2009
Saudi Telecom Company
Tadawul Code
7010 PE (x)
9.7 Sector
Close Price (SAR)
51.0 PBV (x)
2.7 Index PE
52 week high (SAR)
71.3 Div Yield (%)
52 week low (SAR)
12.2
9.7% Sector PBV
0.8 % of sector
Financials (SAR '000)
3.9%
102,000.0 Sector PE
5,801.8 % of TASI
Beta
1.8
2,000.0 Index Div Yield
3.9% Market Cap (SAR million)
30 Day Avg Vol ('000)
13.4
7.4% Index PBV
33.7 Outstanding Shares (million)
YTD 2009
Telecom
2.2
70.0% Sector Div Yield
5.5%
2007
2008
2009E
2010E
2011E
2012E
Revenues
34,457,807
47,469,368
49,368,143
50,849,187
52,374,663
54,469,649
EBITDA
16,544,500
18,449,868
19,129,699
20,994,796
22,007,345
22,726,293
Net Profit
12,021,733
11,037,846
11,274,566
12,733,383
13,349,276
13,726,933
Total Assets
68,811,246
99,762,135
100,986,513
104,038,296
Total Liabilities
32,919,364
57,200,258
55,716,384
54,311,483
52,139,953
55,121,693
Shareholders' Equity
35,876,253
37,637,978
40,346,230
44,802,914
49,475,161
54,279,587
6.0
5.5
5.6
6.4
6.7
6.9
17.9
18.8
20.2
22.4
24.7
27.1
Net Profit Margin
34.9%
23.3%
22.8%
25.0%
25.5%
25.2%
EBIDTA Margin
46.9%
41.4%
39.7%
40.3%
40.0%
39.7%
Return on Avg. Equity
34.3%
28.1%
25.7%
26.8%
25.6%
24.2%
Return on Avg. Assets
20.9%
13.1%
11.2%
12.4%
12.7%
12.4%
6.4%
37.8%
4.0%
3.0%
3.0%
4.0%
-6.1%
-8.2%
2.1%
12.9%
4.8%
2.8%
5.0%
4.9%
7.2%
11.0%
10.4%
9.7%
49.2%
45.0%
1.2%
3.0%
2.4%
7.3%
EPS (SAR)
BVPS (SAR)
106,539,013 114,325,180
Ratio Analysis
Profitability Ratios (%)
Growth (%)
Revenues
Net Income
Shareholders’ Equity
Total Assets
Liquidity/Turnover/Leverage Ratios
Current Ratio (x)
0.8
0.8
0.8
0.8
0.9
1.1
Total Asset Turnover (x)
0.5
0.5
0.5
0.5
0.5
0.5
Cash Conversion Cycle
(days)
9.4
3.7
2.9
5.5
5.7
6.8
Total Debt/Total Equity
0.4
0.8
0.7
0.6
0.5
0.5
13.9
8.9
9.0
8.0
7.6
7.4
Valuation Ratios
PE (x)
PBV (x)
4.7
2.6
2.5
2.3
2.1
1.9
PEG (x)
-13.8
-6.0
4.2
0.6
1.6
2.6
Dividend Yield (%)
16.8
13.1
7.2
8.1
8.5
8.7
Earnings Yield (%)
7.2
11.2
11.1
12.5
13.1
13.5
EV/Revenues (x)
5.0
2.6
2.6
2.4
2.3
2.2
(Source: STC, Tadawul, FALCOM Research; Note: Stock Market Data and Prices are as of 6th July 2009)
Price - Volume C hart
80
14100
Volume ('000)
STC
70
10100
8100
60
6100
50
Price (SR)
Volume
12100
4100
40
2100
30
Jun-09
May-09
Apr-09
Mar-09
Feb-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
100
(Source: Tadawul, FALCOM Research)
FALCOM RESEARCH
FALCOM Research
Saudi Telecom Company
Saudi Telecom Company
1
1
Contents
FALCOM RESEARCH
2
Executive Summary
3
Company Profile
5
Operations
11
Marketing Mix
22
Strategy
24
Competitive Advantages
26
SWOT Analysis
28
Financial Analysis
29
Future Outlook
35
Valuation
38
Company Financials
42
Glossary
46
Rating Rationale
47
Disclosures
48
Saudi Telecom Company
Saudi Telecom Company
2
FALCOM Research
SUMMARY
EXECUTIVE
Established in 1998 as a joint-stock holding company, STC is the only
fully integrated telecommunications service provider in the kingdom and
the largest telecom operator in the MENA region. Over the last two
years, cash-rich STC has emerged as a telecommunication holding
company with operations in ten different countries, including Saudi
Arabia. The international operations of STC contributed for 21% of total
revenues in 2008 and the contribution increased to 27% by the end of
first quarter of 2009. STC’s role has been instrumental in establishing
and developing the telecom industry in the kingdom and it has reinvented and re-aligned itself with the changing landscape of the
industry. STC was awarded as the Best Wholesaler in the Middle East in
2008 by Telecoms World, for operating the most sophisticated, fastestgrowing network with quality and sustainability across the region. In
order to position itself as a global telecom operator and further manage
and expand its operations locally and internationally, STC recently
undertook an organizational restructuring plan creating separate
management committees for its domestic and international operations.
In spite of intense competition in the local GSM market with the entry of
two new players, STC remains the market leader with around 53%
market share in terms of number of subscribers and 82% market share
in terms of revenues (as on 31st December 2008). The company has
maintained a blended ARPU of around SR 115-120 which is considerably
higher than its competitors. STC’s network covers around 98% of the
populated areas and highways within the kingdom and at the end of
2008, STC had 19 million mobile subscribers, 4.1 million fixed-line
subscribers and over 1 million broadband subscribers. In order to tap the
increasing penetration level in GSM market, STC plans to continue
offering value-added services to its customers and sustain its high ARPU
levels. STC’s share of the total addressable GSM subscriber base in
2008, including all its subsidiaries was 28.6 million, of which 66% were
local subscribers.
STC's share of total addressable market in GSM for 2007 and 2008
Subscribers
(000’s)
2007
2008
% in 2007
% in 2008
Saudi Arabia
17,300
19,000
68.5%
66.4%
Malaysia
2,451
2,848
9.7%
10.0%
India
2,377
3,208
9.4%
11.2%
116
140
0.5%
0.5%
Turkey
1,730
1,816
6.8%
6.4%
Kuwait
0
76
0.0%
0.3%
1,288
1,513
5.1%
5.3%
0
0
0.0%
0.0%
25,262
28,602
100.0%
100.0%
Indonesia
South Africa
Bahrain
Total
(Source: STC, ITU, CITC, FALCOM Research, Telecom Regulatory Authorities of
respective countries)
STC’s monopoly in the wireline segment has also ended recently, when
CITC issued licenses to three new operators, STC plans to remain
competitive by offering more value-added services to its fixed-line
subscribers and leverage its strong position to develop its internet
FALCOM RESEARCH
FALCOM Research
Saudi Telecom Company
Saudi Telecom Company
3
3
business by providing bundled services to its customers. STC’s DSL
subscribers touched the benchmark figure of 1 million in 2008.
