Strategy Note /
Saudi Arabia

Zain Earnings Call Summary – Q3 22

  • In Q3 22, revenues increased by 15.3% yoy (+3.7% qoq) to SAR2.29bn

  • B2B segment and 5G continued represented over 15% of Q3 22 revenue.

  • Zain’s 5G customer base grew by more than 175% yoy while 5G traffic grew more than 106% yoy.

SNB Capital
16 November 2022
Published bySNB Capital

Revenue and other KPIs

  • In Q3 22, revenues increased by 15.3% yoy (+3.7% qoq) to SAR2.29bn driven by growth in 5G, B2B, Zain micro finance division (Tammam) along with increased growth in inbound roaming during the Hajj season.

  • B2B segment and 5G continued represented over 15% of Q3 22 revenue.

  • Prepaid segment showed a recovery in Q3 while new revenue streams continued their growth momentum.

  • Zain’s 5G coverage reached to 53 cities at the end of Q3 22 with more than 5,000 towers, covering 62.5% of populated areas.

  • Zain’s 5G customer base grew by more than 175% yoy while 5G traffic grew more than 106% yoy.

  • Zain’s total active subscribers reached 8.6mn in Q3 22, with an ARPU of SAR62 (-13% yoy).

  • The decline in ARPU came as result of Zain offering device bundles with current packages, without increasing the bundle rates. Revenue from device sales was recorded separately, as a result ARPU was calculated net of device sales.

  • Zain’s data revenues accounted for 47% of total revenue with an average data traffic of 14,501 TB per day.

  • Revenues from the fintech division (Tamam), grew over eight times to reach SAR40mn in Q3 22.


  • Gross profits increased by 15.3% yoy (+3.7% qoq) to SAR1.38bn while gross margins fell to 60.2% compared to 62.7% in Q3 21. Gross margins contraction was due to growth in low margin segments’ revenue like B2B, handset and national roaming revenue.

  • EBITDA stood at SAR749mn, a decrease of 7.1% yoy (-2.3% qoq). This was mainly driven by 1) increased revenue from low margin segments 2) higher opex. As a result, EBITDA margins dropped to c33% from c41% in Q3 21.

  • Opex in absolute terms increased 43.2% yoy while opex-to-sales ratio increased to 27.4% in Q3 22 from 22.1% in Q3 21. The increase in opex is driven by higher spending on marketing activities during the Hajj season and the launch of new iPhone. Also, one-off items like frequency fees and collection fees impacted the increase in opex.

  • EBIT grew 30.9% yoy (-6.1% qoq) to reach SAR246mn in Q3 22 vs SAR188mn in Q3 21. EBIT margin improved to 10.8% in Q3 22 vs 9.5% in Q3 21. The improvement in EBIT was mainly due to a decline in depreciation and amortization expenses resulting from acquisition of Zain’s tower portfolio.

  • The tower sale transaction has resulted in the reclassification of tower assets to assets held for sale and a savings of cSAR90mn on depreciation of these assets during Q3 22.

  • Financing costs in Q3 22 stood at SAR166mn, an increase of 31% yoy, mainly due to an increase in LIBOR and SIBOR rates despite a reduction in debt by SAR869mn yoy.

  • Net profit increased by 41.7% yoy to SAR85mn vs SAR60mn in Q3 21 while net margins reached 3.7% as compared to 3.0% in Q3 21. The improvement in net profit is mainly the result of higher revenue and savings on depreciation expenses due to tower sale transaction despite lower gross margins, higher opex and financing costs.

Capex and Cashflow

  • Total capex in Q3 22 stood at SAR126mn vs SAR227mn in Q3 21, while capex to revenue decreased to 6% vs 11% in Q3 21.

  • The company has a capex plans of worth SAR481mn to incur on execution of its network expansion projects.

  • At the end of Q3 22, the company had a cash balance of SAR412mn vs SAR436mn at the end of Q2 22. The decline in cash is the result of increase in receivables driven by growth in B2B segment.

  • Total debt decreased by SAR869mn yoy to reach SAR9.1bn at the end of Q3 22, representing 48.8% of the capital structure, compared 49.8% at the end of Q2 22.

  • The company booked a gain of cSAR55mn in Q3 22 due to the positive impact of the interest rate hedge. More than one-third of the company’s debts are fully hedged against interest rate hikes.

  • Net debt decreased to SAR8.7bn at the end of Q3 22 vs SAR8.8bn in Q2 22  mainly due to payment of first installment to MoF in September 2022. Subsequently, net debt/EBITDA ratio marginally reduced to 2.84x vs 2.86x in Q2 22.

Tower sale transaction

  • The company signed a tower asset purchase agreements with a consortium led by PIF at an aggregate value of SAR3.0bn, out of which the company will receive SAR2.4bn in cash and 20% equity stake in the new entity.

  • The company will receive 100% of the SAR2.4bn in cash once it transfers 3,000 towers and the remaining 5,000 towers will be transferred in the next 18 months.

  • The total gains from the tower sale transaction will be SAR1.3bn and will be recorded in installments over the next 18 months.

  • The first batch of the tower transfer will be done by the end of this year.

  • The proceeds from the tower sale transaction would be to fund various activities like capex, debt repayments and potential acquisitions.

  • ROU and lease liabilities will be reported on Zain KSA’s books once all the towers are transferred to the new entity.

  • The lease liabilities will be less than the proceeds it receives from the tower sale transaction. 

  • Once the lease back arrangements are made, the usage fees will create a drag on EBITDA. However, the company highlighted that the impact will not be more than 10% of the current annualized EBITDA for the next 3 years. After the 3 years, newer revenue streams will create incremental positive impact on EBITDA.


  • The management believes its fintech, 5G and enterprise segments to drive the future growth due to increased demand for ICT solutions.

  • The company has an interest rate hedging arrangement until the maturity of loans (i.e. until 2025) and there are no plans to unwind the hedging arrangements.

  • The company is not paying any royalty fees from the income earned from its Tamam application.