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Broadband Remains Growth Focus: Ksa Telecom Sector
Broadband Remains Growth Focus: Ksa Telecom Sector
Source: NCBC Research, All prices as of September 22, 2012 N: Neutral, UW: Underweight, OW: Overweight, NC: Not Covered
www.ncbc.com
NCB CAPITAL
Outlook summary
Top-line growth led by broadband expected:
We expect total revenues for the three stocks under coverage to increase by 8% YoY to SR46bn in 2H12, driven by a higher broadband subscriber base and growth in Saudi Arabias corporate segment. Seasonal factors (Ramadan and Hajj) take place in 2H12 and should aid sequential growth in the sector. Intense competition in the international call business notwithstanding, margins should be supported by the high-margin Data segment and OpEx efficiencies. On the other hand, increased sales coming from handset items and the corporate segment may pressure margins for Mobily. Margin growth, coupled with higher revenues, is likely to result in EBITDA rising by 9% YoY to SR16bn in 2H12, and net income increasing 26% YoY to SR7.4bn. For Zain, on the one hand its financial outlook has improved post its balance sheet restructuring due to lower interest payments. However, it remains significantly behind STC and Mobily in terms of market share and available products, and the top-line performance has been muted in the past several quarters, holding back the pace of its recovery.
NCB CAPITAL
in the past six to twelve months. We believe the potential for the international business remains significant, however continued investments and focus on synergies will need to be made in order to extract the maximum value for STC. We believe there is a possibility STC may use its growing cash reserves to increase its stakes in its international business in order to have more control over day-to-day operations.
NCB CAPITAL
Changes to estimates
In the table below, we have highlighted the changes to our 2012 and 2013 numbers and price targets since our last update on the sector in July 2012.
Exhibit 2: Changes to estimates
In SR mn, unless otherwise stated
Old 2012E New 2012E % Chg % Gr Old 2013E New 2013E % Chg % Gr
Saudi Telecom Co. Revenue Gross Profit EBITDA EBIT Net profit Price target Mobily Revenue Gross profit EBITDA EBIT Net profit Price target Zain KSA Revenue Gross profit EBITDA EBIT Net profit Price target
Source: NCBC Research estimates
60,523 34,125 21,865 12,792 9,136 SR 22,353 11,770 8,528 6,216 5,979 SR 7,315 3,480 1,368 (502) (1,432) SR
63,245 35,567 22,923 13,322 8,831 51.2 23,641 12,377 8,995 6,437 6,116 78.7 8,118 4,076 1,986 (76) (1,005) 16.2
62,587 35,164 22,469 13,160 9,692 51.8 24,410 12,751 9,062 6,484 6,190 81.9 7,483 3,643 1,848 (285) (940) 11.3
(1.0) (1.1) (2.0) (1.2) 9.7 1.2 3.3 3.0 0.7 0.7 1.2 4.0 (7.8) (10.6) (6.9) 274.9 (6.5) (29.8)
OVERWEIGHT
Target price
Current price (SR)