On the technology front, STC is working on the deployment of NGN (Next
Generation Network) which will help it utilize economies of scale further
and reduce the capital expenditure going forward.
Continuing with the FORWARD strategy adopted in 2007, STC plans to
foster its organic and inorganic growth by enhancing its customer-centric
business model, operational efficiency and international growth. With
acquisitions in the under penetrated markets of India and Indonesia and
the growing domestic demand for broadband, STC’s future potential for
growth looks robust.
Financially, 2008 was not a very profitable year for STC, is spite of 38%
increase in revenues, its net income declined by 7%, mainly due to the
loss of market share in the domestic market, decline in consumer
expenditure, start-up costs in Kuwait and currency losses related to
international operations. However, in Q1 2009, in spite of 1.3% q-o-q
decline in revenues, STC reported 113% increase in net profits, mainly
due to decline in access charges and administrative and marketing
expenses. According to our forecasts, STC’s net profit margin and
EBITDA margin are expected to be 23% and 40% respectively in 2009,
and 25% and 40% by 2012. The contribution from international segment
is expected to increase in coming years. Company’s return on average
equity and average assets is expected to be steady around 25% and
12% respectively in the coming four years.
Historically,
STC’s
stock
has
outperformed
the
TASI
and
Telecommunications sector index and has shown relatively lower
volatility over the last one year (in terms of coefficient of variance). The
company has consistently paid quarterly dividends to its shareholders
and is expected to do so in the coming years. STC’s stock is currently
trading at lower P/E multiples but higher PBV and dividend yields as
compared to that of the TASI or the telecom sector.
FALCOM Research is releasing the updated report with amendments in
valuation that has resulted in a fair value of SR 64.7 which is at 26.9%
premium to its price of SR 51.0 on 6th July 2009. FALCOM Research
maintains “Strong Buy” recommendation on the stock. The fair value of
the stock is based on FCFE, DDM and comparable valuation methods. For
our valuation we have assumed the perpetual growth rate of FCFE and
dividend to be 2%.
Valuation Ratios
2007
2008
2009E
2010E
13.9
8.9
9.0
8.0
PBV (x)
4.7
2.6
2.5
2.3
PEG (x)
-13.8
-6.0
4.2
0.6
Dividend Yield (%)
16.8
13.1
7.2
8.1
Earnings Yield (%)
7.2
11.2
11.1
12.5
EV/Revenues (x)
5.0
2.6
2.6
2.4
PE (x)
(Source: FALCOM Research)
FALCOM RESEARCH
4
Saudi Telecom Company
Saudi Telecom Company
4
FALCOM Research
COMPANY
PROFILE
Background
Saudi Telecom Company (STC) was established as an independent jointstock company in 1998, when the government separated the
telecommunication services from the Post, Telegraph and Telephone
Ministry. In 2002, the government sold its 30% stake in the company via
an IPO. STC was the only company offering telecommunication services
in the Kingdom until 2003, when the VSAT (Very Small Aperture
Terminal) market was liberalized. STC’s monopoly in GSM (mobile)
market was ended in 2004, when the second mobile license was granted
to Etihad Etisalat Company (Mobily); in March 2007, the third license
was granted to a consortium led by Zain of Kuwait for USD 6.1 billion.
STC’s monopoly in fixed line market was ended in April 2007, when three
fixed line licenses were granted to the consortia led by Bahrain
Telecommunication (Batelco), Hong Kong’s PCCW and US based Verizon
Communications respectively. In spite of increasing competition in the
GSM and fixed line markets, STC remains the only integrated telecom
operator in Saudi Arabia offering mobile, landline, internet services, data
transmission, leased lines and public telephones.
Shareholding Structure
In 2002, the Saudi government reduced its stake in STC to 70% by
floating 20% on Tadawul and offering 5% each to Public Pension Fund
and General Organization for Social Insurance. Following chart shows the
shareholding structure of STC in 2002 and today.
Shareholding Structure in 2002 (after IPO)
Shareholding Structure as in March 2009
17.0%
20%
6.5%
5%
6.5%
5%
70%
70.0%
Government of Saudi Arabia
Government of Saudi Arabia
General Organization for Social Insurance - Saudi Arabia
General Organization for Social Insurance - Saudi Arabia
Public Pension Fund
Public Pension Fund
Public
Public
(Source: Tadawul, STC)
FALCOM RESEARCH
FALCOM Research
Saudi Telecom Company
Saudi Telecom Company
5
5
STC Group in The Kingdom
STC Group in The Kingdom
Saudi Telecom currently has four subsidiaries based in the Kingdom of
Telecom currently has four subsidiaries based in the Kingdom of
Saudi Arabia.
Saudi Arabia.
STC
STC
STC
Arabian Internet
Arabian
Internet
and
and
Arabian
Internet
Communications
Communications
and
Services
Co.
Communications
Services Co.
(100%)
Services
(100%)Co.
(100%)
Tejari Saudi
Arabia
Tejari
Saudi
Tejari
(50%)
Arabia
Saudi Arabia
(50%)
(50%)
Arab Submarine
Cables
Company
Arab
ArabSubmarine
Submarine
CablesLtd.
Company
Cables
Company Ltd.
(47.1%)
Ltd.
(47.1%)
(47.1%)
Arab Satellite
ArabSatellite
Satellite
Communications
Arab
Organization
Communications
Communications
(36.66%)
Organization
Organization
(36.66%)
(36.66%)
(Source: STC)
(Source: STC)
Arabian Internet and Communications Services (AwalNet)
Arabian Internet and Communications Services (AwalNet)
Established in April 2002, AwalNet is a limited liability company fully
Established
AprilThe
2002,
AwalNetprovides
is a limited
liability
company
fully
owned
by in
STC.
company
various
internet
services;
owned
by STC. projects
The company
provides
various
internet
services;
communications
operation
services
and other
services
for
communications
projects operation
services and other services for
transmission
and processing
of information.
transmission and processing of information.
Tejari Saudi Arabia
Tejari Saudi Arabia
Formed in November 2006, Tejari Saudi Arabia is also a limited liability
Formed ininNovember
2006,
Saudi Arabia
is company
also a limited
company
which STC
has Tejari
50% ownership.
The
is a liability
part of
company
in which STC
has deals
50% ownership.
The company
is a partand
of
Tejari International
and
with establishment,
operation
Tejari International
and markets
deals with
establishment,
operation
and
management
of electronic
and platforms,
and provides
various
management
of to
electronic
markets
and platforms,
and provides
various
services
related
e-commerce
dealings
in Saudi Arabia.
Currently,
the
servicescompany
related toTejari
e-commerce
dealings in
in fourteen
Saudi Arabia.
