Cost control measures help STC meet Q4 earnings expectation: NCBC

Saudi Telecom Company’s fourth quarter net profit of SAR 2.65 billion – up 27.2 percent year-on-year (YoY) – was broadly in-line with NCB Capital and consensus estimates of SAR 2.52 billion and SAR 2.37 billion, respectively.

“This is the highest net income since Q3 2014. We believe the lower than expected top-line was offset by better cost control measures,” NCB Capital said in an earnings review.

Revenues declined 4 percent to SAR 12.5 billion, lower than NCB Capital’s estimates of SAR 13.1 billion amid stiffer competition and a decline in the number of subscribers.

“We expect these rates to continue to decline with the implementation of the expats levy and other economic reforms,” the report said.

Gross margin at 60.7 percent was higher than NCB Capital’s projections of 58.4 percent, due to lower cost of sales reflecting the company’s efforts towards cost optimization.

Additionally, the growth in data revenues supported the margin expansion, the report said.

The income from international operations was SAR 58 million versus NCB Capital’s estimates of SAR 62 million.

The research firm said it is holds “neutral” outlook on STC stock, with a target price of SAR 72.1.

“A strong balance sheet and attractive dividend yield of 5.6 percent are the key advantages,” the report said. “However, we believe the current valuation reflects all the positives, offering a limited upside potential from current levels.”