51.8
39.9
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M 2.3 3.3 43/33 21,308 2,000 TADAWUL 3M 1.8 (2.0) SR 39.5 38.5 12M 17.4 1.8 US$ 10.5 10.3
VALUATION MULTIPLES
11A Reported P/E (x) Adjusted P/E (x) P/B (x) EV/EBITDA (x) Div Yield (%) 10.3 10.1 1.7 4.0 5.5 12E 8.1 8.1 1.5 3.7 5.0 13E 8.2 8.2 1.4 3.6 5.0
Source: Reuters
www.ncbc.com
NCB CAPITAL
Financials
Exhibit 3: Income Statement
In SR millions, unless otherwise stated
2010A 2011A 2012E 2013E 2014E 2015E
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)
Source: NCBC Research estimates
51,787 2.0 (21,464) 30,323 58.6 (19,344) 19,621 37.9 (8,642) 10,978 21.2 (1,781) 1,779 10,977 (938) 9,436 8,708 (14.5) 16.8 4.35
55,662 7.5 (24,334) 31,328 56.3 (20,157) 20,025 36.0 (8,854) 11,171 20.1 (2,238) (445) 8,488 (597) 7,729 7,863 (9.7) 14.1 3.93
59,729 7.3 (26,014) 33,714 56.4 (21,106) 21,492 36.0 (8,884) 12,608 21.1 (2,223) 819 11,204 (687) 9,816 9,816 24.8 16.4 4.91
62,587 4.8 (27,423) 35,164 56.2 (22,004) 22,469 35.9 (9,309) 13,160 21.0 (2,095) 105 11,170 (674) 9,692 9,692 (1.3) 15.5 4.85
64,895 3.7 (28,498) 36,397 56.1 (22,771) 23,386 36.0 (9,760) 13,626 21.0 (1,930) 151 11,847 (738) 10,257 10,257 5.8 15.8 5.13
67,072 3.4 (29,506) 37,565 56.0 (23,357) 24,272 36.2 (10,064) 14,208 21.2 (1,794) 30 12,445 (788) 10,763 10,763 4.9 16.0 5.38
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
Source: NCBC Research estimates
6,051 12,268 18,704 55,127 31,837 2,540 2,572 92,077 110,781 8,447 18,171 26,618 21,741 8,957 30,698 57,317 20,000 16,265 44,996 110,781
6,589 12,933 21,967 55,085 29,318 2,682 2,349 89,435 111,402 5,972 19,291 25,263 23,960 8,097 32,056 57,319 20,000 18,042 46,908 111,402
10,318 13,274 26,038 53,470 29,318 2,873 2,761 88,422 114,460 5,173 18,182 23,354 24,556 7,351 31,908 55,262 20,000 23,858 52,725 114,460
12,325 14,205 28,976 55,471 29,318 3,079 3,056 90,924 119,899 5,138 20,411 25,548 22,884 7,381 30,265 55,814 20,000 29,550 58,417 119,899
12,836 14,878 30,160 57,064 29,318 3,303 3,253 92,937 123,098 4,843 20,345 25,187 20,968 7,370 28,338 53,526 20,000 35,895 64,762 123,098
14,749 15,515 32,710 58,355 29,318 3,546 3,321 94,540 127,250 4,461 20,346 24,807 19,533 7,315 26,848 51,655 20,000 42,826 71,692 127,250
NCB CAPITAL
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
Source: NCBC Research estimates
21,185 (13,175) 10,978 94 (11,353) 8,642 8,244 (9,669) (1,659) 7,710 6,051
16,488 (8,264) 11,171 456 (7,837) 8,854 12,488 (7,686) 538 6,051 6,589
16,092 (7,459) 12,608 (1,451) (5,973) 8,884 13,817 (4,903) 3,730 6,589 10,318
20,034 (11,516) 13,160 1,298 (10,014) 9,309 13,438 (6,511) 2,007 10,318 12,325
19,158 (11,577) 13,626 (740) (10,059) 9,760 12,235 (7,070) 511 12,325 12,836
20,235 (11,598) 14,208 (635) (10,061) 10,064 13,194 (6,724) 1,913 12,836 14,749
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
