Saudi Telecom Company (STC)
Saudi Telecom Company (STC) 4Q2015 Preview
Buy
Data To Drive Revenue
January 5, 2016 Expected Total Return Price as on Jan-4, 2016
SAR 66.18
Upside to Target Price
10.3%
Expected Dividend Yield
6.0%
Expected Total Return
16.3%
Market Data SAR 73.25/52.75
52 Week H/L Market Capitalization
SAR 133,6,1 mln
Enterprise Value
SAR 121,207 mln 2,000 mln
Shares Outstanding
16.23%
Free Float
860,648
12-Month ADTV (111’s) TASI Weight
7201%
Reuters Code
7010.SE
Bloomberg Symbol
STC AB
130 120 110 100
80 70 F M A M J STC
J
A S O N
TASI
TTI
Source: Bloomberg
Jan-4, 2016
STC
TASI
TTI
66.18
6,788
1,578
Total Change 6-months
(4.7%)
(25.9%)
(11.8%)
1-Year
(1.2%)
(18.8%)
(20.0%)
2-Year
19.2%
(21.4%)
(41.1%)
F2015E
SAR mln
Revenue
50,586
Gross Profit
29,978
Operating Income
12,251
Net Income
10,357
EPS (SAR)
5.7,
Abdulaziz A. Bin Zaraah
Revenues to touch SAR 50.6 billion in 2015 We forecast 2015 revenue to touch SAR 50.6 billion. Geographically, 89.5% of the revenue is expected to be generated locally, while 10.5% will be generated regionally, mainly from VIVA Bahrain and VIVA Kuwait, where VIVA Kuwait has been posting remarkable growth in operations with an estimated sales growth of 13% in 2015. Lower Q/Q gross margins Gross margin has witnessed slight swings during the year. While we don’t anticipate any major event causing variation, we forecast gross margin to be 59% in 4Q2015 compared to 62% for the same period in 2014. The forecasted decline in gross margins is expected to be from consultancy charges, direct employee cost and utilities expense. EBITDA margins are expected to reach 37% in 4Q2015 compared to 35% in the same period of 2014 majorly caused by the expected decrease in G&A accounts.
VIVA Kuwait acquisition STC offered to fully acquire the remaining 74% share in VIVA Kuwait at a price of KWD 1/share. Kuwaiti Government institutions owning 29% of VIVA demanded KWD 1.25/share. Lately, STC announced that it does not intend to increase the offered price. It is worth noting that VIVA share price averaged 947 Fils in the last 6 months. STC has announced an accumulation period ending on the January 31st, 2016. The impact of the acquisition is considered to be marginal, adding +3 to +4% to STC’s bottom line in 2016E.
90
J
Total revenues are forecasted to grow +9.6% Y/Y in the final quarter of this year leading to top line reaching SAR 12.9 billion. We expect this quarter’s revenue to be fueled by data from mobile, which has witnessed a noticeable growth since the beginning of 2015. We expect 4Q EPS at SAR 1.45 compared to SAR 1.22 in the same period of 2014. STC’s share price spiked after the announcement of the new dividends policy, followed by news on VIVA Kuwait full acquisition intent. The share price recorded a +12.1% increase compared to a decline of -5.9% in TASI during 4Q2015. STC trades at a forward P/E of 11.7x versus the TASI’s 11.1x offering an upside of 10.3% to our SAR 73 target price, we recommend a buy.
New dividends policy STC announced that its Board has agreed on a three-year dividends policy committing to pay a fixed dividend of SAR 1 per share on a quarterly basis and additional dividends are likely to vary depending on the company’s performance. This new policy will be presented in the next General Meeting for approval. The market positively reacted to the announcement hiking the share price by +13% in the 2 days following the announcement.