Currently,
the
parent
has operations
different
emerging
parent
fourteen
different
emerging
marketscompany
covering Tejari
Middle has
Eastoperations
and South inEast
Asia. Tejari
partners
with
markets covering
Middle
East andnations
South East
Asia.itsTejari
partners
with
different
companies
in emerging
through
franchisee
model,
different companies
in emerging
franchisee
model,
wherein,
the franchisees
receive nations
Tejari’s through
businessitsmodel,
technology,
wherein, and
the support.
franchisees receive Tejari’s business model, technology,
training,
training, and support.
Arab Submarine Cables Company Ltd.
Arab Submarine Cables Company Ltd.
Arab Submarine Cables Company Ltd. was established in September
Arab Submarine
Cablesleasing,
Company
Ltd. was
in September
2002
for constructing,
managing
andestablished
operating the
submarine
2002 for constructing,
leasing,
managing
and operating
theRepublic
submarine
telecommunication
cable
connecting
the Kingdom
and the
of
telecommunication
cable
connecting
the in
Kingdom
and the Republic of
Sudan.
The company
became
operational
June 2003.
Sudan. The company became operational in June 2003.
Arabsat
Arabsat
Arabsat was established in April 1976 by 21 member-states of the Arab
Arabsat
in Aprilsatellites,
1976 by 21
of theinArab
League. was
Withestablished
four operational
it ismember-states
the only operator
the
League.offering
With four
it is the
only operator
in the
region
theoperational
full range satellites,
of Broadcasting
(television
and radio),
region offering the (voice,
full range
(television
and
radio),
Telecommunication
data, of
faxBroadcasting
and telex) and
Broadband
services.
Telecommunication (voice, data, fax and telex) and Broadband services.
FALCOM RESEARCH
FALCOM RESEARCH
6
Saudi Telecom Company
Saudi Telecom Company
Saudi Telecom Company
6
6
FALCOM Research
STC International
In the last two years STC has acquired operations in nine different
countries across the globe. The international segment contributed for
21% of the total revenues in 2008 and 27% in first quarter of 2009. STC
has plans to diversify its international operations further in future.
STC
51%
25%
26%
Content
Provider
(STC, Astro,
SRMG, CTV)
Binariang
GSM SDN
BHD
(Malaysia)
VIVA
(Kuwait)
100%
95%
Maxis
(Malaysia)
Connecting the
World…
Cyberia
(KSA)
100%
STC
Bahrain
75%
Cell C
(South Africa)
50%
44%
74%
NTS- Axis
(Indonesia)
51%
Virgin Mobile
(South Africa)
Aircel
(India)
100%
Cyberia
(Jordan)
100%
Cyberia
(Lebanon)
50%
35%
Oger
Telecom Ltd.
(U.A.E.)
99%
Ojer
Telekomuni
kas yon
Anonim Sirketi
55%
Turk Telekom
(Turkey)
AVEA
81%
TTNET
100%
INNOVA
100%
ARGELA
100%
sebit
100%
assistt
100%
IVEA
(Dubai)
50%
ARGELA
(USA)
100%
ALBTELECO 15%
M Sh. A.
(Source: STC, Maxis, Oger Telecom, VIVA, FALCOM Research)
FALCOM RESEARCH
FALCOM Research
Saudi Telecom Company
Saudi Telecom Company
7
7
Binariang GSM SDN BHD “Binariang” – Malaysia
Binariang is an investment holding company, owning 100% of Maxis. Its
shareholders include Utaha Tegas (45% ownership), Bumiputera Trustee
(30% ownership) and STC (25% ownership). STC acquired 25% stake in
Binariang in September 2007 for USD 3.1 billion.
Maxis, Malaysia
Established in 1993, Maxis Communications Berhad (Maxis), formally
known as Binariang is a wholly owned subsidiary of Binariang. The
company went public in July 2002 and was listed on Bursa Malaysia
(Malaysian Stock Exchange), however, as a result of the acquisition of
25% stake by STC through Binariang; it delisted its shares in 2007. In
addition to mobile operations in Malaysia, Maxis has international
presence through its subsidiaries NTS (AXIS) in Indonesia (Maxis has
44% stake) and Aircel in India (Maxis has 74% stake). Maxis is the
largest telecom operator in Malaysia with 42% market share (as of 2007)
and a subscriber base of 10.1 million (as on first quarter 2008).
Aircel, India
…With Global
Connections
Aircel, the fifth largest GSM service provider in India with subscriber
base of 7.6 million, is jointly held by Maxis Communications Berhad,
Malaysia (74% stake) and Apollo Hospital Enterprise Ltd., India (26%
stake). Maxis acquired stake in Aircel in March 2006.
AXIS – PT Natrindo Telepon Seluler NTS, Indonesia
NTS is a national GSM and 3G cellular service provider in Indonesia. The
company is 51% owned by STC directly, 44% by Maxis and 5% by
Indonesian shareholders. STC acquired its total effective stake of 62% in
September 2007. The deal value of STC’s direct stake in NTS was around
USD 3.1 billion. NTS offers its GSM services under the brand name of
“Axis” and had around 1.6 million subscribers as on October 2008.
VIVA – Kuwait Telecom Company, Kuwait
Founded in June 2008, Kuwait Telecom Company is the third
telecommunication service provider in Kuwait. The company offers its
services under the brand name of ‘VIVA’. STC acquired a 26% stake in
the company in November 2007 for SR 3.37 billion.
Oger Telecom, UAE
Oger Telecom is a Dubai based telecommunication group investing in
emerging markets telecom industry and is controlled by the Saudi Oger
group. The company is a full service telecom conglomerate offering fixed
line, mobile and internet services. In Turkey, the company has a 54.5%
stake in the leading fixed-line and broadband telecom operator, Turk
Telekom, and 75% stake in the mobile operator Cell C. Oger also has
95% stake in Cyberia, an internet service provider in Saudi Arabia, which
in turn has wholly owned subsidiaries in Lebanon and Jordan. STC
finalized the acquisition of 35% ownership in Oger Telecom for SR 9.6
billion.
FALCOM RESEARCH
8
Saudi Telecom Company
Saudi Telecom Company
8
FALCOM Research
Turk Telekom, Turkey
Turk Telekom is the largest telecommunication services provider in
Turkey with 58% market share. The company is listed on the Istanbul
Stock Exchange with 15% of shares freely floated in the market, the rest
85% is shared between Oger Telecom (55%) and Turkish government
(30%). As of December 31, 2008, Turk Telekom group companies had
17.5 million fixed access lines, 5.8 million ADSL connections and 12.2
million GSM subscribers. Turk Telekom group comprises of various
subsidiaries which are mentioned in the organization chart shown earlier.
