Zain Saudi likely to sell towers for SAR 2 bln: Riyad Cap

Mobile Telecommunications Company Saudi Arabia (Zain Saudi) is expected to finalize a deal worth SAR 1.9 billion for the sale of its towers this year, Riyad Capital said in a note.

The telecom operator currently stands at a “crossroads,” and will have to decide on carving out its towers as well as capital restructuring that may include debt-equity swap and capital increase, the brokerage said.

Capital restructuring is expected to dilute earnings per share (EPS) but could also result in better net profits as debt levels and finance charges will decline.

Meanwhile, total bank debt of SAR 14 billion is seen to decrease as cash flow from operations improves and capex spending declines in coming years.

“These developments are expected to signal a bright future for the company that has suffered from highly leveraged balance sheet,” Riyad Capital said.

The brokerage expects Zain Saudi to report a net profit of SAR 209 million in 2017, with the bottom line expected to grow at a compound annual growth rate (CAGR) of 14 percent, reaching SAR 313 million in 2020.

Riyad Capital maintained its “Buy” recommendation on the stock, and revised the target price to SAR 14 per share from SAR 13 per share, without accounting for capital restructuring or tower sales due to lack of clarity.

Overall, the telecom sector is becoming increasingly competitive as fundamentals are changing, the report said, adding that revenue mix, low data prices and post-paid market share are the current challenges facing operators.