4.7 4.1 3.0 22.5 8.5 9.7 1.8 1.5 4.1 6.8 58.6 21.2 37.9 16.8 20.0 8.0 0.7 0.7 5 61 120 67 (53)
3.9 6.2 2.0 23.5 10.3 6.4 1.7 1.4 4.0 5.5 56.3 20.1 36.0 14.1 17.1 7.1 0.9 0.8 5 57 78 63 (15)
4.9 6.9 2.0 26.4 8.1 5.8 1.5 1.3 3.7 5.0 56.4 21.1 36.0 16.4 19.7 8.7 1.1 1.1 6 63 74 70 (5)
4.8 6.7 2.0 28.2 8.2 5.9 1.4 1.3 3.6 5.0 56.2 21.0 35.9 15.5 17.8 8.3 1.1 1.0 6 63 74 69 (4)
5.1 6.1 2.0 30.3 7.8 6.5 1.3 1.2 3.4 5.0 56.1 21.0 36.0 15.8 17.5 8.7 1.0 1.0 6 63 70 69 (0)
5.4 6.6 2.0 32.7 7.4 6.0 1.2 1.2 3.3 5.0 56.0 21.2 36.2 16.0 17.1 9.0 1.1 1.0 6 63 68 69 1
MOBILY
COMPANY UPDATE
OVERWEIGHT
Target price
Current price (SR)
81.9
68.5
STOCK DETAILS
M52-week range H/L (SR) Market cap ($mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M (0.7) 0.3 70/50 12,804 700 TADAWUL 3M 6.2 2.4 SR 42.2 50.7 12M 28.6 13.1 US$ 11.3 13.5
VALUATION MULTIPLES
11A P/E (x) P/B (x) EV/EBITDA (x) Div Yield (%) 9.4 2.6 6.5 6.2 12E 8.2 2.2 6.4 5.8 13E 7.7 2.0 5.7 6.8
Summary Financials
SR mn Revenues Gross profit EBITDA EBITDA margin (%) Net income Net margin (%) EPS (SR) DPS (SR)
Source: Company, NCBC Research
CAGR (%) 8.5 9.4 9.2 9.6 9.6 17.4 Farouk Miah, CFA +966 2 690 7717 f.miah@ncbc.com
www.ncbc.com
NCB CAPITAL
Financials
Exhibit 7: Income Statement
In SR millions, unless otherwise stated
2010A 2011A 2012E 2013E 2014E 2015E
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)
Source: NCBC Research estimates
16,013 22.6 (7,230) 8,783 54.9 (2,619) 6,165 38.5 (1,810) 4,355 27.2 (146) 70.5 4,279 (67) 4,211 39.7 26.3 6.02
20,052 25.2 (9,728) 10,324 51.5 (2,870) 7,454 37.2 (2,149) 5,305 26.5 (213) 45.7 5,138 (54) 5,083 20.7 25.4 7.26
22,436 11.9 (10,648) 11,787 52.5 (3,424) 8,363 37.3 (2,311) 6,052 27.0 (178) 54.9 5,929 (86) 5,843 14.9 26.0 8.35
24,410 8.8 (11,659) 12,751 52.2 (3,689) 9,062 37.1 (2,578) 6,484 26.6 (261) 57.6 6,281 (92) 6,190 5.9 25.4 8.84
26,109 7.0 (12,413) 13,695 52.5 (3,959) 9,737 37.3 (2,815) 6,921 26.5 (248) 60.5 6,734 (98) 6,636 7.2 25.4 9.48
27,831 6.6 (13,061) 14,770 53.1 (4,164) 10,606 38.1 (2,990) 7,616 27.4 (233) 63.5 7,446 (108) 7,337 10.6 26.4 10.48
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
Source: NCBC Research estimates
1,661 450 7,304 9,415 12,457 10,028 1,530 24,015 33,430 599 1,843 9,814 12,256 5,529 66 5,595 17,851 7,000 8,580 15,580 33,430
1,690 0 8,204 9,893 16,412 9,665 1,530 27,607 37,501 1,201 4,895 11,951 18,047 977 89 1,066 19,113 7,000 11,388 18,388 37,501
2,647 0 9,707 12,354 19,124 9,170 1,530 29,823 42,177 0 598 11,984 12,582 8,048 116 8,164 20,746 7,000 14,431 21,431 42,177
2,690 0 10,467 13,157 21,232 8,634 1,530 31,395 44,553 0 1,495 12,046 13,542 6,553 113 6,666 20,208 7,000 17,345 24,345 44,553
3,173 0 11,119 14,292 22,608 8,098 1,530 32,235 46,528 0 1,433 11,735 13,168 6,033 123 6,156 19,324 7,000 20,203 27,203 46,528
3,538 0 11,891 15,429 23,494 7,562 1,530 32,585 48,014 0 1,371 11,631 13,002 4,662 133 4,795 17,797 7,000 23,217 30,217 48,014
