Mobile Telecommunications Company Saudi Arabia’s (Zain Saudi) Q4 2018 net profit of SAR 399 million came above NCB Capital and consensus's estimates of SAR 278 million and SAR 255 million, respectively.
“The better than expected results is attributed to higher revenues and margins. Adjusting for the reversal of royalty fees, net income stood at SAR 106 million, the highest on record,” NCB Capital said in an earnings review.
Revenue grew by 19.3 percent year-on-year (YoY) to SAR 2.05 billion, the highest quarterly level since inception, exceeding the investment bank’s estimate of SAR 1.85 billion.
The higher revenue was driven by an increase in post-paid subscribers, business and government sectors, the report said.
Zain Saudi’s Q4 gross profit, which stood at SAR 1.74 billion, also topped NCB Capital’s forecast of SAR 1.55 billion.
The telecom operator posted the highest gross margin since inception in Q4 2018 at 84.9 percent, above the investment bank’s estimate of 83.5 percent.
“Telecom operators signed agreements with the government to settle the outstanding dispute related to royalties fees. Accordingly, the impact will vary across companies, with Zain being the main beneficiary with an estimated cost reduction of SAR 293 million/annually and a provision reversal of SAR 1.7 billion over three years,” NCB Capital said.
NCB Capital added it recommends “neutral” rating on Zain Saudi, setting the stock’s target price at SAR 6.9.
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