5.7
Source: NCBC Research estimates
SHARE PRICE PERFORMANCE
80
12000
71
10800
62
9600
53
8400
44
7200
35
Dec-13
Jun-14
STC
Summary Financials
SR mn
Revenues
Gross profit
EBITDA
EBITDA margin (%)
Adjusted net income
Adj. net margin (%)
EPS (SR)
DPS (SR)
82.6
6000
Dec-14
Tadawul (RHS)
Source: Bloomberg
2013A
45,605
27,413
18,471
40.5
11,001
24.1
5.50
2.25
2014E
45,846
28,351
19,445
42.4
11,594
25.3
5.80
3.50
2015E
47,121
29,055
19,763
41.9
12,348
26.2
6.17
4.00
2016E
48,795
30,104
20,445
41.9
12,782
26.2
6.39
5.00
2017E
50,323
31,077
21,147
42.0
13,234
26.3
6.62
5.00
CAGR (%)
2.5
3.2
3.4
4.7
Iyad Ghulam
+966 12 690 7811
i.ghulam@ncbc.com
4.7
22.1
Source: Company, NCBC Research estimates
Please refer to the last page for important disclaimer
www.ncbc.com
SAUDI TELECOM COMPANY
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTORSAUDI TELECOM COMPANY
NCB CAPITAL
Financials
Exhibit 7: Income Statement
In SR million, unless otherwise stated
2012A
Revenues
% change
Cost of services
Gross profit
Gross margin (%)
Operating expenses
EBITDA
EBITDA margin (%)
Dep. & Amortization
EBIT
EBIT margin (%)
Financing costs
Other inc./expenses, net
Pre-tax profit
Tax (Zakat)
Reported net income
Adjusted net income
% change
Net margin (%)
EPS (SR)
44,745
(19,483)
25,262
56.5
(15,516)
16,273
36.4
(6,337)
9,746
21.8
(678)
313
7,378
(215)
7,276
7,467
16.7
3.73
2013A
45,605
1.9
(18,191)
27,413
60.1
(16,425)
18,471
40.5
(6,378)
10,989
24.1
(143)
1,141
10,448
(230)
9,897
11,001
47.3
24.1
5.50
2014E
45,846
0.5
(17,495)
28,351
61.8
(15,886)
19,445
42.4
(6,980)
12,465
27.2
(153)
701
12,868
(799)
11,594
11,594
5.4
25.3
5.80
2015E
47,121
2.8
(18,066)
29,055
61.7
(16,162)
19,763
41.9
(6,870)
12,892
27.4
(139)
854
13,461
(633)
12,348
12,348
6.5
26.2
6.17
2016E
48,795
3.6
(18,692)
30,104
61.7
(16,863)
20,445
41.9
(7,204)
13,241
27.1
(126)
926
13,935
(656)
12,782
12,782
3.5
26.2
6.39
2017E
50,323
3.1
(19,246)
31,077
61.8
(17,452)
21,147
42.0
(7,521)
13,625
27.1
(111)
979
14,427
(679)
13,234
13,234
3.5
26.3
6.62
Source: NCBC Research estimates
Exhibit 8: Balance Sheet
In SR million, unless otherwise stated
2012A
Cash & cash equivalent
Other current assets
Total current assets
Net fixed assets
Intangible assets, net
Investments
Other assets
Total non-current assets
Total assets
Short-term loans
Other current liabilities
Total current liabilities
Long-term loan
Other liabilities
Total non-current liabilities
Total liabilities
Share capital
Reserves & surplus
Shareholders' funds
Total equity & liabilities
1,614
11,148
21,432
39,873
5,054
13,394
1,064
61,073
82,505
1,411
15,376
16,787
9,953
4,580
14,533
31,320
20,000
21,944
51,337
82,505
2013A
960
10,831
32,161
38,402
4,608
9,592
910
55,199
87,360
1,561
14,016
19,650
6,976
4,570
11,547
31,197
20,000
26,889
56,230
87,360
2014E
6,036
11,613
32,768
39,086
3,778
9,592
894
59,039
91,807
1,964
14,660
16,624
6,160
5,186
13,346
29,969
20,000
31,935
60,868
91,807
2015E
10,328
11,801
37,248
39,702
3,318
9,592
935
