Mobily 25 October 2014 PDF
October 25, 2016 Rating 12- Month Target Price
Neutral SAR 29.00
MOBILY 3Q2016 First Look
Loss Exceeds Expectations Expected Total Return Price as on Oct-24, 2016
SAR 71.53
Upside to Target Price
55.4%
Expected Dividend Yield
0.0%
Expected Total Return
55.4%
Market Data 33.30/15.44
52 Week H/L
SAR 13,498 mln
Market Capitalization
Mobily reported a net loss of SAR (168) million, exceeding our expectations of SAR (34) million and contrary to Bloomberg consensus of a SAR 1.3 million profit. After three consecutive positive quarters, Mobily is back to a loss. At first look, we find that double digit decline in revenues Q/Q and Y/Y was the primary contributor although management exerted efforts to rationalize operating expenses. Rising SAIBOR resulted in an increase in financial charges Y/Y. Biometric impact causing a decline in subscriber base and the fact that they have been unable to capitalize on a data driven market has been the weakness, in our view, as the Company suffered more than competitors. We maintain our Neutral stance with a SAR 29.00 target price, although we intend to revisit valuations. A detailed sector report analyzing recent market developments and impact on the telecom operators would be issued soon.
Shares Outstanding
770 mln
3Q revenues at 2008 levels
Free Float
55.54%
Mobily posted revenues of SAR 2.9 billion, last seen in 3Q2008. Over the quarter, topline fell by -21% Y/Y and -11% Q/Q. Closure of unregistered SIMs led to a loss in revenue from two sources; regular usage and termination fees as a result of changes in market share. Significant decline in revenue while COGS remain flat Q/Q led to pressure on gross and EBITDA margins, declining by 400bps and 600bps respectively. During the last year we have witnessed volatile margins, which clouds a firm view. With the ongoing market and resultant revenue mix changes, we believe the Company would do well to revisit its strategy in order to be able to rebuild its customer base and stabilize margins.
7,435,337
12-Month ADTV
1-Year Price Performance 120
110 100
90
Could have been worse
80
70
Optimizing expenses was unable to prevent an operating loss of SAR (137) million as revenue was not supportive. Operating expenses dropped by -9% Y/Y and -3% Q/Q, led by a -15% reduction in selling and marketing expenses. The net loss of SAR (168) million for the quarter is worse than SAR (158) million last year and reverses a profit of SAR 19 million in the preceding quarter. The loss could have been worse were it not for a non-recurring reversal of Zakat provision amounting to SAR 95 million. Without a positive Zakat impact, the net loss would have been SAR (263) million.
60
50 40 30 O
N
D
J
F
M
A
M
Mobily
J
J
A
TASI
S
O
TTI
Source: Bloomberg 6M
1Y
Loss after 3 good quarters
2Y
0%
After three consecutive quarters of profits, a net loss in 3Q is disappointing but was anticipated (though of a lower quantum) given market changes impacting Mobily more severely. Understandably, the market took it negatively and the stock fell –6% the following day. We will be back with a detailed sector note analyzing the impact of changes such as license extension and provision of a unified extension for the telecom operators. For now, we continue with a Neutral view and SAR 29.00 target price.
-10% -20%
-30% -40% -50%
-60% -70% -80%
-90% Mobily
3Q2016E (SAR mln)
TASI
Key Financial Figures
TTI
Actual
RC Forecast
Revenue
2,932
3,280
Gross Profit
1,741
2,033
Net Income
(168)
(34)
EPS (SAR)
(0.22)
(0.04)
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS DPS
2015A 14,425 2,941 (1,093)
(1.42) -
Key Financial Ratios 2016E 14,239 3,958 (102) (0.13) -
Muhammad Faisal Potrik
Faisal S Abaalkhail
[email protected] +966-11-203-6807
[email protected] +966-11-203-6812
2017E 14,666 4,506 396 0.51 -
FY Dec31 BVPS ROAE ROAA EV/EBITDA P/B
2015A 7.8 21.4% 3.7% 17.5x 2.2x
2016E 7.0 12.1% 2.0% 12.7x 2.5x
2017E 6.2 12.8% 1.9% 12.4x 2.8x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
MOBILY 3Q2016 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors 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 Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
Neutral SAR 29.00
MOBILY 3Q2016 First Look
Loss Exceeds Expectations Expected Total Return Price as on Oct-24, 2016
SAR 71.53
Upside to Target Price
55.4%
Expected Dividend Yield
0.0%
Expected Total Return
55.4%
Market Data 33.30/15.44
52 Week H/L
SAR 13,498 mln
Market Capitalization
Mobily reported a net loss of SAR (168) million, exceeding our expectations of SAR (34) million and contrary to Bloomberg consensus of a SAR 1.3 million profit. After three consecutive positive quarters, Mobily is back to a loss. At first look, we find that double digit decline in revenues Q/Q and Y/Y was the primary contributor although management exerted efforts to rationalize operating expenses. Rising SAIBOR resulted in an increase in financial charges Y/Y. Biometric impact causing a decline in subscriber base and the fact that they have been unable to capitalize on a data driven market has been the weakness, in our view, as the Company suffered more than competitors. We maintain our Neutral stance with a SAR 29.00 target price, although we intend to revisit valuations. A detailed sector report analyzing recent market developments and impact on the telecom operators would be issued soon.
