Mobile Telecommunication Company (Zain)
Mobile Telecommunication Company (Zain) 1Q2016 – First Look
Hold
Improving Outlook
May 11, 2016 Expected Total Return Price as on May-11, 2016
SAR 8.95
Upside to Target Price
17.3%
Expected Dividend Yield
-
Expected Total Return
17.3%
Market Data SAR12.85/5.45
52 Week H/L
SAR 18.6 billion
Market Capitalization
SAR 583.73 million
Shares Outstanding
51.15%
Free Float
5,586
12-Month ADTV (111’s) TASI Weight
0.42%
Reuters Code
7030.SE ZAINKSA AB
Bloomberg Symbol
Zain announced its 1Q2016 results reporting an LPS of SAR (0.43), +2.3% Y/Y and +14% Q/Q compared to our estimates and consensus at SAR (0.37). The company’s revenue was in line with our estimates at SAR 1.8 billion improving by +5% Y/Y and +6% Q/Q. We believe during 1Q2016, the company was able to improve its customer base and monthly ARPU to 12.8 million subscribers and SAR 49 respectively as compared to 11.8 million and SAR 47 in the previous quarter. Following CITC’s resolution regarding the reduction of termination fees, we expect Zain’s top line to continue its growth at a CAGR of 3% over the years 20162019, fueled by the increase in subscriber base. On the other hand, the resolution will assist the company in enhancing its profitability through decreasing cost of revenues. After reviewing our assumptions and incorporating the new resolution in our models, we believe the company’s operation will witness a slight upswing, however, the pace of recovery, debt schedule, and legal cases persist as a source of concern. Despite our 12 months target price of SAR 10.5, we maintain a Hold recommendation. Healthier operations In its operations during 1Q2016, the company was able to post a gross profit of SAR 1,086 million (+24.3% Y/Y and +1.8% Q/Q). Gross margins were higher at 62% as compared to 52% in the same period last year. It is believed that the company started benefiting from lower termination fees and hence was able to improve its gross margins. Furthermore, the company was able to limit its operating losses where it reached SAR (32) million compared to SAR (59) million for the same period last year. Debt dimishing profitability While the operating performance is presenting a promising picture, the company is still standing on high debt levels with financial charges at SAR 224 million. These are offsetting any operational improvements being undertaken. From its SAR 10.6 billion banks debt outstanding, SAR 2.8 billion is due during 2016. Our estimates reveal that current cash flows will fall short in paying the due amount and the company will be compelled to go for rescheduling/restructuring the loan maturities.
1-Year Price Performance
Source: Bloomberg
May-11, 2016
12-Month Target Price SAR 10.50
Zain
TASI
TTI
8.95
6,644
1,576
A Hold rating despite operational improvement Zain’s share price added +7% since the beginning of 2016 surpassing TASI and the sector, which have declined by -4% and -2% respectively. The share price was impacted by CITC regulation regarding the reduction of termination fees which is anticipated to improve Zain’s position. We have revisited our assumptions and updated our models to incorporate the latest updates, our analysis indicates an increase from our earlier target price of SAR 9.50 to SAR 10.50 over the next 12 months with a Hold recommendation due to the credit and liquidity concerns and pending legal issues with Mobily and DZIT claims.
Total Change )1.5%(
)4.9%(
3.3%
)23.3%(
)31.6%(
)15.0%(
4.7%
)32.1%(
)49.2%(
6-months 1-Year 2-Year
1Q2016 (SAR billion)
Key Financials FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
6,741
7,345
7,558
7,936
EBITDA
1,629
1,979
2,130
2,237
Net Profit
(972)
(739)
(537)
(393)
EPS (SAR)
(1.67)
(1.27)
(0.92)
(0.67)
Actual
RC Forecast
7.8
6.5
5.6
4.9
Revenue
1,765
1,739
ROAE
)21.4%(
)19.4%(
)16.4%(
)13.6%(
Gross Profit
1,086
1,009
ROAA
)3.7%(
)3.0%(
)2.2%(
)1.7%(
BVPS (SAR)
Operating Income
(32)
(18)
P/B
Net Income
(250)
(215)
EV/ EBITDA
EPS (SAR)
(0.43)
(0.37)
Abdulaziz A. Bin Zaraah [email protected] +966-11-203-6816
1.1x
1.4x
1.6x
1.8x
12.3x
10.1x
9.0x
8.3x
Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37)
Saudi Telecom Company (STC) Reinstating Coverage Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia (“KSA”). Website: www.riyadcapital.com
Hold
Improving Outlook
May 11, 2016 Expected Total Return Price as on May-11, 2016
SAR 8.95
Upside to Target Price
17.3%
Expected Dividend Yield
-
Expected Total Return
17.3%
Market Data SAR12.85/5.45
52 Week H/L
SAR 18.6 billion
Market Capitalization
SAR 583.73 million
Shares Outstanding
51.15%
Free Float
5,586
12-Month ADTV (111’s) TASI Weight
0.42%
Reuters Code
7030.SE ZAINKSA AB
Bloomberg Symbol