59,234
96,482
1,868
14,647
16,516
5,539
5,762
13,301
29,816
20,000
36,283
65,216
96,482
2016E
13,268
12,326
40,714
40,232
2,857
9,592
980
59,349
100,063
1,704
14,940
16,644
4,991
6,483
13,474
30,118
20,000
39,065
67,998
100,063
2017E
16,812
12,829
44,761
40,422
2,396
9,592
1,021
59,119
103,880
1,540
14,952
16,492
4,358
7,337
13,695
30,187
20,000
42,299
71,232
103,880
Source: NCBC Research estimates
11
SAUDI TELECOM COMPANY
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTORSAUDI TELECOM COMPANY
NCB CAPITAL
Exhibit 9: Cash Flow Statement
In SR million, unless otherwise stated
2012A
Cash flow from op. (a)
Cash flow from inv.(b)
NOPLAT
WC
CAPEX
Depreciation
Free cash flow
Cash flow from fin.(c)
Net chg. in cash (a+b+c)
Cash at start of the year
Cash at end of the year
15,723
(12,802)
9,462
2,370
(6,142)
6,337
12,027
(4,989)
(2,068)
3,683
1,614
2013A
19,636
(15,662)
10,746
(1,043)
(7,711)
6,378
8,370
(4,427)
(454)
1,614
960
2014E
22,969
(4,882)
11,692
(137)
(6,835)
6,980
11,700
(8,938)
9,150
960
6,036
2015E
19,218
(6,689)
12,286
(200)
(7,025)
6,870
11,931
(8,237)
4,292
6,036
10,328
2016E
20,042
(6,885)
12,618
(232)
(7,274)
7,204
12,316
(10,216)
2,940
10,328
13,268
2017E
20,651
(6,825)
12,984
(491)
(7,250)
7,521
12,764
(10,283)
3,544
13,268
16,812
Source: NCBC Research estimates
Exhibit 10: Key Ratios
Per share, unless otherwise stated
EPS
FCF per share
Div per share
Book value per share
Valuation ratios (x)
P/E
P/FCF
P/BV
EV/sales
EV/EBITDA
Div yield (%)
Profitability ratios (%)
Gross margins
Operating margin
EBITDA margins
Net profit margins
ROE
ROA
Liquidity ratios
Current ratio
Quick Ratio
Operating ratios (days)
Inventory
Receivables outstanding
Payables outstanding
Operating cycle
Cash cycle
2012A
2013A
2014E
2015E
2016E
2017E
3.6
6.0
2.0
25.7
4.9
4.2
2.3
28.1
5.8
5.8
3.5
30.4
6.2
6.0
4.0
32.6
6.4
6.2
5.0
34.0
6.6
6.4
5.0
35.6
19.3
11.7
2.7
3.1
8.7
2.8
14.2
16.8
2.5
3.1
7.6
3.2
12.1
12.0
2.3
3.1
7.2
5.0
11.4
11.8
2.2
3.0
7.1
5.7
11.0
11.4
2.1
2.9
6.9
7.1
10.6
11.0
2.0
2.8
6.7
7.1
56.5
21.8
36.4
16.7
30.6
8.4
60.1
24.1
40.5
24.1
20.5
13.0
61.8
27.2
42.4
25.3
19.8
12.9
61.7
27.4
41.9
26.2
19.6
13.1
61.7
27.1
41.9
26.2
19.2
13.0
61.8
27.1
42.0
26.3
19.0
13.0
1.3
1.1
1.6
1.5
2.0
1.8
2.3
2.1
2.4
2.2
2.7
2.5
28
63
80
91
11
25
61
55
87
31
24
68
49
92
43
25
66
50
91
41
25
67
51
92
41
26
67
52
93
41
Source: NCBC Research estimates
12
TELECOM  DECEMBER 2014
MOBILY
RATING CHANGE
Recent events lead to outlook uncertainty
NEUTRAL
We downgrade Mobily to Neutral with a PT of SR52.0. The major
accounting incident which was followed by dividend cuts and CMA
investigations have shocked the market and impacted investors
and lenders sentiment. Moreover, Mobily will be facing additional
challenges which include increasing competition, change in
interconnection charges and sector maturity. Although Mobily is
currently trading at a 2015E P/E of 9.3x, we remain cautious on the
company as overall risks outweigh any potential upside.