1-Year Price Performance
D
12-Month Target Price SAR 73
SAR 1.00 DPS expected in 4Q STC announced a DPS of SAR 3.00 for 9M2015 compared to SAR 2.50 for the same period of 2014. The company is likely to announce SAR 1.00 DPS for 4Q2015 in accordance with its new dividend policy. The average payout ratio was 64% for full year 2014 but is expected to reach 78% in 2015. Key Financials FY December 31 (SAR mln)
2014A
2015E
2016E
Revenue
45,824
50,586
52,021
2017E 53,560
EBITDA
18,659
19,700
19,768
20,353
Net Profit
113,11
10,959
10,357
113711
EPS (SAR)
5.48
5.7,
5.66
5.15
DPS (SAR)
3.25
4.00
4.11
4.01
BVPS (SAR)
30.20
71.60
33.10
34.9
ROAE
18.1%
17.0%
17.1%
17.0%
P/E
12.1x
12.3x
11.7x
11.1x
P/B
2.18x
2.09x
1.99x
1.89x
EV/ EBITDA
7.10x
6.70x
6.67x
6.48x
[email protected] +966-11-203-6816
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
Buy
Data To Drive Revenue
January 5, 2016 Expected Total Return Price as on Jan-4, 2016
SAR 66.18
Upside to Target Price
10.3%
Expected Dividend Yield
6.0%
Expected Total Return
16.3%
Market Data SAR 73.25/52.75
52 Week H/L Market Capitalization
SAR 133,6,1 mln
Enterprise Value
SAR 121,207 mln 2,000 mln
Shares Outstanding
16.23%
Free Float
860,648
12-Month ADTV (111’s) TASI Weight
7201%
Reuters Code
7010.SE
Bloomberg Symbol
STC AB
130 120 110 100
80 70 F M A M J STC
J
A S O N
TASI
TTI
Source: Bloomberg
Jan-4, 2016
STC
TASI
TTI
66.18
6,788
1,578
Total Change 6-months
(4.7%)
(25.9%)
(11.8%)
1-Year
(1.2%)
(18.8%)
(20.0%)
2-Year
19.2%
(21.4%)
(41.1%)
F2015E
SAR mln
Revenue
50,586
Gross Profit
29,978
Operating Income
12,251
Net Income
10,357
EPS (SAR)
5.7,
Abdulaziz A. Bin Zaraah
Revenues to touch SAR 50.6 billion in 2015 We forecast 2015 revenue to touch SAR 50.6 billion. Geographically, 89.5% of the revenue is expected to be generated locally, while 10.5% will be generated regionally, mainly from VIVA Bahrain and VIVA Kuwait, where VIVA Kuwait has been posting remarkable growth in operations with an estimated sales growth of 13% in 2015. Lower Q/Q gross margins Gross margin has witnessed slight swings during the year. While we don’t anticipate any major event causing variation, we forecast gross margin to be 59% in 4Q2015 compared to 62% for the same period in 2014. The forecasted decline in gross margins is expected to be from consultancy charges, direct employee cost and utilities expense. EBITDA margins are expected to reach 37% in 4Q2015 compared to 35% in the same period of 2014 majorly caused by the expected decrease in G&A accounts.
VIVA Kuwait acquisition STC offered to fully acquire the remaining 74% share in VIVA Kuwait at a price of KWD 1/share. Kuwaiti Government institutions owning 29% of VIVA demanded KWD 1.25/share. Lately, STC announced that it does not intend to increase the offered price. It is worth noting that VIVA share price averaged 947 Fils in the last 6 months. STC has announced an accumulation period ending on the January 31st, 2016. The impact of the acquisition is considered to be marginal, adding +3 to +4% to STC’s bottom line in 2016E.
90
J
Total revenues are forecasted to grow +9.6% Y/Y in the final quarter of this year leading to top line reaching SAR 12.9 billion. We expect this quarter’s revenue to be fueled by data from mobile, which has witnessed a noticeable growth since the beginning of 2015. We expect 4Q EPS at SAR 1.45 compared to SAR 1.22 in the same period of 2014. STC’s share price spiked after the announcement of the new dividends policy, followed by news on VIVA Kuwait full acquisition intent. The share price recorded a +12.1% increase compared to a decline of -5.9% in TASI during 4Q2015. STC trades at a forward P/E of 11.7x versus the TASI’s 11.1x offering an upside of 10.3% to our SAR 73 target price, we recommend a buy.
New dividends policy STC announced that its Board has agreed on a three-year dividends policy committing to pay a fixed dividend of SAR 1 per share on a quarterly basis and additional dividends are likely to vary depending on the company’s performance. This new policy will be presented in the next General Meeting for approval. The market positively reacted to the announcement hiking the share price by +13% in the 2 days following the announcement.
1-Year Price Performance
D
12-Month Target Price SAR 73
SAR 1.00 DPS expected in 4Q STC announced a DPS of SAR 3.00 for 9M2015 compared to SAR 2.50 for the same period of 2014. The company is likely to announce SAR 1.00 DPS for 4Q2015 in accordance with its new dividend policy. The average payout ratio was 64% for full year 2014 but is expected to reach 78% in 2015. Key Financials FY December 31 (SAR mln)
2014A
2015E
2016E
Revenue
45,824
50,586
52,021
2017E 53,560
EBITDA
18,659
19,700
19,768
20,353
Net Profit
113,11
10,959
10,357
113711
EPS (SAR)
5.48
5.7,
5.66
5.15
DPS (SAR)
3.25
4.00
4.11
4.01
BVPS (SAR)
30.20
71.60
33.10
34.9
ROAE
18.1%
17.0%
17.1%
17.0%
P/E
12.1x
12.3x
11.7x
11.1x
P/B
2.18x
2.09x
1.99x
1.89x
EV/ EBITDA
7.10x
6.70x
6.67x
6.48x
[email protected] +966-11-203-6816
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
