Zain’s Results Exceed Expectations -Al-Ahly Capital Confirms

Zain Saudi Arabia achieved higher than expected results in the 4th quarter of 2021, with a net income of SR71.1 million, an increase of 97.8% on an annual basis, and an increase of 17.7% on a quarterly basis, compared to the estimates of Al-Ahly Capital, confirming the average estimates of analysts, amounting to SR58.7 million and SR54.5 million, respectively.

Revenues rose by 1.1% on an annual basis, a rise of 5.0% on a quarterly basis to S2.1 billion, in line with expectations, Al-Ahli announced, adding that both the total income and the gross profit margin were less than expectations, while the impact of the decline was mitigated by a decrease in operating expenses and other expenses, during the quarter.

On the other hand, “Al-Ahly Capital” maintained its neutral recommendation for Zain, at a target price of SR13.6 per share, suggesting that the decrease in the total margin represents the most significant challenges, while the decrease in operating expenses is considered as a positive matter, noting that the stock is trading at a multiple of P/E and a multiple of the company’s value to expected earnings before the interest, tax, depreciation and amortization (EBITDA), in addition to Zakat, for 2022 was at 34.1 and 5.8 times compared to the average of 14.0 and 5.5 times, respectively.

According to Al-Ahly Capital, revenues increased by 1.1% on an annual basis (50% increase on a quarterly basis) to SR2.1 billion, in line with expectations, and this is the highest level of revenues since the 4th quarter of 2019, and it is expected that this increase in revenues came from revenues rise from the business sector, in addition to the 5G services.

Gross profit margin for the quarter came at 56.0%, lower than expectations at 62.8% and less than the 61.4% margin in the 4th quarter of 2020.

Such margin for the quarter is the lowest since the 3rd quarter 2015.

The expected increase in costs was due to the growth of the business sector, which its profit margins are, usually, lower.

EBITDA for the quarter was approximately SR822 million, a decrease of 1.6% from the same quarter of the previous year (a rise of 2.0% from the previous quarter), in line with expectations in terms of margin, as it reached 39.5% compared to 40.6% in the 3rd quarter of 2019, and against expectations of 38.8% according to Al-Ahli estimates.

On the other hand, the operating income amounted to SR193 million, a decrease of 8.1% on an annual basis (an increase of 2.6% on a quarterly basis).

In general, as well as in line with expectations, the lower operating expenses mitigated sales costs, that were higher than expected.

Operating expenses amounted to SR345 million, compared to expectations of SR503 million.

The ratio of operating expenses to sales amounted to 16.5% compared to expectations that indicated at 24.0% and less than 25.0% for the 4th quarter of 2020.

Such a decrease in operating expenses was supported by the improvement in operational efficiency.

Cost of financing for the 4th quarter of 2021 decreased to SR57.1 million from SR120 million in the 4th quarter of 2020, following the decrease in interest rates and the debt balance, as well.