Target price (SR)
M52-week range H/L (SR)
98/39
 Weak growth expectations in 2015E: The poor 3Q14 results due to
Market cap ($mn)
9,775
revenue recognition error led to a restatement of SR1.1bn. We believe this
raises concerns of further write-offs which negatively impacted investor’s
confidence. We expect 2015E revenues to rise 7.3% YoY and to increase at
a CAGR of 3.2% thereafter, leading to a net income CAGR of 3.8%. Mobily is
expected to report a net income of SR3.9bn in 2015E. As the market is
maturing, we believe Mobily will be facing difficulty returning to pre-crisis
profitability levels.
 High accounts receivable of SR9bn signal a concern: Since it started
selling its promotional capital lease plans, Mobily’s total receivables grew
significantly from SR5.7bn in 2010 to SR10.2bn. We believe this was due to
aggressive revenue recognition methods. The company has taken a total
provision of SR471mn for 9M14 with further potential write-offs. We believe
this could impact the profitability of the company significantly.
 Arbitration issue with Zain to potentially impact outlook: We believe the
recent lawsuit with Zain over the payment of SR2.2bn will have a significant
impact on Mobily’s outlook. If Mobily lose, we expect its PT to decline by 28%
to SR37.3. Please refer the sensitivity analysis for more details.
 Unclear dividend outlook: We believe the recent issues will impact Mobily’s
dividend payout. Mobily did not pay any dividend in 3Q14. We believe the
company will pay a DPS of SR2.0 in 2015E, reflecting a dividend yield of
4.2% and vs. our previous estimate of SR5.0 and 5.5%, respectively.
 Downgrade to Neutral on weak outlook: We downgrade Mobily to Neutral
due to the recent issues surrounding the company as well as the uncertain
outlook. The stock is currently trading at a 2015E P/E of 9.3x, a discount of
2.1% to peers which we believe is justified.
52.0
Current price (SR)
47.5
STOCK DETAILS
Shares outstanding (mn)
770
Listed on exchanges
Price perform (%)
TADAWUL
1M
3M
12M
Absolute
(8.0)
(47.0)
(43.9)
Rel. to market
(4.3)
(29.0)
(47.1)
Avg daily turnover (mn)
SR
US$
3M
427.5
114.1
12M
194.9
52.0
Reuters code
7020.SE
Bloomberg code
EEC AB
www.mobily.com.sa
VALUATION MULTIPLES
13A
14E
15E
P/E (x)
6.5
10.2
9.3
P/B (x)
1.5
1.4
1.3
EV/EBITDA (x)
5.1
6.0
5.7
10.1
5.3
4.2
Div Yield (%)
Source: NCBC Research estimates
SHARE PRICE PERFORMANCE
100
12,000
87
10,800
74
9,600
61
8,400
48
7,200
35
Dec-13
Jun-14
Mobily
6,000
Dec-14
Tadawul (RHS)
Source: Bloomberg
Summary Financials
SR mn
Revenues
Gross profit
EBITDA
EBITDA margin (%)
Net income
Net margin (%)
EPS (SR)
DPS (SR)
2013A
21,866
11,850
8,112
37.1
5,598
25.6
7.27
4.80
2014E
20,208
10,952
6,770
33.5
3,592
