Earnings Report /
Saudi Arabia

Zain KSA: Higher revenue and lower depreciation

  • Revenues increased 12.5% yoy (+4.6% qoq) to SAR2.2bn

  • Gross margins contracted by 601bps yoy to 56.7%, lower than our estimates of 63.0% and Q1 21 levels of 62.7%

  • EBITDA stood at SAR722mn, down 1.8% yoy (-12.1% qoq)

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Vice President, Senior Equity Research Analyst

SNB Capital
18 April 2022
Published by

Zain KSA reported a better than expected set of Q1 22 results, with a net income of SAR81.0mn, increasing by 98.2% yoy (+14.1% qoq). This compares to the SNB Capital and consensus estimates of SAR42.9mn and SAR65.0mn, respectively. Revenue increased 12.5% yoy (+4.6% qoq) to SAR2.2bn, slightly ahead of our estimate of SAR2.1bn. Although the top-line was better than expected, it was offset by lower gross margins. However, the variance in the results were mainly attributed to lower than expected deprecation which stood at SAR521mn vs our estimates of SAR631mn following to the acquisition of Zain’s tower portfolio.

  • Revenues increased 12.5% yoy (+4.6% qoq) to SAR2.2bn, marginally ahead of our estimate of SAR2.1bn. This is the highest quarterly revenue since Q4 19. We believe the growth and variance in revenue is mainly driven by higher B2B, 5G and other revenues.

  • Gross margins contracted by 601bps yoy to 56.7%, lower than our estimates of 63.0% and Q1 21 levels of 62.7%. We believe the contraction in gross margins is mainly due to the growth in the lower margin B2B segment.

  • EBITDA stood at SAR722mn, down 1.8% yoy (-12.1% qoq) and was lower than our estimates of SAR799mn. EBITDA margin stood at 33.2% vs 39.5% in Q4 21 and our estimates of 38.0%.

  • However, EBIT grew 27.1% yoy (+4.1% qoq) to SAR201mn, higher than our estimates of SAR168mn. Deprecation stood at SAR521mn, vs our estimates of SAR631mn and Q4 21 level of SAR628mn. The company attributed the decline in deprecation to the acquisition of Zain’s tower portfolio. The lower than expected depreciation level is the key highlight of the results.

  • Net other expenses increased 2.4% yoy (-4.2% qoq) to SAR120mn vs SAR117mn in Q1 21 and our estimate of SAR125mn. We believe the variance in net non-opex is due to lower finance and zakat expenses.

Outlook

Based on our last update, we are Neutral on Zain KSA with a PT of SAR13.6. We believe the revenue growth and lower depreciation expenses are the key positives of the result while the decline in gross margin is the main concern. The stock is trading at 2022f P/E and EV/EBITDA of 31.7x and 6.9x, compared to its peer group average of 14.3x and 6.2x, respectively.