NCB CAPITAL
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
Source: NCBC Research estimates
5,493 (3,113) 4,286 (482) (3,387) 1,810 2,228 (1,651) 728 933 1,661
6,823 (3,408) 5,249 1,237 (5,583) 2,149 3,052 (3,387) 28 1,661 1,690
6,889 (4,527) 5,964 (1,469) (4,487) 2,311 2,318 (1,405) 957 1,690 2,647
8,327 (4,150) 6,390 (698) (4,150) 2,578 4,120 (4,134) 43 2,647 2,690
8,745 (3,655) 6,820 (964) (3,655) 2,815 5,017 (4,607) 483 2,690 3,173
9,694 (3,340) 7,505 (876) (3,340) 2,990 6,279 (5,990) 364 3,173 3,538
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
6.0 3.2 2.0 22.3 11.4 21.5 3.1 3.3 8.5 3.9 54.9 27.2 38.5 26.3 30.3 13.1 0.8 0.7 15 131 314 146 (168)
7.3 4.4 3.3 26.3 9.4 15.7 2.6 2.4 6.5 6.2 51.5 26.5 37.2 25.4 29.9 14.3 0.5 0.5 18 115 293 133 (160)
8.3 3.3 4.0 30.6 8.2 20.7 2.2 2.4 6.4 5.8 52.5 27.0 37.3 26.0 29.3 14.7 1.0 0.9 19 119 266 137 (129)
8.8 5.9 4.7 34.8 7.7 11.6 2.0 2.1 5.7 6.8 52.2 26.6 37.1 25.4 27.0 14.3 1.0 0.9 19 117 239 137 (102)
9.5 7.2 5.4 38.9 7.2 9.6 1.8 1.9 5.2 7.9 52.5 26.5 37.3 25.4 25.7 14.6 1.1 1.0 20 115 212 136 (77)
10.5 9.0 6.2 43.2 6.5 7.6 1.6 1.8 4.6 9.0 53.1 27.4 38.1 26.4 25.6 15.5 1.2 1.1 21 116 195 138 (57)
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ZAIN KSA
COMPANY UPDATE
NEUTRAL
Target price (SR)
Current price (SR)
11.3
12.0
STOCK DETAILS
M52-week range H/L (SR) Market cap ($ mn) Shares outstanding (mn) Listed on exchanges Price perform (%) Absolute Rel. to market 1M (2.8) (1.8) 23/11 3,461 1,080 TADAWUL 3M (30.4) (34.2) SR 277.8 351.1 12M (2.8) (18.4) US$ 74.2 93.8
High amortization costs remain drag on financials: Off the back of paying
SR23bn for its license in June 2007, Zain continues to pay around SR240mn every quarter in amortization costs for the license. Thus, despite the lower interest payments due to the balance sheet restructuring, high amortization remains a drag on Zains financials.
VALUATION MULTIPLES
11A P/E (x) P/B (x) EV/EBITDA (x) Div Yield (%) NM 3.9 18.7 0.0 12E NM 1.5 10.3 0.0 13E NM 1.7 7.0 0.0
Source: Reuters
CAGR (%) 7.1 11.1 24.1 NM NM 0.0 Farouk Miah, CFA +966 2 690 7717 f.miah@ncbc.com
www.ncbc.com
NCB CAPITAL
Financials
Exhibit 11: Income Statement
In SR millions, unless otherwise stated
2010A 2011A 2012E 2013E 2014E 2015E
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)
Source: NCBC Research estimates
5,934 97.5 (3,404) 2,530 42.6 (2,200) 331 5.6 (1,494) (1,164) (19.6) (1,196) 0.7 (2,358) 0.0 (2,358) (23.9) (39.7) (1.7)
6,699 12.9 (3,499) 3,200 47.8 (2,301) 899 13.4 (1,710) (811) (12.1) (1,114) 0.1 (1,925) 0.0 (1,925) (18.4) (28.7) (1.4)
6,887 2.8 (3,774) 3,114 45.2 (1,852) 1,261 18.3 (1,907) (645) (9.4) (868) 2.3 (1,511) 0.0 (1,511) (21.5) (21.9) (1.1)
7,483 8.7 (3,840) 3,643 48.7 (1,795) 1,848 24.7 (2,134) (285) (3.8) (668) 13.7 (940) 0.0 (940) (37.8) (12.6) (0.7)