17.8
4.67
2.50
2015E
21,674
11,719
7,396
34.1
3,916
18.1
5.09
2.00
2016E
22,254
12,009
7,738
34.8
4,012
18.0
5.21
2.50
2017E CAGR (%)
23,039
1.3
12,414
1.2
8,130
0.1
35.3
4,198
(6.9)
18.2
5.45
(6.9)
2.50
(15.0)
Iyad Ghulam
+966 12 690 7811
i.ghulam@ncbc.com
Source: Company, NCBC Research estimates
Please refer to the last page for important disclaimer
www.ncbc.com
MOBILY
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTORMOBILY
NCB CAPITAL
Financials
Exhibit 11: Income Statement
In SR million, unless otherwise stated
Revenues
% change
Cost of services
Gross profit
Gross margin (%)
Operating expenses
EBITDA
EBITDA margin (%)
Dep. & Amortization
EBIT
EBIT margin (%)
Interest charges, net
Other income
Pre-tax profit
Tax (Zakat)
Net income
% change
Net margin (%)
EPS* (SR)
2012A
2013A
2014E
2015E
2016E
2017E
23,585
17.6
(11,608)
11,977
50.8
(3,443)
8,534
36.2
(2,399)
6,135
26.0
(169)
121.7
6,088
(70)
6,018
18.4
25.5
7.82
21,866
(7.3)
(10,016)
11,850
54.2
(3,738)
8,112
37.1
(2,502)
5,610
25.7
(191)
257.2
5,677
(78)
5,598
(7.0)
25.6
7.27
20,208
(7.6)
(9,256)
10,952
54.2
(4,182)
6,770
33.5
(3,160)
3,610
17.9
(248)
321.5
3,684
(91)
3,592
(35.8)
17.8
4.67
21,674
7.3
(9,954)
11,719
54.1
(4,323)
7,396
34.1
(3,475)
3,921
18.1
(247)
337.6
4,012
(96)
3,916
9.0
18.1
5.09
22,254
2.7
(10,244)
12,009
54.0
(4,272)
7,738
34.8
(3,744)
3,994
17.9
(241)
354.5
4,108
(96)
4,012
2.4
18.0
5.21
23,039
3.5
(10,625)
12,414
53.9
(4,284)
8,130
35.3
(3,985)
4,144
18.0
(218)
372.2
4,298
(100)
4,198
4.6
18.2
5.45
Source: NCBC Research estimates, *Based on 770mn shares
Exhibit 12: Balance Sheet
In SR million, unless otherwise stated
Cash & cash equivalents
Short-term investments
Other current assets
Total current assets
Net fixed assets
License fees
Goodwill
Total non-current assets
Total assets
Short-term loans
Cr. portion of long-term loans
Other current liabilities
Total current liabilities
Long-term loan
Other liabilities
Total non-current liabilities
Total liabilities
Share capital
Reserves & surplus
Shareholders' funds
Total equity & liabilities
2012A
2013A
2014E
2015E
2016E
2017E
1,302
0
8,798
10,100
17,255
9,412
1,530
28,197
38,296
0
753
8,995
9,748
7,506
137
7,643
17,391
7,000
13,906
20,906
38,296
1,570
0
13,764
15,334
20,733
8,913
1,530
31,181
46,515
0
782
11,642
12,424
9,970
158
10,128
22,552
7,700
16,263
23,963
46,515
3,575
0
13,647
17,221
24,670
8,282
1,530
34,488
51,709
0
1,433
13,371
14,805
11,124
149
11,272
26,077
7,700
17,931
25,631
51,709
2,031
0
14,472
16,503
27,244
7,651
1,530
36,431
52,934
0
1,371
12,574
13,945
10,836
145
10,981
24,926
7,700
20,307
28,007
52,934
1,595
0
14,597
16,192
29,250
7,020
1,530
37,806
53,998
0
1,071
12,141
13,212
10,532
158
10,690
23,903
7,700
