Mobily 25 July 2017 PDF
July 25, 2017 Rating 12- Month Target Price
Neutral SAR 26.00
MOBILY 2Q2017 First Look
Business Under Pressure Expected Total Return Price as on July-24, 2017
SAR 18.76
Upside to Target Price
38.0%
Expected Dividend Yield
0.0%
Expected Total Return
38.0%
Market Data 28.80/16.40
52 Week H/L (SAR)
SAR 14,445 mln
Market Capitalization
Mobily reported a net loss of SAR (190) million in 2Q, close to our forecast of SAR (176) million. The result compares unfavorably to a profit of SAR 3 million last year and a loss of SAR (163) million in 1Q. Revenue is the major concern as it remained unchanged Q/Q but declined -13% Y/Y as regulatory changes have led to a loss in market share. Strategy to fix revenue growth is unclear to us at this point. Revenue and cost are both pressured by last year’s decline in MTR charges by CITC. According to the Company, biometric verification implementation has also prompted a decrease in the number of subscribers. Operational efficiency wasn’t enough to offset the decline in gross profit causing EBITDA to fall by -21% Y/Y and -3% Q/Q. We have revised our estimates for 2017 and beyond. However, we maintain our Neutral stance with a target price of SAR 26.00.
Shares Outstanding
770 mln
MTR change increases cost of service
Free Float
55.01%
12-Month ADTV
963,735
Bloomberg code
EEC AB
Mobily posted revenues of SAR 2.8 billion (flat Q/Q but -13% Y/Y) inline with our estimates. Company announcement attributes the decline in revenues to seasonality; we believe a loss in market share and the failure to capitalize on the high margin revenue segment maybe a better explanation. Cost of service increased by +2% Y/Y and Q/Q making up 43% of revenue versus 37% last year and 42% last quarter. MTR reduction has decreased revenue and increased cost of service due to lower market share. Gross profit declined by -21% Y/Y and -2% Q/Q as gross margin of 57% narrowed by 100bps Q/Q.
1-Year Price Performance 120
EBITDA margin down 100bps Q/Q
110
Management efforts to boost revenue led to higher S&M expenses while G&A expenses declined. Lower gross profit on the back of unchanged revenue led EBITDA to SAR 900 million, a decline of -3% Q/Q and -21% Y/Y. EBITDA margins of 32% is disappointing. An operational loss of SAR (5) million versus a profit of SAR 35 million last quarter exemplifies the importance of revenue growth as we doubt the company would be able to further cut expenses substantially.
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Net loss worsens Weak top line, lower margins with higher finance charges and D&A expenses have combined to deflate bottom line. Most financial heads were in-line with our estimates. We find the risk of disengagement between company strategy and market expectation increasing as topline remained weak in the past six quarters. Mobily recorded a net loss of SAR (190) million versus a profit of SAR 3 million last year and a loss SAR (163) million last quarter. We revise our estimates for 2017 and beyond; however, our Neutral recommendation stands with a target price of SAR 26.00. We await management clarification on its strategy to arrest revenue decline, which may affect our recommendation.
Source: Bloomberg
6M
1Y
2Y
20% 10% 0% -10% -20% -30% -40%
-50% Mobily
TASI
Key Financial Ratios
Key Financial Figures 2Q2017 (SAR mln)
Actual
RC Forecast
Revenue
2,854
2,894
Gross Profit
1,633
1,679
Net Income
(190)
(176)
EPS (SAR)
(0.25)
(0.03)
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS(SAR) DPS
2016A 12,569 4,009 (203) (0.26) -
2017E 11,815 3,667 (601) (0.78) -
Muhammad Faisal Potrik
Faisal S Abaalkhail
[email protected] +966-11-203-6807
[email protected] +966-11-203-6812
2018E 12,524 4,454 95 (0.05) -
FY Dec31 BVPS ROAE ROAA EV/EBITDA P/B
2016A 20.2 7.2x 1.0x
2017E 19.9 7.1x 1.0x
2018E 19.9 0.6% 0.3% 5.5x 1.0x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
MOBILY 2Q2017 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 Closed Joint Stock 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 Page 2 of 4 Arabia (“KSA”). Website: www.riyadcapital.com
Neutral SAR 26.00
MOBILY 2Q2017 First Look
Business Under Pressure Expected Total Return Price as on July-24, 2017
SAR 18.76
Upside to Target Price
38.0%
Expected Dividend Yield
0.0%
Expected Total Return
38.0%
Market Data 28.80/16.40
52 Week H/L (SAR)
SAR 14,445 mln
Market Capitalization
Mobily reported a net loss of SAR (190) million in 2Q, close to our forecast of SAR (176) million. The result compares unfavorably to a profit of SAR 3 million last year and a loss of SAR (163) million in 1Q. Revenue is the major concern as it remained unchanged Q/Q but declined -13% Y/Y as regulatory changes have led to a loss in market share. Strategy to fix revenue growth is unclear to us at this point. Revenue and cost are both pressured by last year’s decline in MTR charges by CITC. According to the Company, biometric verification implementation has also prompted a decrease in the number of subscribers. Operational efficiency wasn’t enough to offset the decline in gross profit causing EBITDA to fall by -21% Y/Y and -3% Q/Q. We have revised our estimates for 2017 and beyond. However, we maintain our Neutral stance with a target price of SAR 26.00.