8,110 8.4 (3,987) 4,123 50.8 (1,747) 2,376 29.3 (2,234) 142 1.8 (615) 6.3 (466) 0.0 (466) (50.4) (5.7) (0.3)
8,659 6.8 (4,129) 4,530 52.3 (1,782) 2,749 31.7 (2,337) 412 4.8 (615) 7.3 (195) 0.0 (195) (58.1) (2.3) (0.1)
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-current portion Long-term loan Other liabilities Total non-current liabilities Total liabilities Share capital Reserves & surplus Shareholders' funds Total equity & liabilities
Source: NCBC Research estimates
702 1,900 2,603 4,298 21,060 95 25,453 28,055 2,194 5,260 7,454 3,665 9,656 17 14,472 21,926 14,000 (7,736) 6,129 28,055
780 1,652 2,432 4,059 20,178 75 24,312 26,744 0 5,717 15,511 4,019 0 23 6,940 22,451 14,000 (9,661) 4,293 26,744
4,560 1,822 6,382 4,136 19,360 59 23,556 29,938 2,250 5,612 7,908 1,655 8,988 25 13,248 21,156 10,801 (1,974) 8,782 29,938
2,111 1,763 3,874 4,108 18,468 42 22,617 26,492 0 5,354 5,399 1,655 8,988 27 13,251 18,650 10,801 (2,914) 7,841 26,492
2,449 1,937 4,386 3,992 17,604 22 21,618 26,004 0 5,330 5,376 1,655 8,988 30 13,253 18,629 10,801 (3,380) 7,375 26,004
3,293 2,146 5,439 3,788 16,746 1 20,535 25,973 0 5,492 8,038 1,655 6,488 32 10,755 18,793 10,801 (3,575) 7,180 25,973
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NCB CAPITAL
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
Source: NCBC Research estimates
462 (308) (1,164) (1,596) (1,404) 1,494 (2,670) 42 196 506 702
(88) (309) (811) 796 (960) 1,710 735 475 78 702 780
1,679 (1,151) (645) (817) (1,136) 1,907 (692) 3,252 3,780 780 4,560
1,664 (1,195) (285) (199) (1,179) 2,134 470 (2,918) (2,449) 4,560 2,111
2,187 (1,234) 142 (198) (1,216) 2,234 962 (615) 338 2,111 2,449
2,712 (1,254) 412 (47) (1,234) 2,337 1,468 (615) 844 2,449 3,293
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
(1.7) (0.5) 0.0 4.4 NM NM 2.7 2.8 50.8 0.0 42.6 (19.6) 5.6 (39.7) (32.0) (8.4) 0.3 0.3 3 90 226 93 (133)
(1.4) 0.3 0.0 3.1 NM 35.7 3.9 2.5 18.7 0.0 47.8 (12.1) 13.4 (28.7) (36.9) (7.0) 0.2 0.2 5 55 168 59 (108)
(1.4) 0.9 0.0 8.1 NM 13.5 1.5 1.9 10.3 0.0 45.2 (9.4) 18.3 (21.9) (23.1) (5.3) 0.8 0.8 7 53 98 60 (38)
(0.9) 1.4 0.0 7.3 NM 8.8 1.7 1.7 7.0 0.0 48.7 (3.8) 24.7 (12.6) (11.3) (3.3) 0.7 0.7 5 54 88 59 (29)
(0.4) 1.7 0.0 6.8 NM 7.0 1.8 1.6 5.5 0.0 50.8 1.8 29.3 (5.7) (6.1) (1.8) 0.8 0.8 5 55 78 61 (17)
(0.2) 1.8 0.0 6.6 NM 6.7 1.8 1.5 4.7 0.0 52.3 4.8 31.7 (2.3) (2.7) (0.8) 0.7 0.7 6 58 73 63 (10)
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NCB CAPITAL
NCBC Investment Ratings OVERWEIGHT: NEUTRAL: UNDERWEIGHT: PRICE TARGET: Target price represents expected returns in excess of 15% in the next 12 months Target price represents expected returns between -10% and +15% in the next 12 months Target price represents a fall in share price exceeding 10% in the next 12 months 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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