Saudi Telecom Co.'s (STC's) total revenues of SR 59.4 billion ($18.84 billion) (5.6 percent) continued to benefit from strong sales which jumped 43 percent to SR 13.4 billion during 2012, Riyad Capital says in its report.
Sales contribution from international operations remained constant at 32 percent with Kuwait and Bahrain growing an impressive 45 percent and 27 percent Y/Y, respectively, to counter the 6 percent decline in Oger Telecom revenues. Under the new accounting method, total revenues would be reported at SR 44.7 billion (10.3 percent) reflecting the exclusion of SR 14.6 billion sales from Oger and Binariang.
International expansion helped lift group revenues through 2010 to mitigate concerns on deteriorating domestic market share. However, beginning in 2011 STC aggressively moved to reclaim domestic share as KSA sales increased 8 percent and 6 percent in 2011 and 2012, respectively, thanks to bundled offers and expanding high-speed data availability.
The operator is moving ahead with its plans to connect 1.5 million homes with FTTH by 2014 which is capable of delivering Internet speeds of up to 200 mbps for seamless high-definition video content.
Interestingly, while data contribution to total revenues increased from 12 percent in 2008 to 23 percent in 2012, the expected gross margin improvement did not follow. Further, revenue mix is shifting away from the more GSM expensive mobile voice segment which should have supported margin expansion.
Access charges comprised 40 percent of cost of service (COS) in 2012 and have steadily risen in the past three years possibly as a result of lower on-net traffic and higher interconnect costs at international operations. More encouraging is the downtrend in employee costs and stable repairs expense.
Riyad Capital revenue forecasts incorporate the impact of equity method accounting and project 4.8 percent CAGR between 2011 and 2015.
Reported EBITDA of SR 20.3 billion was flat and slightly below forecast of SR 20.8 billion. STC wrote-down recoverable values by SR 358 million and SR 283 million on its investments in Oger and Binariang.
EBITDA margins have slid 12 percent from 2008 to 2012. Admin and marketing expenses comprised 12 percent of revenues in 2008 and continued increasing on international expansion to 21 percent in 2012.
While bulk of this increase may be attributed to domestic operations, savings could be realized from de-consolidation of Oger and Binariang. For 2013 and 2014, Riyad Capital forecasts EBITDA margins at 36.3 percent and 37.1 percent, respectively.
Following two years of declining operating income in 2009 and 2010, signs of stabilization emerged. Riyad Capital expects operating income of SR 8.5 billion and SR 9.5 billion for 2013 and 2014, respectively.