Earnings Call Summary - STC H1 22
Below are the key highlights of STC’s H1 22 earnings call. I have attached our Q2 22 event flash report for your reference.
STC’s revenue grew by 7.4% yoy to SAR33.8bn in H1 22, driven by healthy growth across all business segments.
Gross profits in H1 22 increased 8.4% yoy while gross margins expanded by 50bps yoy to 54.0% mainly due to cost control measures by STC KSA, Bahrain and Kuwait.
STC operating profit in H1 22 increased by 12.1% yoy to SAR7.5bn, while EBITDA rose to SAR12.5bn by 9.0% yoy. Net income grew by 1.7% yoy to reach SAR5.9bn.
The net profit growth was negatively impacted by the impairment provision related to Binariang group’s (BGSM) investment in MAXIS, a listed company in Malaysia. The decline in share prices of Maxis led to its re-evaluation. Lower FCFF and higher WACC (increased interest rates resulted in higher Cost of debt and Cost of Capital) has had an impact on the valuation of the investment.
STC established a major digital hub in MENA region with investment of cUS$1.0bn.
Acquisition of AWAL Telecom, a towers management company in Pakistan is in the final stages of competition.
STC’s subsidiary Solutions announced the acquisition of 89% stake in Giza Systems Company, in addition to 34% of Giza Arabia, a subsidiary of Giza Systems Company.
The company signed a joint venture agreement with PIF to establishment a new company focusing on the field of Internet of Things (IoT).
STC launched Saudi Cloud Computing Company, a joint venture with Alibaba to meet the huge demand for cloud services in Saudi Arabia.
The company is focusing on acquiring fixed broadband customers after the FTTH open access agreement. The company highlighted that it is the net gainer of the agreement.
On a cumulative basis, the company has deployed over 7000 5G towers and is expected to added another 200-300 towers till the end of this year to meet the increasing 5G demand and increase the customer base.
The company announced the increase in its capital by 150% through bonus shares to STC’s shareholders and revised its dividend policy to pay SAR0.40 per share every quarter after the capital increase.
STC undertook the capital structuring to support achieving its growth and expansion strategy. The company aims to capture the expected growth opportunities in the telecommunication & technology sector in the Saudi Arabia and the region with the capital restructuring.
Through the acquisition of AWAL Tower Co. in Pakistan, STC has an ambitious plan to expand in the regions outside the country. The management also clarified that it would operate only as a tower company and not trying to be a mobile operator in Pakistan.
STC Pay continued to record an improved performance with qoq revenue growth, increasing customer base and active users in every quarter. STC is trying to expand the business through the launch of banking products.
The management stated that it has no plans to going public for STC Pay now and the focus for next 24 months will be on growing the company and expand in Saudi and GCC countries.
The company provides advanced cloud solutions and services using Alibaba cloud platform which are different from Solutions’ cloud business.
The company believes there is huge demand for cloud and data center services and expects this market to grow at a CAGR of 20% from 2018-25 reaching from SAR1.9bn to SAR9.6bn in 2025f.
The management stated that there is no pricing pressure in Saudi telecom market and the company is growing its revenue and profits in the domestic market.
The management believes few of its subsidiaries are fully IPO ready but considering market conditions and internal assessments it is not rushing to go public in near future at least till 2024 or 2025.
The company expects that it will take 2-3 years for the execution of EMC submarine data cable project in Greece.
Recovery in market conditions post Covid-19 and price stability in the market will help the company to grow the topline and expand the gross margins in H2 22.
The management stated that there is some stability in the capex on the group level and there are no plans of any major capex in the near future.