Saudi Telecoms Sector: Mobily still ahead

Saudi TelecomTelecom –Industrial04 December 2011So far STC has investedUS$7.2bn overseasSTC’s most valuable markets are Malaysia (Maxis) and Turkey (Turk Telecom).Maxis ranksno.1 in mobile market while Turk Telecom ranks no.1 in fixed line and no.3 in mobile market.We expect international business to reach 38% of the total revenues (currently 34%) by 2015assuming STC is not making new major investments. That said, we think STC is looking atmajor acquisition targets in MENA to strengthen its position in the region. This was evidentfrom the fact that STC was bidding for telecom license in Syria before it got cancelled due toongoing political tensions in the country.Q4: decent performanceWe expect moderate growth for STC in Q4 2011 due to the fact that call rates have come downfrom last year. Further, as per our sources, we believe Mobily and Zain have utilized Hajjseason more efficiently than STC. Mobily did an extensive coverage of Hajj period bydistributing free goodies and establishing kiosks in areas close to locations important for Hajjrituals.On the other hand, the depreciation of South East Asian currencies such as INR (15% YTD),MYR (4% YTD) and IDR (1% YTD) can lead to forex losses in Q4. Nevertheless, we believe thecurrency exchange losses should be moderate as compared to last quarter.Figure 14. STC : Q4 & FY2011 estimatesSAR mn Q4 2010A Q4 2011E YoY chg. % FY 2010A FY2011E YoY chg. %Revenue 13,444 14,305 6.4% 51,787 55,276 6.7%EBITDA 5,244 5,493 4.7% 19,625 20,591 4.9%Operating Profit 3,028 3,294 8.8% 10,981 11,746 7.0%Net Profit 2,290 2,371 3.6% 9,440 7,763 -17.8%Source: Company data, Al Rajhi CapitalDisclosures Please refer to the important disclosures at the back of this report. 12