22,394
30,094
53,998
1,233
0
14,832
16,065
30,273
6,390
1,530
38,198
54,263
0
1,071
11,200
12,271
9,461
163
9,624
21,895
7,700
24,667
32,367
54,263
Source: NCBC Research estimates
14
MOBILY
NCB CAPITAL
30 DECEMBER
DECEMBER
2014
2014
KSA TELECOM SECTORMOBILY
NCB CAPITAL
Exhibit 13: Cash Flow Statement
In SR million, unless otherwise stated
Cash flow from op. (a)
Cash flow from inv.(b)
NOPLAT
WC
CAPEX
Depreciation
Free cash flow
Cash flow from fin.(c)
Net chg. in cash (a+b+c)
Cash at start of the year
Cash at end of the year
2012A
2013A
2014E
2015E
2016E
2017E
6,173
(4,076)
6,065
(3,549)
(2,762)
2,399
2,152
(2,484)
(387)
1,690
1,302
5,535
(3,951)
5,533
(2,320)
(5,424)
2,502
291
(1,315)
268
1,302
1,570
8,838
(6,467)
3,520
1,847
(6,467)
3,160
2,061
(367)
2,004
1,570
3,575
6,011
(5,418)
3,828
(1,623)
(5,418)
3,475
261
(2,137)
(1,544)
3,575
2,031
7,452
(5,118)
3,901
(558)
(5,118)
3,744
1,968
(2,769)
(436)
2,031
1,595
7,230
(4,377)
4,048
(1,176)
(4,377)
3,985
2,479
(3,215)
(362)
1,595
1,233
2012A
2013A
2014E
2015E
2016E
2017E
7.8
2.8
3.9
27.2
7.3
0.4
4.8
31.1
4.7
2.7
2.5
33.3
5.1
0.3
2.0
36.4
5.2
2.6
2.5
39.1
5.5
3.2
2.5
42.0
6.1
17.0
1.8
1.7
4.6
8.2
6.5
126.0
1.5
1.9
5.1
10.1
10.2
17.8
1.4
2.0
6.0
5.3
9.3
140.0
1.3
1.9
5.7
4.2
9.1
18.6
1.2
1.9
5.5
5.3
8.7
14.8
1.1
1.8
5.1
5.3
50.8
26.0
36.2
25.5
30.6
15.9
54.2
25.7
37.1
25.6
25.0
13.2
54.2
17.9
33.5
17.8
14.5
7.3
54.1
18.1
34.1
18.1
14.6
7.5
54.0
17.9
34.8
18.0
13.8
7.5
53.9
18.0
35.3
18.2
13.4
7.8
1.0
1.0
1.2
1.2
1.2
1.1
1.2
1.1
1.2
1.2
1.3
1.2
23
86
175
109
(66)
33
144
269
177
(92)
30
154
369
184
(185)
30
152
305
181
(124)
30
147
279
177
(102)
30
143
236
173
(62)
Source: NCBC Research estimates
Exhibit 14: Key Ratios
Per share, unless otherwise stated
EPS
FCF per share
Div per share
Book value per share
Valuation ratios (x)
P/E
P/FCF
P/BV
EV/sales
EV/EBITDA
Div yield (%)
Profitability ratios (%)
Gross margins
Operating margin
EBITDA margins
Net profit margins
ROE
ROA
Liquidity ratios
Current ratio
Quick Ratio
Operating ratios (days)
Inventory
Receivables outstanding
Payables outstanding
Operating cycle
Cash cycle
Source: NCBC Research estimates
15
TELECOM DECEMBER 2014
ZAIN KSA
COMPANY UPDATE
Lower interconnection charges, a key catalyst
NEUTRAL
We remain Neutral on Zain with a revised PT of SR7.5. We expect
the company to continue to grow faster than the sector. However,
this is not expected to fully translate at the bottom-line level. The
implementation of the new connection charges will be a key
catalyst for Zain as it will enable the company to reach break-even
faster than expected. However, increasing competition with the
operation of the two MVNOs is a concern as Zain has not yet
signed any MVNO agreement.