Cell C, South Africa
The third mobile operator of South Africa, Cell C is a wholly owned
subsidiary of 3C Telecommunication. 3C Telecommunication is 60%
owned by Oger Telecom South Africa, a division of Saudi Oger; 25%
owned in an unencumbered holding by CellSAf, (a Broad-Based Black
Economic Empowerment entity representing over 30 black empowerment
companies and trusts), and 15% by Lanun Securities SA (Lanun is a
wholly owned subsidiary of Saudi Oger Ltd). The company began its
operations in 2001 and currently has a network covering 95% of South
African population. It also has 50% stake in Virgin Mobile (South Africa),
the rest 50% of which is owned by Virgin Group (UK).
Cyberia, Lebanon, KSA, Jordan
Cyberia, Transmog Inc. was established in Lebanon in 1996 to provide
internet access, online publishing and online services in the country.
Currently, the company owns more than 50% of the Lebanese internet
services market. Cyberia started its operations in Saudi Arabia and
Jordan in 1999 and 2001 respectively.
STC, Bahrain
STC got the license to operate in Bahrain as third telecom operator in
January 2009. The financial bid for the license was worth USD 230
million.
Business Units
Home
Enterprise
STC
Personal
Wholesale
With an employee base of more than 20,000, Saudi Telecom offers its
services to its customers through the following four business units.
1.
2.
3.
4.
Personal Business Unit
Home Business Unit
Enterprise Business Unit
Wholesale Business Unit
Return to Shareholders
Historically,
STC’s
stock
has
outperformed
the
TASI
and
Telecommunications sector index and has shown relatively lower
volatility over the last one year (in terms of coefficient of variance). The
company consistently paid dividends to its shareholders, STC was the
first company in the kingdom to start paying quarterly dividends to its
shareholders and it plans to continue with this policy going forward. As
per our estimates, the earning per share for STC is expected to increase
slightly in 2009 to SR 5.6 and grow steadily thereafter to reach SR 6.9 in
FALCOM RESEARCH
FALCOM Research
Saudi Telecom Company
Saudi Telecom Company
9
9
2012. We expect STC to continue with its dividends and have steady
dividend payout ratio of 65% till 2012. STC’s dividend per share is
expected to decline to SR 3.7 in 2009 and reach SR 4.5 in 2012.
Return to Shareholders (Capital Gains + Cash Dividends)
Price
2004
2005
2006
2007
2008
95.33
139.2
83.0
83.8
49.1
5.2
6.2
5.8
5.0
3.8
52.5%
-36.2%
6.9%
-36.9%
Dividends
Returns
(Source: Tadawul, FALCOM Research)
Rebased Price Movement
TASI
120
STC
Telecom and IT
100
80
60
40
20
Jun-09
May-09
Apr-09
Mar-09
Feb-09
Jan-09
Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
0
(Source: Tadawul, FALCOM Research)
Historical and Expected EPS and Dividends per share
7
SR
6
5
4
EPS
2012E
2011E
2010E
2009E
2008
2007
2006
3
Dividends
(Source: STC, FALCOM Research)
FALCOM RESEARCH
10
Saudi Telecom Company
Saudi Telecom Company
10
FALCOM Research
OPERATIONS
Being an integrated telecommunication service provider, Saudi Telecom
has operations in mobile, fixed line and internet services. The STC group
has identified the following main operating segments.
1.
2.
3.
4.
GSM (Global System for Mobile communications) – The main
services offered under this segment are mobile telecom, third
generation services, prepaid cards, international roaming and
messages.
PSTN (Public Switched Telephone Network) – This segment
includes services such as fixed lines, card telephones,
interconnect and international calls.
DATA – Main services in this segment are leased data
transmission circuits, DSL and internet.
Un-allocated – This segment includes items which could not be
linked with the three main operating segments mentioned above.
The following chart and table illustrate the segment-wise financials of
STC Group for the fiscal year 2008.
Segment-wise Revenue
(2008)
Segment-wise
RevenueDistribution
Distribution
(2008)
0.1%
0.1%
12.0%
19.1%
19.1%
68.8%
68.8%
GSM
GSM PSTN
PSTN DATA
DATA
Un-allocated
Un-allocated
(Source: STC)
Segment Information for 2008
(SR ‘000)
GSM
Key Income Statement
Items
PSTN
DATA
Unallocated
Total
(Annual)
(Annual)
(Annual)
(Annual)
(Annual)
32,643,526
9,070,011
5,689,993
65,838
47,469,368
Interconnect Revenues
1,384,637
6,991,613
377,003
(8,753,253)
0
Interconnect Expenses
(6,079,756)
(1,321,851)
(1,351,611)
8,753,218
0
Net Operating Revenues
27,948,407
14,739,773
4,715,385
65,803
47,469,368
Depreciation and
Amortization
(2,850,537)
(3,249,148)
(287,825)
(20,004)
(6,407,514)
Net Income
11,346,107
57,791
1,545,489
(1,911,541)
11,037,846
Operating Revenues
(Source: STC, FALCOM Research)
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11
11
Balance Sheet Items
(SR ‘000)
GSM
Total Assets
PSTN
Unallocated
DATA
Total
37,750,591
36,856,022
3,815,708
21,339,814
99,762,135
(19,769,837)
(13,741,086)
(1,018,688)
(22,670,647)
(57,200,258)
34.8%
0.6%
27.2%
-2903.4%
23.3%
Asset Turnover
0.9
0.2
1.5
0.0
0.5
Total Assets to Total
Liabilities
1.9
2.7
3.7
0.9
1.7
Total Liabilities
Key Ratios
Net Income Margin
(Source: STC, FALCOM Research)
For 2008, GSM was the most contributing and profitable business. STC
offers its services locally as well as internationally through its
subsidiaries. Following are the detailed description of the countries in
which STC has operations.
GSM (Global System for Mobile Communications)
GSM segment is the most contributing and profitable business for STC.
The segment contributed for 69% of the revenues for STC in 2008 and
had a net income margin of 35%. STC has direct or indirect GMS
operations in Saudi Arabia, Malaysia, India, Indonesia, Turkey, Kuwait,
South Africa and Bahrain. Following are the description of the GSM
market in various countries and STC’s presence in those markets.
Saudi Arabia
Saudi Arabia is the largest GSM market in the region with more than
100% penetration levels. Currently, there are three GSM service
providers in the Kingdom namely, STC, Etihad Etisalat (Mobily) and Zain.
The industry is regulated by Communications and Information
Technology Commission (CITC) established in 2001. Following table
provides information about the GSM market in KSA.
GSM Segment Indicators for Saudi Arabia
000’s
2004
2005
2006
2007
2008E
Cellular Subscribers
9,176
14,164
19,663
28,381
34,545
Cellular Penetration
40.5%
61.3%
83.0%
116.0%
139%
Pre paid subscribers
(%)
53.3%
67.4%
76.6%
83.1%
85.0%
Post paid subscribers
(%)
46.7%
32.6%
23.4%
16.9%
15.0%
Blended ARPU (US$)
48.9
43.8
37.2
35.2
31.6
(Source: ITU, EIU, FALCOM Research)
Till 2004, STC was the only provider of GSM services in the kingdom,
however, after the liberization of mobile segment, two new licenses were
granted to Etihad Etisalat (Mobily) and Zain in 2005 and 2008
respectively. Currently, STC is having the maximum market share and
continues to be the market leader.
