1
© All rights reservedJune 2023
Etihad Etisalat Co. (Mobily)
Investment Update
Source: Tadawul, Aljazira Capital
Head of Sell-Side Research Jassim Al-Jubran +966 11 2256248
[email protected] Healthy topline and lower OPEX boosted the Q1-23 earnings, expected to deliver strong
net profit growth this year
Etihad Etisalat Co. (Mobily) posted a net profit of SAR 465mn in Q1-23 (+45.7% Y/Y), beating our and market estimates of SAR 397mn and SAR 425mn, respectively. The deviation from our estimate is mainly due to lower-than-expected OPEX and depreciation and amortization (D&A), and higher non-operating income. This was partially offset by the lower GP margin.
The revenue of SAR 4.1bn (+6.3% Y/Y) was in line with our estimate. We expect Mobily to maintain healthy revenue growth on the back of strong B2B segment performance.
Moreover, operating efficiencies are likely to help keep EBITDA margins intact. We lift our TP to SAR 50.0/share and maintain an “Overweight” recommendation on the stock.
Mobily’s Q1-23 results driven by improved operational efficiencies and continued revenue growth: Mobily’s net profit jumped 45.7% Y/Y to SAR 465mn in Q1-23, above AJC and market estimates of SAR 397mn and SAR 425mn, respectively. The higher-than-expected net income was due to lower OPEX and D&A coupled with higher non-operating income; partially offset by lower GP margin. Non-operating income included finance income of SAR 33mn (vs. SAR 5mn in Q1-22) and other income of SAR 14mn (vs. SAR 7mn). Finance expenses rose 38.2% Y/Y to SAR 172mn.
Revenue growth of 6.3% Y/Y to SAR 4,051mn (in line with our estimate) was driven mainly by a solid growth in Business segment revenue (+29.3% Y/Y). Consumer and Wholesale segments revenues were almost flat Y/Y. GP margin contracted 180 bps Y/Y to 56.9% (AJC estimate: 59.0%). Operating margin expanded 338 bps Y/Y to 15.5% (AJC estimate: 14.8%), despite contraction in GP margin, as OPEX and D&A declined.
Top line growth to be led by the Business segment: The Business segment growth continued to be robust in Q1-23, with an increase of 29.3% Y/Y in top line. The segment’s contribution reached 20%
of the total revenue in Q1-23. We believe that momentum in the segment will continue going forward, as the company has signed several large deals such as with MOMRA, NEOM and Public Security, while already having projects like smart meter project. Additionally, the company has also witnessed strong growth in Wholesale revenue in FY22 (+20.2%). Although Wholesale revenue was flat Y/Y in Q1-23, the recent increase in contribution from this segment may partially compensate the impact of competitive pressure in Consumer segment by leveraging the company’s infrastructure through infrastructure sharing agreements.
Operating efficiencies likely to support healthy EBITDA margins, GP margins may ease: Mobily’s efforts to enhance operating efficiency seem to be reflected in the lower OPEX in recent quarters.
Thus, would support margins going forward. We forecast FY23 EBITDA margins to improve slightly to 39.4% from 39.3% in FY22, as lower OPEX is expected to be partially offset by easing of GP margin from 59.8% in FY22 to 58.0% in FY23 due to increasing competition in B2B segment and a likely higher contribution from low-margin Hajj and Umrah revenue. At operating level profit is anticipated to be bolstered by lower D&A. We forecast a 24.0% growth in net profit for Mobily at SAR 2.1bn in FY23.
AJC view and valuation: Mobily’s Q1-23 results were better than our expectation. We believe the company will continue to deliver solid performance in terms of revenue and profitability in FY23. We value Mobily with 50% weightage to DCF (WACC=8.5% and terminal growth of 2.5%), and 25% each to EV/EBITDA (6.8x) and P/E (18.0x) based on our revised FY23 estimates. We lift our TP to SAR 50.0/share and maintain an “Overweight” recommendation on the stock.
