Mobile Telecommunication Company Saudi Arabia’s (Zain Saudi) net profit of SAR 8 million for the second quarter this year significantly missed NCB Capital and consensus estimates of SAR 31.4 million and SAR 27 million, respectively, the brokerage said in an earnings review.
“We believe the variance is due to higher than expected depreciation and interest expenses,” the firm said.
Revenue increased 8 percent year-on-year (YoY) but declined 2.8 percent quarter-on-quarter (QoQ), in line with the estimates.
The YoY improvement in sales was mainly driven by the data segment, the report said.
Gross profit was SAR 1.3 billion in Q2, in-line with the brokerage estimates, while gross margin came in at 67.5 percent, higher than 64.4 percent in Q2 2016, due to increasing sales of the high margin data segment, the review said.
The earnings before interest and taxes (EBIT) stood at SAR 235 million in Q2, missing the estimates by 4.5 percent, due to depreciation which stood at SAR 397 million in Q2, higher than the expected SAR 388 million. However, depreciation declined from SAR 480 million in Q2 2017 due to the extension of the license by 15 years.
The interest expense reached SAR 231 million in Q2, higher than the estimate of SAR 219 million.
NCB Capital recommended a “Neutral” rating for the stock and raised the target price to SAR 9.90 per share from SAR 9.30 per share.
“Strong revenue growth and gross margin expansion are the key positives while progress in tower sale and capital restructuring are the key catalysts going forward. However, high debt of SAR 12 billion and the impact of the change in fair usage policy are the key risks,” it added.
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