Earnings Report /
Saudi Arabia

Zain KSA: Improved operational efficiency drives qoq growth

  • Revenues increased 2.9% yoy (+4.6% qoq) to SAR2.0bn, in-line with our estimate

  • Growth in revenue across the operators reflects the increase in the overall mobile subscribers in Saudi

  • Gross margin stood at 62.7% vs our estimates of 64.8% and Q3 20 margin of 65.7%

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
25 October 2021
Published bySNB Capital

Zain KSA reported a broadly in-line set of Q3 21 results, with a net income increasing marginally by 0.4% yoy (+45.0% qoq) to SAR60.4mn. This compares to the SNB Capital estimates of SAR56.8mn and is significantly higher than consensus estimates of SAR46.3mn. We believe the variance is mainly driven by improved operational efficiencies as opex-to-sales stood at 22.1% vs our estimate of 25.6%. Zain’s revenue increased by 2.9% yoy (+4.6% qoq) to SAR2.0bn driven by growth in B2B and 5G revenues and was in-line with our estimate,

  • Revenues increased 2.9% yoy (+4.6% qoq) to SAR2.0bn, in-line with our estimate. The growth is mainly driven by B2B and 5G revenues. We note that Zain’s revenue growth is lower than the growth reported by other operators such as STC (+5.7% yoy) and Mobily (+7.5% yoy), which might indicate a change in market share.

  • Growth in revenue across the operators reflects the increase in the overall mobile subscribers in Saudi. According to CITC Q2 21 data, mobile telecom service subscribers in Saudi grew by 6.9% yoy to reach 47.16mn with a penetration rate of 134.7%.

  • Gross margin stood at 62.7% vs our estimates of 64.8% and Q3 20 margin of 65.7%. In Q3 21, cost of revenue increased by SAR78mn (11.8% yoy) due to the provision released and the gain of MFA modification booked in Q3 20.

  • EBITDA stood at SAR806mn in Q3 21, up 5.1% yoy (+5.3 qoq) and was broadly in-line with our estimates. EBITDA margin was 40.6% vs our estimates of 39.2% and 39.8%. SG&A expenses stood at SAR438mn, lower than our estimates of SAR504mn. SG&A/sales was 22.1%, versus our estimates of 25.6% and 25.9% in Q3 20. Depreciation was at SAR618mn vs our estimates of SAR612mn and SAR628mn in Q3 20.

  • Finance charges decreased by SAR89mn in Q3 21 as compared to Q3 20 to SAR128mn due to a reduction of debt. Based on Q2 21, Zain’s debt stood at SAR5.8bn, reflecting a net debt/EBITDA level of 3.4x.

Outlook

We are Neutral on Zain with a PT of SAR13.6. The improvement in operating margins is the key positive of the results while the slower than peers growth in the top-line is a concern. The stock is currently trading at 2021f PE of 39.9x and EV/EBIDTA of 7.0x compared to the peer group average of 14.0x and 5.5x, respectively.