Telecommunications companies in the Gulf Cooperation Council (GCC) with bundled services offers and a rigorous approach to cutting costs will fare better than others in the current economic slowdown, HSBC said in an outlook on the sector.
Noting that telecoms are “not immune” to low oil prices, HSBC said a slowdown in economic activity will affect the expatriate population in the GCC countries resulting in weaker subscriber growth rate.
The bank suggested that investors focus on “the macro environment, regulatory and competitive risks exposure, dividend sustainability as well as valuation,” when looking at telecoms.
HSBC named Saudi Telecom Co. (STC) and Zain as preferred stocks in comparison to Mobily and Vodafone Qatar. It maintained a “buy” rating for both STC and Zain.
The decision, the bank said, was based on STC’s leadership in Saudi Arabia that gave it competitive advantage. Also, STC has a greater share of post-paid customers and “a near monopoly” on fixed lines and is a net beneficiary of data growth.
The “buy” rating on Zain, meanwhile, was noted as a “valuation call.” HSBC added that Zain also has the greatest exposure to macro country risks.
“The benefit of Zain’s core domestic market (Kuwait) is diluted by its presence in Iraq, Sudan and South Sudan. All three countries have macro and security challenges. In addition, Iraq is Zain’s largest revenue and profit contributor,” the report said.
HCBC pegged Vodafone Qatar rating at “reduce” and Ooredoo at “hold”.
Etisalat, which rose 62 percent in 2015, was downgraded to “hold” with a new target price of AED 15.
HSBC’s coverage of Viva Kuwait was initiated at “reduce” with a KWD 0.77 target price.
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