Shares Outstanding
770 mln
MTR change increases cost of service
Free Float
55.01%
12-Month ADTV
963,735
Bloomberg code
EEC AB
Mobily posted revenues of SAR 2.8 billion (flat Q/Q but -13% Y/Y) inline with our estimates. Company announcement attributes the decline in revenues to seasonality; we believe a loss in market share and the failure to capitalize on the high margin revenue segment maybe a better explanation. Cost of service increased by +2% Y/Y and Q/Q making up 43% of revenue versus 37% last year and 42% last quarter. MTR reduction has decreased revenue and increased cost of service due to lower market share. Gross profit declined by -21% Y/Y and -2% Q/Q as gross margin of 57% narrowed by 100bps Q/Q.
1-Year Price Performance 120
EBITDA margin down 100bps Q/Q
110
Management efforts to boost revenue led to higher S&M expenses while G&A expenses declined. Lower gross profit on the back of unchanged revenue led EBITDA to SAR 900 million, a decline of -3% Q/Q and -21% Y/Y. EBITDA margins of 32% is disappointing. An operational loss of SAR (5) million versus a profit of SAR 35 million last quarter exemplifies the importance of revenue growth as we doubt the company would be able to further cut expenses substantially.
100 90 80 70 60 50
40 J
A
S
O
N D Mobily
J
F
M
A M TASI
J
J
Net loss worsens Weak top line, lower margins with higher finance charges and D&A expenses have combined to deflate bottom line. Most financial heads were in-line with our estimates. We find the risk of disengagement between company strategy and market expectation increasing as topline remained weak in the past six quarters. Mobily recorded a net loss of SAR (190) million versus a profit of SAR 3 million last year and a loss SAR (163) million last quarter. We revise our estimates for 2017 and beyond; however, our Neutral recommendation stands with a target price of SAR 26.00. We await management clarification on its strategy to arrest revenue decline, which may affect our recommendation.
Source: Bloomberg
6M
1Y
2Y
20% 10% 0% -10% -20% -30% -40%
-50% Mobily
TASI
Key Financial Ratios
Key Financial Figures 2Q2017 (SAR mln)
Actual
RC Forecast
Revenue
2,854
2,894
Gross Profit
1,633
1,679
Net Income
(190)
(176)
EPS (SAR)
(0.25)
(0.03)
FY Dec31 (SAR mln) Revenue EBITDA Net Profit EPS(SAR) DPS
2016A 12,569 4,009 (203) (0.26) -
2017E 11,815 3,667 (601) (0.78) -
Muhammad Faisal Potrik
Faisal S Abaalkhail
[email protected] +966-11-203-6807
[email protected] +966-11-203-6812
2018E 12,524 4,454 95 (0.05) -
FY Dec31 BVPS ROAE ROAA EV/EBITDA P/B
2016A 20.2 7.2x 1.0x
2017E 19.9 7.1x 1.0x
2018E 19.9 0.6% 0.3% 5.5x 1.0x
Riyad Capital is licensed by the Saudi Arabia Capital Market Authority (No. 07070-37)
MOBILY 2Q2017 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 Closed Joint Stock 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 Page 2 of 4 Arabia (“KSA”). Website: www.riyadcapital.com