Shares Outstanding
770 mln
3Q revenues at 2008 levels
Free Float
55.54%
Mobily posted revenues of SAR 2.9 billion, last seen in 3Q2008. Over the quarter, topline fell by -21% Y/Y and -11% Q/Q. Closure of unregistered SIMs led to a loss in revenue from two sources; regular usage and termination fees as a result of changes in market share. Significant decline in revenue while COGS remain flat Q/Q led to pressure on gross and EBITDA margins, declining by 400bps and 600bps respectively. During the last year we have witnessed volatile margins, which clouds a firm view. With the ongoing market and resultant revenue mix changes, we believe the Company would do well to revisit its strategy in order to be able to rebuild its customer base and stabilize margins.
7,435,337
12-Month ADTV
1-Year Price Performance 120
110 100
90
Could have been worse
80
70
Optimizing expenses was unable to prevent an operating loss of SAR (137) million as revenue was not supportive. Operating expenses dropped by -9% Y/Y and -3% Q/Q, led by a -15% reduction in selling and marketing expenses. The net loss of SAR (168) million for the quarter is worse than SAR (158) million last year and reverses a profit of SAR 19 million in the preceding quarter. The loss could have been worse were it not for a non-recurring reversal of Zakat provision amounting to SAR 95 million. Without a positive Zakat impact, the net loss would have been SAR (263) million.
60
50 40 30 O
N
D
J
F
M
A
M
Mobily
J
J
A
TASI
S
O
TTI
Source: Bloomberg 6M
1Y
Loss after 3 good quarters
2Y
0%
After three consecutive quarters of profits, a net loss in 3Q is disappointing but was anticipated (though of a lower quantum) given market changes impacting Mobily more severely. Understandably, the market took it negatively and the stock fell –6% the following day. We will be back with a detailed sector note analyzing the impact of changes such as license extension and provision of a unified extension for the telecom operators. For now, we continue with a Neutral view and SAR 29.00 target price.
-10% -20%
-30% -40% -50%
-60% -70% -80%
-90% Mobily
3Q2016E (SAR mln)
TASI
Key Financial Figures
TTI
Actual
RC Forecast
Revenue
2,932
3,280
Gross Profit
1,741
2,033
Net Income
(168)
(34)
EPS (SAR)
(0.22)
(0.04)
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS DPS
2015A 14,425 2,941 (1,093)
(1.42) -
Key Financial Ratios 2016E 14,239 3,958 (102) (0.13) -
Muhammad Faisal Potrik
Faisal S Abaalkhail
[email protected] +966-11-203-6807
[email protected] +966-11-203-6812
2017E 14,666 4,506 396 0.51 -
FY Dec31 BVPS ROAE ROAA EV/EBITDA P/B
2015A 7.8 21.4% 3.7% 17.5x 2.2x
2016E 7.0 12.1% 2.0% 12.7x 2.5x
2017E 6.2 12.8% 1.9% 12.4x 2.8x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
MOBILY 3Q2016 First Look
Stock Rating Buy
Neutral
Sell
Not Rated
Expected Total Return Greater than 15%
Expected Total Return between -15% and +15%
Expected Total Return less than -15%
Under Review/ Restricted
* The expected percentage returns are indicative, stock recommendations also incorporate relevant qualitative factors 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 Page 2 of 4 (“KSA”). Website: www.riyadcapital.com
