Lower revenues to hit earnings of Saudi telcos: NCBC

The net income of Saudi telecom sector is expected to drop by 1.4 percent to SAR 9.3 billion in 2018, driven by lower revenues, NCB Capital said in a new report on Monday.

The sector’s outlook remains muted due to the impact of the Kingdom's economic reforms and the introduction of new regulations by the Communications and Information Technology Commission (CITC) last year, such as lower mobile termination rates (MTR), lifting the VoIP ban, and fair usage policy cancellation.

The number of mobile users is expected to decline by 2.9 percent to 39 million, resulting in a penetration rate of 123 percent. This compares to a 16.1 percent year-on-year decline in 2017 with a penetration rate of 127 percent.

“Therefore, we expect a decline in the top-line and net income by 1.5 percent and 1.4 percent, respectively in 2018,” the report said.

NCBC, however, expects the sector’s EBITDA margin to expand to 37 percent from 36.4 percent, supported by better cost control and the impact of lower MTR charges for Mobily and Zain.

According to the report, the removal of the VoIP ban will reduce revenue from international calls, which accounts for an estimated 7 percent of sector revenue.

However, the fair usage policy cancellation will increase data usage and offset the negative impact as higher price data bundles are introduced.

Looking ahead, NCBC said that the possible inclusion of Saudi Telecom (STC), Mobily and Zain in FTSE and MSCI emerging market indices would drive their stock prices higher in the next 14 months.

“The stock prices are expected to move away from fair value, driven by momentum due to increased inflows during this period,” the research firm said, maintaining a "Neutral" rating for the three telecom firms.