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GSM Operators in Saudi Arabia (Market Share as per Subscriber base)
2004
2005
2006
2007
2008E
100.0%
89.0%
69.0%
61.0%
55.0%
Mobily
0.0%
11.0%
31.0%
39.0%
40.0%
Zain
0.0%
0.0%
0.0%
0.0%
5.0%
STC
(Source: Zawya, FALCOM Research, STC)
Malaysia
STC has indirect access to the Malaysian telecommunication market
through its 25% ownership in Binariang, which in turn has 100%
ownership of Maxis, a leading telecommunication service provider in
Malaysia. The telecommunication sector in Malaysia is regulated by
Malaysian Communications and Multimedia Commission, which also
regulates the multimedia sector. The commission was created in 1998.
The GSM subscriber base in Malaysia has grown at a CAGR of 16.7%
from 2005 to 2008 and the penetration levels have increased from
56.5% (in 2004) to 96.8% (in 2008).
GSM Segment Indicators for Malaysia
The subscriber
base of Malaysia
is close to that of
KSA with lower
penetration levels
000’s
2004
2005
2006
2007
2008
Cellular Subscribers
14,611
19,545
19,464
23,347
27,125
Cellular Penetration
56.5%
74.1%
72.3%
85.1%
96.8%
Pre paid subscribers
(%)
82.5%
85.0%
82.7%
83.3%
79.4%
Post paid subscribers
(%)
17.5%
15.0%
17.3%
16.7%
20.6%
(Source: Malaysian Communications and Multimedia Commission, FALCOM
Research)
Maxis Communication Berhad (Maxis) commenced its mobile operations
in August 1995, after receiving licenses to operate a nationwide GSM900
mobile network, a domestic fixed network and an international gateway
in 1993. In July 2005, Maxis launched its 3G service called Maxis3G and
in September 2006 became one of the world’s first to use HSDPA, a
high-speed upgrade of the 3G network, for a large scale rollout of
residential broadband services. Maxis is the largest Malaysian
telecommunication service provider with a subscriber base of 10.1
million as of first quarter 2008. Maxis also has significant operations in
India and Indonesia through its subsidiaries Aircel (74% ownership) and
NTS (44% ownership) respectively. The GSM market in Malaysia is
dominated by three players, the following chart shows their market
shares.
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Market
Share in
in 2007
2007
Market Share
27.0%
27.0%
42.0%
42.0%
31.0%
31.0%
Maxis
Maxis
Telekom
Malaysia(Celcom)
(Celcom)
Telecom Malaysia
DiGi
DiGi
(Source: FALCOM Research)
India
STC has indirect exposure to the Indian telecommunication market
through Maxis’s 74% ownership of Aircel. Given the high population,
gorwing GDP and underpenetrated telecoom market, India has huge
potential of growth. It is one of the fastest growing and comprehensive
mobile market in the world. The wireless market in India has two
different technologies namely CDMA and GSM. Following table depicts
the telecommunication sector indicators for India. The Indian cellular
subscriber base increased at a CAGR of 75% from 2004 to 2008 and
penetration level increased from 3.2% to 27.3% during the same period.
GSM Segment Indicators for India
000’s
The subscriber
base of India is
10 times the
subscriber base
of Saudi Arabia
with 4 times
lesser penetration
2004
2005
2006
2007
2008*
Cellular Subscribers
(GSM + CDMA)
33,690
75,940
149,620
233,620
315,310
Cellular Penetration
3.2%
7.0%
13.5%
20.4%
27.3%
Pre paid subscribers %
(GSM)
74.0%
80.5%
86.0%
90.0%
92.0%
Post paid subscribers %
(GSM)
26.0%
19.5%
14.0%
10.0%
8.0%
Minutes of Usage for
GSM
(/subscriber/month)
322
393
454
464
499
ARPU only GSM
(INR/subscriber/month)
436
362
316
261
221
(Source: Telecom Regulatory Authority of India, FALCOM Research)
*September end 2008
Currently in India there are nine GSM mobile operators and Aircel ranks
fifth among them (in terms of subscriber base) as on third quarter end,
2008. With operations in 10 of the 23 telecom circles in India, Aircel had
a subscriber base of 12.5 million as on July 2008. Aircel plans to increase
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its coverage to the rest of the 13 regions as well. Aircel currently also
provides WiMax services in the top 30 cities of India.
GSM Operators in India (Market Share on the basis of number of subscribers)
Aircel subscriber
base in India is
67% of STC’s
subscriber base in
KSA
2004
2005
2006
2007
2008*
Bharti Group
26.3%
-
30.3%
32.2%
33.2%
Vodafone/Hutchison
Group
19.2%
-
22.1%
22.9%
23.4%
BSNL
22.6%
-
22.4%
18.8%
16.8%
IDEA Group
12.6%
-
11.8%
12.5%
13.0%
Aircel Group
4.4%
-
4.3%
5.5%
5.9%
Relaince
2.8%
-
3.5%
3.6%
3.9%
MTNL
1.6%
-
2.3%
1.7%
1.6%
Spice Group
4.0%
-
2.3%
2.2%
1.5%
BPL Group
6.6%
-
1.0%
1.3%
0.7%
(Source: Telecom Regulatory Authority of India, FALCOM Research)
*September end 2008
Indonesia
Indonesian telecommunication market is accessed by STC through its
62% stake in PT Natrindo Telepon Seluler NTS (51% of direct ownership
and 11% indirect ownership through Maxis). The mobile market of
Indonesia is underpenetrated with significant growth potential. Following
table illustrates the mobile telecom indicators for Indonesia.
GSM Segment Indicators for Indonesia
Low penetration
levels increase
attractiveness of
Indonesian
cellular market
000’s
2004
2005
2006
2007
2008*
Cellular Subscribers
(CDMA+GSM)
30,337
46,971
63,803
93,387
113,211
Cellular Penetration
12.5%
19.4%
26.0%
39.8%
47.7%
Pre paid subscribers %
93.7%
94.9%
95.4%
96.7%
97.1%
6.3%
5.1%
4.6%
3.3%
2.9%
Post paid subscribers %
(Source: IMF, General of Post and Telecommunication of Republic Indonesia,
FALCOM Research)
*Till June 2008
NTS is a licensed third generation mobile network operator in Indonesia
and was offered the license three years back, however, it was able to
start operations only in June 2008. The company offers its GSM services
under the brand name of “Axis” and had 1.6 million subscribers as of
October 2008. The Indonesian telecommunication market consists of 5
mobile operator and 6 CDMA-based fixed-wireless operators. Currently,
NTS is not having a significant market share, however, it targets to
achieve 15% market share within next 15 years.
