NCB Capital initiates coverage on Saudi telecoms sector

NCB Capital initiates coverage on Saudi telecoms sector
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Published December 5th, 2010 - 16:03 GMT

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ARPU
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Saudi Telecom Company
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NCB Capital
,
Etihad Etisalat
,
Zain Saudi (Zain)

NCB Capital, Saudi Arabia's largest investment bank, announces that it has added the Saudi telecoms sector to its award-winning equity research coverage. From today, investors will be able to access the views of the bank's sector specialists in an industry of increasing importance to the Kingdom and the wider GCC region.

Commenting on the launch, Eiji Aono, Head of Equity Research at NCB Capital, said, "It is our goal to offer in-depth analysis and thinking on industries of strategic significance. Telecoms companies fall into this category and we are initiating our coverage with a cautiously optimistic view of the industry as a whole."

The summary of company-specific ratings released today include:

Saudi Telecom Company (STC): Overweight rating, primarily based on its inexpensive valuation; target price of SR48.2.

Etihad Etisalat (Mobily): Overweight rating, based on solid fundamentals; target price of SR65.6.

Zain Saudi (Zain): Neutral rating, due to balance sheet concerns; target price of SR7.0.

NCB Capital believes that the sector has good potential to continue growing in the coming years, particularly due to the increased focus on value-added services and broadband access, as well as the potential from international exposure. Positive macro factors such as a growing young population with increasing disposable incomes should also help support growth in the sector.

However, there are also a number of negative issues facing the industry and our concerns focus on declining ARPU levels, high capital expenditure requirements, the high penetration rate in mobile, as well as the increasingly saturated voice market which remains a large portion of overall revenues.

Overview of company coverage:

NCBC initiate on STC with an Overweight rating and PT of SR48.2, indicating upside potential of 20%. Key positives of the stock include its dominance in DSL, its scale of business and its relatively higher and more secure ARPU levels. Key concerns on the stock are focused on the limited information available on its international operations, high capex requirements on both the local and international businesses, as well the pace at which it continues to lose market share to competitors. However, we believe many of the concerns surrounding STC have been priced in and the stock at current price levels provides good value for investors.NCBC initiate on Mobily with an Overweight rating and PT of SR65.6, indicating upside potential of 18%. Key positives of the stock include its dominance in wireless internet access, increased leverage of its infrastructure resources leading to lower costs and its strong management/execution capabilities. Key concerns on the stock are focused on its declining ARPU levels, its limited fixed line services as well as acquisition costs of new customers.

NCBC initiate on Zain with a Neutral rating and PT of SR7.0, indicating downside potential of 8%. Key positives of the stock include its attractive and innovative packages, increasing market share and growing mobile broadband business. Key concerns on the stock are focused on its high debt levels and the financing of this, ownership concerns due to the proposed takeover of its parent Zain group and the extent of its continued losses set against the SR22bn it paid for its license.

NCB Capital was voted best research house in three categories in Euromoney's annual Middle East research survey for 2010. The bank achieved a total of 10 ranked positions in this year's survey, the third highest amongst all research firms in the region. On the basis of top ranked positions, the firm achieved the second highest total in the region.

NCB Capital was awarded:

Best Research House in the Cement SectorBest Research House in the Consumer Goods/Retail SectorBest Research House in the Food & Agriculture Sector

Additionally, it was ranked second in Oil and Natural Gas, Economics, and Credit. It also won third place in Strategy and fourth in General Industries.

The bank already provides analysis on the agriculture & food, cement, construction, industrials, petrochemical, consumer goods/retail and utilities sectors; the only domestically-owned investment bank to offer such a range. 

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