Recommendation
Overweight
Target Price (SAR) 50.0 Upside / (Downside)* 16.3%Source: Tadawul *prices as of 31st of May 2023
Key Financials SARmn
(unless specified) FY21 FY22 FY23E FY24E Revenues 14,834 15,669 16,447 16,934 Growth % 5.6% 5.6% 5.0% 3.0%
Net Income 1,072 1,657 2,054 2,168 Growth % 36.8% 54.6% 24.0% 5.5%
EPS 1.39 2.15 2.67 2.82
Source: Company reports, AlJazira Capital
Key Ratios
FY21 FY22 FY23E FY24E Gross Margin 58.5% 59.8% 58.0% 57.9%
Net Margin 7.2% 10.6% 12.5% 12.8%
ROE 7.1% 10.1% 11.7% 11.6%
P/E (x) 22.4 16.1 16.1 15.3
P/B (x) 1.6 1.6 1.9 1.8
EV/EBITDA (x) 6.6 6.3 6.7 6.3 Dividend Yield 2.7% 3.3% 3.0% 3.0%
Source: Company reports, Aljazira Capital
Key Market Data
Market Cap (SAR bn) 33.1
YTD% 23.7%
52 weeks (High)/(Low) 47.15/31.45
Share Outstanding (mn) 770
Source: Company reports, Aljazira Capital
Price Performance
Mar-23 May-23
May-22 Jul-22 Aug-22 Oct-22 Dec-22 Jan-23
TASI -LHS Mobily (SAR) -RHS 30 35 40 45 50
9,000 11,000 13,000 15,000
2
© All rights reservedJune 2023
Etihad Etisalat Co. (Mobily)
Investment Update
Amount in SAR mn, unless otherwise specified FY20 FY21 FY22 FY23E FY24E FY25E
Income statement
Revenue 14,046 14,834 15,669 16,447 16,934 17,433
Y/Y 4.4% 5.6% 5.6% 5.0% 3.0% 2.9%
Cost of Revenue (5,894) (6,163) (6,306) (6,910) (7,123) (7,353)
Gross Profit 8,152 8,672 9,363 9,536 9,811 10,081
Selling & marketing (1,391) (1,390) (1,463) (1,421) (1,461) (1,501)
General & administrative (1,407) (1,558) (1,628) (1,537) (1,589) (1,631)
Operating Income 1,367 1,654 2,310 2,736 2,779 2,890
Y/Y 41.3% 21.0% 39.7% 18.4% 1.6% 4.0%
Financing costs (561) (505) (607) (682) (601) (491)
Other Revenues 21 5 46 125 100 50
Income before Zakat 826 1,151 1,779 2,226 2,327 2,499
Zakat (43) (79) (122) (171) (159) (171)
Net income 783 1,072 1,657 2,054 2,168 2,328
Y/Y NM 36.8% 54.6% 24.0% 5.5% 7.4%
EPS 1.02 1.39 2.15 2.67 2.82 3.02
Balance sheet Assets
Cash and cash equivalents 929 1,051 828 1,654 2,524 3,381
Other current assets 5,547 7,034 8,889 9,179 9,562 9,973
Total Current Assets 6,476 8,085 9,716 10,833 12,086 13,355
Property & Equipment 21,321 20,380 19,508 18,868 18,317 17,809
Other non-current assets 10,611 10,899 10,545 10,243 9,970 9,734
Total Assets 38,408 39,364 39,769 39,944 40,373 40,898
LIABILITIES
Total current liabilities 10,985 11,083 11,656 11,483 11,545 11,309
Total non-current liabilities 12,978 13,085 11,755 10,933 10,135 9,683
Paid -up capital 7,700 7,700 7,700 7,700 7,700 7,700
Statutory reserves 2,649 2,649 2,649 2,649 2,649 2,649
Retained earnings 4,206 4,884 5,919 7,088 8,255 9,466
Total Shareholder's Equity 14,445 15,196 16,359 17,527 18,694 19,905
Total Liabilities & Equity 38,408 39,364 39,769 39,944 40,373 40,898
Cashflow statement
Operating activities 3,085 4,361 4,979 5,065 5,378 5,485
Change in cash (322) 121 (223) 826 870 858
Ending cash balance 929 1,051 828 1,654 2,524 3,381
Key fundamental ratios Liquidity ratios
Current ratio (x) 0.6 0.7 0.8 0.9 1.0 1.2
Quick ratio (x) 0.6 0.7 0.8 0.9 1.0 1.2
Profitability ratios
GP Margin 58.0% 58.5% 59.8% 58.0% 57.9% 57.8%
Operating Margins 9.7% 11.2% 14.7% 16.6% 16.4% 16.6%
EBITDA Margin 38.1% 37.6% 39.3% 39.4% 39.3% 39.3%
Net Margins 5.6% 7.2% 10.6% 12.5% 12.8% 13.4%
Return on assets 2.0% 2.7% 4.2% 5.1% 5.4% 5.7%
Return on equity 5.4% 7.1% 10.1% 11.7% 11.6% 11.7%
Leverage ratio
Debt / equity (x) 0.9 0.8 0.7 0.6 0.5 0.4
Market/valuation ratios
EV/EBITDA (x) 6.6 6.6 6.3 6.7 6.3 5.9
EPS (SAR) 1.02 1.39 2.15 2.67 2.82 3.02
BVPS (SAR) 18.8 19.7 21.2 22.8 24.3 25.9
Market price (SAR)* 28.7 31.2 34.8 43.0 43.0 43.0
Market-Cap (SAR mn) 22,061 23,986 26,758 33,110 33,110 33,110
P/E ratio (x) 28.2 22.4 16.1 16.1 15.3 14.2
P/BV ratio (x) 1.5 1.6 1.6 1.9 1.8 1.7
Source: Company filings, AlJazira Capital Research
Key Financial Table
Al-Jazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37
RESEAR CH DIVISION RA TING TERMINOL OGY
Disclaimer
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business.
1. Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target.
Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months.
2. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target.
Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months.
3. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months.
4. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Al- Jazira Capital from sources believed to be reliable, but Al-Jazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Al-Jazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Al-Jazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Al-Jazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Al-Jazira Capital. Funds managed by Al-Jazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Al-Jazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Al-Jazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Al-Jazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Al-Jazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations.
RESEAR CH DIVISION
Head of Sell-Side Research - AGM Jassim Al-Jubran
+966 11 2256248
Asset Management | Brokerage | Investment Banking | Custody | Advisory
Head Office: King Fahad Road, P.O. Box: 20438, Riyadh 11455, Saudi Arabia، Tel: 011 2256000 - Fax: 011 2256068