Target price (SR)
 Revision in interconnection charges a key catalyst: We believe Zain will
Market cap ($ mn)
be a key beneficiary of the revision in interconnection charges proposed by
CITC. Zain has the lowest market share among the three Telecom players
and is required to pay a high off-network minute charge of SR0.25, which
represents around 54.3% of Zain’s cost of services. A decline in charges to
SR0.08 will result in Zain’s COGS declining by SR558mn, thereby enabling
the company to achieve a faster-than-expected breakeven.
 Zain’s arbitration issue with Mobily under scrutiny: Mobily recently
initiated arbitration proceedings against Zain over the non-payment of
SR2.2bn for services rendered under a Service Agreement. Zain claims that
it has paid the required amount except for SR13mn. If Zain loses the case, it
will further constrain the company’s financials. This could also impact
investors and lenders confidence in the company.
 Two restructures in two years: Zain proposed its second capital
restructuring program which will reduce the capital by SR4.9bn and number
of shares by 496.37mn shares. We believe this is aimed at avoiding CMA’s
radar with respect to new regulations implemented in July 2014, regarding
companies with accumulated losses of over 50% of their paid up capital.
 Remain neutral with PT of SR7.5: We maintain our Neutral rating on Zain
with PT of SR7.5. We have reduced our estimates to reflect the short-term
concerns surrounding Zain which include the recent weak results and the
impact of breaking the covenant with lenders. The reduction in
interconnection charges and news about its MVNO partner will be a key
catalyst while additional competition from MVNOs remains a key risk.
7.5
Current price (SR)
6.8
STOCK DETAILS
M52-week range H/L (SR)
11.4/5.8
1,961
Shares outstanding (mn)
1,080
Listed on exchanges
Price perform (%)
TADAWUL
1M
3M
12M
Absolute
(23.4)
(35.1)
(25.7)
Rel. to market
(19.8)
(17.0)
(28.8)
Avg daily turnover (mn)
SR
US$
3M
132.0
35.2
12M
195.2
52.1
Reuters code
7030.SE
Bloomberg code
ZAINKSA AB
www.sa.zain.com
VALUATION MULTIPLES
13A
14E
15E
P/E (x)
NM
NM
NM
P/B (x)
1.1
1.4
1.6
EV/EBITDA (x)
8.3
6.8
4.7
Div Yield (%)
0.0
0.0
0.0
Source: NCBC Research estimates
SHARE PRICE PERFORMANCE
12
12,000
11
10,800
9
9,600
8
8,400
6
7,200
5
Dec-13
Jun-14
Zain
6,000
Dec-14
Tadawul (RHS)
Source: Bloomberg
Summary Financials
Revenues
Gross profit
EBITDA
EBITDA margin (%)
Net income
Net margin (%)
EPS (SR)
DPS (SR)
2013A
6,523
3,135
890
13.7
(1,651)
(25.3)
(1.53)
0.00
2014E
6,268
3,247
1,076
17.2
(1,318)
(21.0)
(1.22)
0.00
2015E
6,902
3,678
1,564
22.7
(727)
(10.5)
(0.67)
0.00
2016E
7,345
4,028
1,851
25.2
(464)
(6.3)
(0.43)
0.00
2017E
7,683
4,284
2,115
27.5
(280)
(3.6)
(0.26)
0.00
CAGR (%)
4.2
8.1
24.1
NM
NM
0.0
Iyad Ghulam
+966 12 690 7811
i.ghulam@ncbc.com
Source: Company, NCBC Research estimates
