Al Rajhi Capital confirmed that the telecom sector witnessed a strong performance in 2022, driven by strong revenue growth by telecom operators, with more potential from the business sector as digitization spreads everywhere. Moreover, the return of the Hajj and Umrah season is likely to benefit the consumer segment of operators, which is growing at a low rate.
According to Al Rajhi Capital, telecom operators have achieved healthy growth. As stc sales increased by regarding 7%, while Mobily witnessed a slightly lower growth of regarding 5.6%, and Zain recorded the highest growth among operators by regarding 14.9%. As sales improve, so do telecom operators’ profits. STC’s net profit increased by 7.6%, while Mobily’s net profit increased by 54.5% and Zain’s by 157%. Among the positive trends that revived the general sentiment in the sector is the increase in Mobily’s dividends from 0.85 riyals to 1.15 riyals, which is the third consecutive increase in Mobily’s distributed profit, which increases the possibility of increasing dividends. Moreover, “Zain” announced a dividend for the first time of 0.5 riyals (4% dividend yield) and record profits (earnings per share of 0.61 riyals.
And “Al Rajhi Capital” indicated that, in general, it changed its downward view, which was built on the basis of the higher SIBOR, which will affect the profitability of the sector due to the size of the companies’ financial leverage and the limited growth in revenues. However, the recent superior performance of operators compared to our estimate has led to a revision of the rating.
On the other hand, “Al-Rajhi Capital” revised the target price for the Saudi Telecom Company from 34 riyals to 40 riyals and maintaining neutrality, while in Mobily the target price was revised to 46 riyals from 37 riyals and changed the classification to an increase, and also revised its evaluation of Zain, as the company announced the distribution Earnings for the first time, with a target price of 13 riyals from 10 riyals, with a neutral recommendation for the stock.
With regard to the results of the fourth quarter 2022, “Al Rajhi Capital” indicated that the Saudi Telecom Company recorded a growth of nearly 9% in the fourth quarter, mainly driven by growth from its subsidiaries, which witnessed a growth of 21% on an annual basis, amounting to 5.2 billion riyals at the end of the fourth quarter of 2022. 2022 compared to 4.3 billion riyals at the end of the fourth quarter of 2021, adding that the quarter’s profits came around expectations due to recent changes in interest rate expectations.
She added that Mobily’s performance is improving from year to year, and the company achieved strong numbers for the fourth quarter with a growth of 6% in sales. Despite the modest growth in the top line, the company’s total profit grew by 10% year-on-year which is believed to be a result of the favorable product mix, adding general and administrative expenses for the period decreased by regarding 15% to reach 748 million riyals compared to 883 million riyals, which It reflects positively on the company’s profits. Also, part of the hedge financing expense, which makes the company less affected by the increase of SIBOR. Adding that the fourth-quarter profit amounted to 606 million riyals, a growth of 89%, much higher than its expectations of 368 million riyals (65% deviation). These combinations of strong numbers, combined with increasing earnings, were the main drivers of our upward revision of our price target.
Regarding Zain, Al-Rajhi Capital said, “Zain’s performance for the fourth quarter exceeded expectations in the fourth quarter figures, as the company’s total profit increased by 25% year-on-year, and operating expenses increased by regarding 100 million riyals on an annual basis, but decreased by 57 million riyals quarterly. Due to the sale of the towers to the Public Investment Fund, depreciation fees decreased by regarding 364 million riyals for the full year. Fourth-quarter profit was 251 million riyals, a growth of 253% year-on-year, well above expectations of 104 million riyals (144% deviation). These sets of strong numbers, along with the dividend announcement, were the main drivers for the price target adjustment from 10 riyals to 13 riyals per share.