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Indonesian Telecom Market Share (C DMA+GSM) in June
2008
0.0%
0.3%
2.7%
1.8%
0.1%
20.2%
46.3%
28.6%
Telkomsel
Mobile-8 Fren
HC PT - Three
Indosat
Sampoerna C eria
Smart Telecom
Excelcomindo (XL)
NTS - Axis
(Source: General of Post and Telecommunication of Republic Indonesia, FALCOM
Research)
Turkey
STC has 35% ownership in Oger Telecom which in turn has 55% stake in
Turk Telekom which is a leading broadband and fixed line provider in
Turkey. Turk Telekom also owns 81% of Turkey’s third mobile operator
Avea. Founded as “Postahane-i Amirane” in 1840, the company is listed
on the Istanbul stock exchange with a 15% free float, 55% ownership
with Oger Telecom and rest 30% with Turkish government. Avea was
founded in 2004 as a result of the unification of Aycell and Aria brands.
The telecommunication sector in Turkey is regulated by Information and
Communications Technologies Authority. Following table shows the
telecommunication sector indicators for Turkey.
GSM Segment Indicators for Turkey
000’s
2004
2005
2006
2007
Cellular Subscribers
34,707
43,609
52,663
61,976
Cellular Penetration
48.5%
60.1%
71.7%
87.8%
Pre paid subscribers %
75.9%
78.7%
81.1%
81.1%
Post paid subscribers %
24.1%
21.3%
18.9%
18.9%
39
55
61
60
1,374
147
128
167
Minutes of Usage per subscriber
per month
Blended ARPU (US$)
(Source: Information and Communications Technologies Authority, Turkey,
FALCOM Research)
The mobile services sector in Turkey is dominated by three players
namely, Turkcell, Vodafone and Avea, the following chart shows their
market shares as of the third quarter of 2008.
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Turkish Mobile
asas
of of
third
quarter
2008
Turkish
Mobile Telecom
Telecommarket
market
third
quarter
2008
17.9%
17.9%
55.5%
55.5%
26.6%
26.6%
Turkcell Vodafone
Vodafone
Turkcell
Avea
Avea
(Source: Turk Telekom website, FALCOM Research)
Kuwait
STC acquired 26% stake in Kuwait’s third mobile telecommunication
operator, Kuwait Telecommunication Company (KTC), in November 2007
for SAR 3.37 billion. Kuwait Telecommunication Company floated 50% of
its stock through IPO in August 2008; the remaining 24% of the
company is owned by the Kuwaiti government. The company offers its
services under the brand name of “VIVA”. After beign awarded the
license, STC had announced its objective to capture 10% of the mobile
market in first year of operation and 30% of the mobile market within 10
years. However, given the low population and already high penetration
levels in the Kuwaiti telecommunication sector, capturing a substantial
market share will be a challenge for the new company. Following are
some of the performance indicators for the telecommunication sector in
Kuwait.
GSM Segment Indicators for Kuwait
000’s
2004
2005
2006
2007
Cellular Subscribers
2,110
2,277
2,530
2,774
Cellular Penetration
76.6%
76.1%
79.5%
81.6%
Pre paid subscribers %
80.1%
79.5%
79.6%
78.3%
Post paid subscribers %
19.9%
20.5%
20.4%
21.7%
46.8
45.7
56.3
60.4
Blended ARPU (US$)
(Source: ITU, FALCOM Research)
Before the entry of KTC, the Kuwaiti mobile market was a duopoly with
Zain and Wataniya dominating the entire market with market shares of
57% and 43% respectively.
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South Africa
STC has access to the South African mobile market through its 35%
stake in Oger Telecom which in turn owns 75% stake in Cell C, the third
largest mobile operator of South Africa. Cell C started its operations in
2001 and its network currently covers more than 95% of the South
African population. Cell C also has a 50% ownership in the fourth mobile
operator, Virgin Mobile, a joint venture between Cell C and Virgin Group.
GSM Segment Indicators for South Africa
000’s
2004
2005
2006
2007
2008*
Cellular Subscribers
(CDMA+GSM)
20,839
33,960
39,662
42,300
49,692
Cellular Penetration
44.1%
71.6%
83.3%
87.1%
105.7%
(Source: ITU, Vodacom Annual Presentation, FALCOM Research)
*September end 2008
The currnet South African mobile market consists of four operators
namely, Vodacom, MTN, Cell C and Virgin Mobile.
Market share
as as
on on
September
2008
Market
Shareofofmobile
Mobilecustomers
C ustomers
September
2008
1.0%
1.0%
11.1%
11.1%
34.3%
34.3%
Vodacom
MTN Cell
C ell C
C
Vodacom
MTNL
53.5%
53.5%
Virgin
VirginMobile
Mobile
(Source: Vodacom Annual Presentation, FALCOM Research)
Bahrain
In January 2009, STC acquired the license to operate in Bahrain as third
telecom operator for USD 230 million. The mobile market in Bahrain has
high penetration levels and is dominated by Batelco (with 59.86%
market share in 2007).
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GSM Segment Indicators for Bahrain
000’s
2004
2005
2006
2007
Q2 2008
Cellular Subscribers
650
749
907
1,116
1,244
Cellular Penetration
90.3%
102.6%
122.6%
148.8%
119.0%
Pre paid subscribers
(%)
75.0%
75.0%
75.0%
75.0%
83.0%
Post paid subscribers
(%)
25.0%
25.0%
25.0%
25.0%
17.0%
Blended ARPU (US$)
46
49
47
50
N/A
(Source: ITU, Telecommunication Regulatory Authority, Kingdom of Bahrain,
FALCOM Research)
STC’s Consolidated Global Presence in GSM
Following table summarizes STC’s presence in various GSM markets in
terms of the total number of subscribers.
STC's share of total addressable market in GSM for 2007 and 2008
Subscribers (000’s)
2007
2008
% in 2007
% in 2008
17,300
19,000
68.5%
66.4%
Malaysia
2,451
2,848
9.7%
10.0%
India
2,377
3,208
9.4%
11.2%
116
140
0.5%
0.5%
Turkey
1,730
1,816
6.8%
6.4%
Kuwait
0
76
0.0%
0.3%
1,288
1,513
5.1%
5.3%
0
0
0.0%
0.0%
25,262
28,602
100.0%
100.0%
Saudi Arabia
Indonesia
South Africa
Bahrain
Total
(Source: FALCOM Research)
PSTN (Public Switched Telephone Network)
Saudi Arabia
Saudi Arabia is the largest regional fixed line market in terms of number
of subscribers, however, the current low penetration levels are expected
to increase given the bundling of fixed line and internet services
(broadband) and increasing internet penetration in the kingdom. Till April
2007, STC was the only provider of fixed line services in the kingdom,
following which three fixed line licenses were granted to the consortia led
by Bahrain Telecommunication (Batelco), Hong Kong’s PCCW and US
based Verizon Communications respectively.