Please refer to the last page for important disclaimer
www.ncbc.com
ZAIN KSA
NCB CAPITAL
JUNE
30
DECEMBER
DECEMBER
2013 2014
2014
SAUDI
KSA
TELECOM
TELECOM
SECTORZAIN
COMPANY KSA
NCB CAPITAL
Financials
Exhibit 15: Income Statement
In SR million, unless otherwise stated
Revenues
% change
Cost of services
Gross profit
Gross margin (%)
Operating expenses
EBITDA
EBITDA margin (%)
Dep. & Amortization
EBIT
EBIT margin (%)
Financing costs
Other inc./expenses, net
Pre-tax profit
Tax (Zakat)
Net income
% change
Net margin (%)
EPS (SR)
2012A
2013A
2014E
2015E
2016E
2017E
6,171
(7.9)
(3,311)
2,860
46.3
(1,981)
879
14.2
(1,810)
(932)
(15.1)
(823)
5.6
(1,749)
0.0
(1,749)
(9.1)
(28.4)
(1.62)
6,523
5.7
(3,388)
3,135
48.1
(2,244)
890
13.7
(1,840)
(949)
(14.6)
(723)
20.6
(1,651)
0.0
(1,651)
(5.6)
(25.3)
(1.53)
6,268
(3.9)
(3,021)
3,247
51.8
(2,170)
1,076
17.2
(1,6330
(557)
(8.9)
(771)
9.9
(1,318)
0.0
(1,318)
(20.2)
(21.0)
(1.22)
6,902
10.1
(3,224)
3,678
53.3
(2,114)
1,564
22.7
(1,704)
(140)
(2.0)
(600)
13.5
(727)
0.0
(727)
(44.9)
(10.5)
(0.67)
7,345
6.4
(3,317)
4,028
54.8
(2,177)
1,851
25.2
(1,763)
88
1.2
(570)
17.7
(464)
0.0
(464)
(36.2)
(6.3)
(0.43)
7,683
4.6
(3,399)
4,284
55.8
(2,169)
2,115
27.5
(1,821)
294
3.8
(598)
23.6
(280)
0.0
(280)
(39.6)
(3.6)
(0.26)
Source: NCBC Research estimates
Exhibit 16: Balance Sheet
In SR million, unless otherwise stated
Cash & cash equivalents
Other current assets
Total current assets
Net fixed assets
Other assets - license fees
Other assets – other licenses
Total non-current assets
Total assets
Short-term loans
Other current liabilities
Total current liabilities
Adv. from shareholder non-cr. portion
Long-term loan
Other liabilities
Total non-current liabilities
Total liabilities
Share capital
Reserves & surplus
Shareholders' funds
Total equity & liabilities
2012A
2013A
2014E
2015E
2016E
2017E
2,385
1,995
4,380
4,285
19,226
49
23,636
28,016
170
3,980
15,401
2,563
0
26
4,164
19,564
10,801
(2,349)
8,452
28,016
1,293
2,022
3,315
4,293
18,276
57
22,927
26,242
200
3,626
3,826
3,034
8,631
39
15,657
19,483
10,801
(4,001)
6,759
26,242
1,760
2,135
3,895
4,476
17,327
37
22,083
25,978
190
3,176
3,366
3,433
8,990
49
17,171
20,537
10,801
(5,319)
5,440
25,978
2,314
2,159
4,472
5,372
16,377
41
22,033
26,505
190
3,425
3,615
3,585
9,365
56
18,177
21,792
10,801
(6,046)
4,713
26,505
3,089
2,271
5,360
6,141
15,428
47
21,856
27,216
190
3,538
3,728
3,737
9,755
64
19,239
22,967
10,801
(6,510)
4,249
27,216
4,619
2,395
7,014
6,322
14,479
53
21,094
28,108
74
3,675
4,968
3,889
8,891
73
19,171
24,139
10,801
(6,790)
3,969
28,108
Source: NCBC Research estimates
17
ZAIN KSA
NCB CAPITAL
JUNE
30
DECEMBER
DECEMBER
2013 2014
2014
SAUDI
KSA
TELECOM
TELECOM
SECTORZAIN
COMPANY KSA
NCB CAPITAL
Exhibit 17: Cash Flow Statement
In SR million, unless otherwise stated
Cash flow from op. (a)
Cash flow from inv.(b)
NOPLAT
WC
CAPEX
Depreciation
Free cash flow
