Al Rajhi Cap maintains ‘Neutral’ recommendation on Saudi telecom sector

Al Rajhi Capital maintained its “Neutral” recommendation on the Saudi telecommunication sector, expecting further growth and higher prices during the fourth quarter of 2019 and 2020, according to the company’s report on Thursday.

The Saudi telecommunication sector comprises Saudi Telecom Co. (STC), Etihad Etisalat Co. (Mobily), and Mobile Telecommunications Company Saudi Arabia (Zain Saudi).

The financial services provider attributed its expectations to the current stability in the number of foreigners in the Kingdom, in addition to the increase in the number of visitors for tourism and business purposes.

Moreover, the increase in business activities, especially the local level, supported Al Rajhi Capital’s expectations for Q4 2019 and 2020.

The company noted that investments in 5G technology during 2020 will raise costs and capital expenses, as the latter is forecasted to grow to 20% from total sales, from 13%.

STC, the leading provider of technology services, is expected to achieve net profits worth SAR 11.08 billion in 2019, while Mobily and Zain Saudi are expected to record SAR 196 million and SAR 525 million, respectively.

As regards cash dividends, Al Rajhi Capital projects that STC will pay only a dividend of SAR 4 per share for 2019 and 2020 unless it collects the huge receivables from the government.

Mobily will lower debt to reasonable levels. Accordingly, the telecom operator is not expected to pay dividends for another 3 years.