Zain announced its 1Q2016 results reporting an LPS of SAR (0.43), +2.3% Y/Y and +14% Q/Q compared to our estimates and consensus at SAR (0.37). The company’s revenue was in line with our estimates at SAR 1.8 billion improving by +5% Y/Y and +6% Q/Q. We believe during 1Q2016, the company was able to improve its customer base and monthly ARPU to 12.8 million subscribers and SAR 49 respectively as compared to 11.8 million and SAR 47 in the previous quarter. Following CITC’s resolution regarding the reduction of termination fees, we expect Zain’s top line to continue its growth at a CAGR of 3% over the years 20162019, fueled by the increase in subscriber base. On the other hand, the resolution will assist the company in enhancing its profitability through decreasing cost of revenues. After reviewing our assumptions and incorporating the new resolution in our models, we believe the company’s operation will witness a slight upswing, however, the pace of recovery, debt schedule, and legal cases persist as a source of concern. Despite our 12 months target price of SAR 10.5, we maintain a Hold recommendation. Healthier operations In its operations during 1Q2016, the company was able to post a gross profit of SAR 1,086 million (+24.3% Y/Y and +1.8% Q/Q). Gross margins were higher at 62% as compared to 52% in the same period last year. It is believed that the company started benefiting from lower termination fees and hence was able to improve its gross margins. Furthermore, the company was able to limit its operating losses where it reached SAR (32) million compared to SAR (59) million for the same period last year. Debt dimishing profitability While the operating performance is presenting a promising picture, the company is still standing on high debt levels with financial charges at SAR 224 million. These are offsetting any operational improvements being undertaken. From its SAR 10.6 billion banks debt outstanding, SAR 2.8 billion is due during 2016. Our estimates reveal that current cash flows will fall short in paying the due amount and the company will be compelled to go for rescheduling/restructuring the loan maturities.
1-Year Price Performance
Source: Bloomberg
May-11, 2016
12-Month Target Price SAR 10.50
Zain
TASI
TTI
8.95
6,644
1,576
A Hold rating despite operational improvement Zain’s share price added +7% since the beginning of 2016 surpassing TASI and the sector, which have declined by -4% and -2% respectively. The share price was impacted by CITC regulation regarding the reduction of termination fees which is anticipated to improve Zain’s position. We have revisited our assumptions and updated our models to incorporate the latest updates, our analysis indicates an increase from our earlier target price of SAR 9.50 to SAR 10.50 over the next 12 months with a Hold recommendation due to the credit and liquidity concerns and pending legal issues with Mobily and DZIT claims.
Total Change )1.5%(
)4.9%(
3.3%
)23.3%(
)31.6%(
)15.0%(
4.7%
)32.1%(
)49.2%(
6-months 1-Year 2-Year
1Q2016 (SAR billion)
Key Financials FY December 31 (SAR mln)
2015A
2016E
2017E
2018E
Revenue
6,741
7,345
7,558
7,936
EBITDA
1,629
1,979
2,130
2,237
Net Profit
(972)
(739)
(537)
(393)
EPS (SAR)
(1.67)
(1.27)
(0.92)
(0.67)
Actual
RC Forecast
7.8
6.5
5.6
4.9
Revenue
1,765
1,739
ROAE
)21.4%(
)19.4%(
)16.4%(
)13.6%(
Gross Profit
1,086
1,009
ROAA
)3.7%(
)3.0%(
)2.2%(
)1.7%(
BVPS (SAR)
Operating Income
(32)
(18)
P/B
Net Income
(250)
(215)
EV/ EBITDA
EPS (SAR)
(0.43)
(0.37)
Abdulaziz A. Bin Zaraah [email protected] +966-11-203-6816
1.1x
1.4x
1.6x
1.8x
12.3x
10.1x
9.0x
8.3x
Riyad Capital is licensed by the Saudi Arabia Capital Markets Authority (No. 07070-37)
Saudi Telecom Company (STC) Reinstating Coverage Stock Rating
Strong Buy
Buy
Hold
Sell
Not Rated
Expected Total Return ≥ 25%
Expected Total Return ≥ 15%
Expected Total Return < 15%
Overvalued
Under Review/ Restricted
For any feedback on our reports, please contact [email protected]
Disclaimer The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable. Riyad Capital makes no representations or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates or clients may have a financial interest in securities or other assets referred to in this report. Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further, such opinions, forecasts or projections are subject to certain risks, uncertainties and assumptions that have not been verified and future actual results or events could differ materially. The value of, or income from, any investments referred to in this report may fluctuate and/or be affected by changes. Past performance is not necessarily an indicative of future performance. Accordingly, investors may receive back less than originally invested amount. This report provides information of a general nature and does not address the circumstances, objectives, and risk tolerance of any particular investor. Therefore, it is not intended to provide personal investment advice and does not take into account the reader’s financial situation or any specific investment objectives or particular needs which the reader may have. Before making an investment decision the reader should seek advice from an independent financial, legal, tax and/or other required advisers due to the investment in such kind of securities may not be suitable for all recipients. This research report might not be reproduced, nor distributed in whole or in part, and all information, opinions, forecasts and projections contained in it are protected by the copyright rules and regulations.
Riyad Capital is a Saudi limited liability company, with commercial registration number (1010239234), licensed and organized by the Capital Market Authority under License No. (07070-37), and having its registered office at Al Takhassusi Street, Prestige Building, Riyadh, Kingdom of Saudi Arabia (“KSA”). Website: www.riyadcapital.com