Cash flow from fin.(c)
Net chg. in cash (a+b+c)
Cash at start of the year
Cash at end of the year
2012A
2013A
2014E
2015E
2016E
2017E
(1,150)
(562)
(932)
(2,100)
(1,055)
1,810
(2,276)
3,316
1,605
780
2,385
229
(803)
(949)
(376)
(860)
1,840
(345)
(517)
(1,092)
2,385
1,293
917
(846)
(557)
(536)
(826)
1,633
(286)
396
467
1,293
1,760
1,796
(1,654)
(140)
212
(1,600)
1,704
175
411
554
1,760
2,314
1,884
(1,586)
88
7
(1,519)
1,763
339
478
775
2,314
3,089
2,158
(1,058)
294
10
(974)
1,821
1,151
430
1,530
3,089
4,619
Source: NCBC Research estimates
Exhibit 18: Key Ratios
Per share, unless otherwise stated
EPS
FCF per share
Div per share
Book value per share
Valuation ratios (x)
P/E
P/FCF
P/BV
EV/sales
EV/EBITDA
Div yield (%)
Profitability ratios (%)
Gross margins
Operating margin
EBITDA margins
Net profit margins
ROE
ROA
Liquidity ratios
Current ratio
Quick Ratio
Operating ratios (days)
Inventory
Receivables outstanding
Payables outstanding
Operating cycle
Cash cycle
2012A
2013A
2014E
2015E
2016E
2017E
(1.6)
(1.7)
0.0
7.8
(1.5)
(0.3)
0.0
6.3
(1.2)
(0.3)
0.0
5.0
(0.7)
0.2
0.0
4.4
(0.4)
0.3
0.0
3.9
(0.3)
1.1
0.0
3.7
(4.2)
(3.9)
0.9
1.4
10.1
0.0
(4.4)
(21.3)
1.1
1.1
8.3
0.0
(5.6)
(25.7)
1.4
1.2
6.8
0.0
(10.1)
41.9
1.6
1.1
4.7
0.0
(15.8)
21.7
1.7
1.0
4.0
0.0
(26.2)
6.4
1.9
1.0
3.5
0.0
46.3
(15.1)
14.2
(28.4)
(27.5)
(6.4)
48.1
(14.6)
13.7
(25.3)
(21.7)
(6.1)
51.8
(8.9)
17.2
(21.0)
(21.6)
(5.0)
53.3
(2.0)
22.7
(10.5)
(14.3)
(2.8)
54.8
1.2
25.2
(6.3)
(10.4)
(1.7)
55.8
3.8
27.5
(3.6)
(6.8)
(1.0)
0.3
0.3
0.9
0.8
1.2
1.1
1.2
1.2
1.4
1.4
1.4
1.4
6
78
76
84
8
15
68
53
84
30
16
71
40
87
47
16
70
40
86
46
16
69
40
85
45
16
69
40
85
45
Source: NCBC Research estimates
18
KSA TELECOM SECTOR
NCB CAPITAL
DECEMBER 2014
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NCBC Investment Ratings
OVERWEIGHT:
Target price represents expected returns in excess of 15% in the next 12 months
NEUTRAL:
Target price represents expected returns between -10% and +15% in the next 12 months
UNDERWEIGHT:
Target price represents a fall in share price exceeding 10% in the next 12 months
PRICE TARGET:
Analysts set share price targets for individual companies based on a 12 month horizon. These share price targets are subject to a
range of company specific and market risks. Target prices are based on a methodology chosen by the analyst as the best predictor
of the share price over the 12 month horizon
Other Definitions
NR: Not Rated. The investment rating has been suspended temporarily. Such suspension is in compliance with applicable regulations and/or in
circumstances when NCB Capital is acting in an advisory capacity in a merger
or strategic transaction involving the company and in certain other situations
CS: Coverage Suspended. NCBC has suspended coverage of this company
NC: Not covered. NCBC does not cover this company
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19