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PSTN Segment Indicators for Saudi Arabia
000’s
2004
2005
2006
2007
2008E
Fixed Line Subscribers
3,695
3,844
3,951
3,996
4,200
Fixed Line Penetration
(%)
15.4%
15.6%
15.7%
16.2%
16.2%
(Source: ITU, EIU, FALCOM Research)
Malaysia
STC has access to the Malaysian fixed line segment through its 25%
ownership in Maxis, an integrated telecommunication operator in
Malaysia. Maxis was granted the license to offer fixed line services in
early 1996. The fixed line penetration levels in Malaysia are relatively
higher, however, they have declined over the last four years.
PSTN Segment Indicators for Malaysia
000’s
2004
2005
2006
2007
2008
Fixed Line Subscribers
4,446.0
4,366.0
4,342.0
4,350.0
4,292.0
Fixed Line Penetration
(%)
52.3%
49.5%
48.3%
47.8%
44.9%
(Source: Malaysian Communications and Multimedia Commission, FALCOM
Research)
Turkey
STC has exposure to the Turkish fixed line market through its indirect
stake in Turk Telekom, a leading fixed line and broadband services
provider in Turkey with 17.8 million PSTN customers. Turk Telekom is
the Turkey’s largest, the Europe’s 5th and the world’s 13th largest fixed
telephone operator. The fixed line penetration in Turkey is low and has
been almost constant over years.
PSTN Segment Indicators for Turkey
000’s
2004
2005
2006
2007
Fixed Line Subscribers
19,125
18,978
18,831
18,201
Fixed Line Penetration (%)
26.7%
26.2%
25.6%
25.8%
(Source: Information and Communications Technologies Authority, Turkey,
FALCOM Research)
DATA (Leased Data Transmission Service, DSL and Internet)
STC offers data services in Saudi Arabia and has access to the
broadband markets in Turkey and Malaysia through its stake in Turk
Telekom and Maxis respectively. STC also has an indirect stake in
Cyberia through Oger Telecom, Cyberia offers various internet services in
Saudi Arabia, Lebanon and Jordan. Following are the broadband
indicators for Saudi Arabia, Turkey and Malaysia.
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Low penetration
levels increase
attractiveness of
Broadband
segment
Broadband Segment Indicators for Saudi Arabia
000’s
Broadband
Subscribers
Broadband
Penetration (%)
2004
2005
2006
2007
2008E
69
68
218
600
741
0.3%
0.3%
0.9%
2.4%
3.0%
2006
2007
2008
971
1,310
2,017
10.8%
14.4%
21.1%
(Source: ITU, EIU, FALCOM Research)
Broadband Segment Indicators for Malaysia
000’s
2004
2005
Broadband
Subscribers
Broadband
Penetration (%)
-
-
(Source: Malaysian Communications and Multimedia Commission, FALCOM
Research)
Broadband Segment Indicators for Turkey
000’s
Broadband Subscribers
Broadband Penetration (%)
2004
2005
2006
2007
452
1,540
2,724
4,346
0.6%
2.1%
3.7%
6.2%
(Source: Information and Communications Technologies Authority, Turkey,
FALCOM Research)
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PRODUCT, PRICE, PLACE, PROMOTION
MARKETING MIX
Given the consumer centric nature, relatively high price elasticity and
brand consiousness of the telecommunication industry, marketing plays
a major role in this sector. In order the better understand STC’s
marketing initiatives and strategic position in the sector, we looked at
the marketing mix of the company.
Product
The product in this case will be the telecommunication services which
STC offers to its customers. STC offers exclusively structured products to
its individual and business segment customers through various brands
thus attaining customer segmentation and generating brand
consiousness.
Products
Individual Segment
Segment
Individual
Jawal
Jawal
Business Segment
Segment
Business
Hatif
Hatif
Jawal
Jawal
SaudiNet
Net
Saudi
Hatif
Hatif
SaudiNet
Net
Saudi
Saudi
Saudi
Data
Data
Whole
Whole
sale
sale
(Source: STC, FALCOM Research)
¾
¾
¾
¾
¾
Jawal – Includes range of mobile services like prepaid (offered
under the brand name “Sawa” and “Lana”), postpaid services,
family Al Jawal (for families), messaging services, 3G services,
roaming services and entertainment services (under brand
names “Sada” and “Shabik”) related to sports, music and
messaging. This brand offers services to both individual and
business segments.
Hatif – Includes services such as card phones, landline services,
prepaid card services, public telephones and business services
offered to both individual and business segments.
Saudi Net – Includes internet services through broadband, DSL
and internet cards.
Saudi Data – Includes services such as IP-VPN, VSAT, Sky IP
service and other value added services mainly for business
segment.
Wholesale
–
Includes
national
and
international
telecommunication infrastructure solutions.
Pricing
STC was able to charge higher tarriffs prior to 2004, when it had a
monopoly in the Saudi telecommunication market, however, after the
entry of Mobily in 2005 and Zain in 2008, there has been an increase in
price competition among the three players, thus increasing the price
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elasticity of demand. Also, prior to 2004, only post paid and fixed line
services were offered in Saudi Arabia and the customer base was
concentrated towards high usage customers, however, with the launch of
pre paid services, the customer base has expanded and price
competition has increased further. The cellular penetration in Saudi
Arabia in 2004 was 40.5% which increased to 61.3% in 2005 and 139%
in 2008. STC has been actively revising the prices of its services to gain
an edge over its competitors. In 2007, STC changed the tariffs for IPVPN service, Filtered Internet International Access Service, Filtered
Direct International Internet Service, the basic tariff for the National
Backbone Access Service and DIA.
Placement
Placement refers to the distrbution channels and strategies undertaken
by the company. STC mainly distributes its services through its retail
outlets as well as through direct channels like internet and tele-services.
STC has distribution agreements with the biggest dealers across all cities
of Saudi Arabia. STC also has an online portal which allows customers to
undertake several services such as bill payment, service setting
modifications and upgradation etc.
Promotion
For promoting its services in the market, STC advertises its products
across the kingdom through public banners, media and e-channels;
offers various discount offers (both on price and volumes) and shopping
vouchers to its customers; and has developed various brands for
creating brand loyalty among its customers.
STC’s advertising expenses and sales commissions were SR 1.85 billion
in 2008 (227% higher than 2007 levels) and represented 4% of 2008’s
operating revenues.
Advertising Expenses and Sales C ommissions
5%
1,900,000
1,700,000
4%
1,500,000
1,300,000
1,100,000
3%
900,000
700,000
2%
500,000
300,000
100,000
Advertisubg expenses and sales commissions (SR '000)
2008
2007
2006
2005
1%
As a % of Total Revenues
(Source: STC Annual Report, FALCOM Research)
FALCOM RESEARCH
FALCOM Research
Saudi Telecom Company
Saudi Telecom Company
23
23
FORWARD
STRATEGY FOCUS
In 2006, STC undertook an investment strategy called “10X10” which
aimed at generating 10% of the total service revenue from inorganic
growth by 2010. However, given the strong performance and strategy
driven approach of the company, it outperformed its target in 2008 itself
with foreign revenues accounting for around 21% of the total operating
revenues.
In 2007, STC defined its strategy focus for the coming years along the
seven main axes, each deriving its significance from the letters of the
word “FORWARD”. STC has coined this customer-centered strategy as
“FORWARD”.
Fulfill Personal Communication Potential
In order to pursue this strategy of attaining 100% personal
communication potential, STC through its ALJAWAL brand developed the
third generation communication network not only locally but
internationally. As on 31st December 2008, AlJawal had a subscriber base
of around 19.1 million. In 2008, ALJAWAL designed and offered several
services and schemes to its local and international clients.
¾
¾
¾
¾
42 new services and packages offered to clients
30% increase in 3.5G customer base in 2008
987 roaming services in total, with more than 428 operators in
164 countries.
Low roaming tariff rates for 30 countries
Offer Wholesale Services
With the objective to harness the wholesale opportunity, STC aims to
expand its international network and continue offering quality services
and operations to its national and international clients.
¾
12% annual
increase in
international
circuits to more
than 150,000 in
2008 …
¾
¾
STC was awarded as the Best Wholesaler in the Middle East in
2008 by Telecoms World, for operating the most sophisticated,
fastest-growing network with quality and sustainability across
the region.
STC entered into strategic partnerships with a number of
international operators to establish regional and continental
marine cables that are projected to raise the capacity of STC’s
global network by more than 400%. The cables are established
between India and Western Europe, “MENA”, “EIG”, and
“EASSY”.
The Company possesses four international voice and data MPLS,
connected via more than 460 direct paths to international
operators.
Re-invent Home Communication
67% annual
increase in
Broadband clients
to over 1 million
FALCOM RESEARCH
24
With the pursuit of providing high-speed internet and integrated internet
solutions (e.g. visual services, IPTV and games), STC continued to foster
its DSL network by using fibre-optics network and advanced MSAN. For
the first time in KSA, Afaq DSL customers were able to achieve internet
speeds as high as 20 Mbps. STC has also launched the “fiber to the
home” service offering internet speeds upto 100 Mbps.
Saudi Telecom Company
Saudi Telecom Company
24
FALCOM Research
Win Enterprise Customers
Leveraging its integrated presece in telecommunications industry, STC
offers bundled services to its enterprise customers. In 2008, STC
deployed optic-fibre network in 700 new buildings and 50 schools. STC is
also involved in establishing communication infrastructure in 5 new
economic cities.
Achieve External Growth
Internal Growth
Complemented
with
International
Expansion
2007 marked the beginning of STC’s international expansion era. In
September 2007, STC acquired 25% stake in Binariang (Maxis), Malaysia
and 51% stake in NTS, Indonesia. In order to foster the regional
presence, STC acquired 26% stake in Kuwait’s third licensed telecom
operator (in early 2008), Kuwait Telecom Operator (VIVA) and recently
(2009) received the license to offer telecommunication services in
Bahrain. During 2008, Saudi Telecom established a content providing
company, in collaboration with the Saudi Research and Marketing Group
(SRMG) and ASTRO All Asia Networks plc., the leading multimedia
interactive services in Malaysia, Brunei and India. STC owns 51% of the
new company, SRMG owns 20% and ASTRO 29%.
Re-align for Customer Excellence
Assessing the increased role of customer in the current demand-driven,
customer-centric and competitive industry, STC has adopted the
following four broad level approaches to enhance customer excellence.
¾
¾
¾
¾
True Shared Services
Customer Segmentation to match the need of each segment
Organizational Excellence
Strategic Human Resources
Drive Operational Efficiency
STC has an
employee-base of
more than 20,000
Total lines per
employee
increased from
1,026 in 2007 to
1,176 in 2008
FALCOM RESEARCH
FALCOM Research
Operational efficiency is critical parameter for an operation-driven
service industry like telecommunication. Increased operational efficiency
leads to lower costs and higher margins. STC aims to achieve operational
efficiency both at the consumer end and within the organization. It has
launched various value added services like STC online portal and
customer service options which increase the efficiency of service delivery
on the consumer front. In order to improve the efficiency level of its
employees, STC has staff-oriented plans and offers various in-house
training courses to its employees.
STC employees’ productivity on the basis of the average income per
employee rose by 10% totaling SR 1.78 million per employee.
Saudi Telecom Company
Saudi Telecom Company
25
25
ADVANTAGES
COMPETITIVE
The telecommunication industry in Saudi Arabia was a monopoly till
2004, with only STC offering its services. However, the GSM sector
landscape has transformed with the entry of Etihad Etisalat Company
(Mobily) in 2005 and Zain in 2008 and so has the fixed-line segment
with the issuance of operating licenses to Batelco, PCCW and Verizon
Communications. The GSM segment is still concentrated with only three
players, though the competition has increased due to the consumer
centric nature and relatively higher price elasticity of the industry.
Porter’s Five Forces Framework
understanding of the industry.
is
presented
to
develop
better
Bargaining Power of Customers - Medium
Saudi Arabia happens to be the biggest telecommunication market in the
GCC with a population of over 27 million (24 million in 2007), mobile
phone penetration of around 120% and fixed line penetration of over
16%. With youth forming a major portion of the demographic profile and
increasing levels of per capita income, the industry is expected to grow
at steady pace in future. With the entry of new players in GSM and PSTN
segments, the bargaining power of customers has increased, however,
we have assigned medium rating due to the fact that the industry is still
consolidating and the penetration levels are significantly high, especially
for mobile segment.
Bargaining Power of Suppliers - Medium
The suppliers for the telecommunication services industry are the
telecom network and infrastructure providers. The relatively fragmented
structure of the supply-side industry and increasing technical innovation
reduces the bargaining power of suppliers; however, they form an
integral part in the set up of telecommunication network and
infrastructure.
Threat of Substitutes - Low
Telecommunication industry includes mobile, fixed line and internet
services, which in turn happen to be substitutes among themselves; so
given the diversified nature of telecommunication industry and its
importance in the social and economic development, the threat of
substitutes tends to be low. However, within the industry, with
increasing popularity and low cost of internet and mobile services, the
popularity and demand for fixed-line segment is expected to decline.
Threat of New Entrants - Low
Given the capital intensive nature of the industry with high sunk costs
(which include license costs and other initial setup costs), the entry
barriers are high and subsequently the threat of new entrants is low.
Also, the mobile and fixed line market in Saudi Arabia are relatively
saturated with high penetration levels, however, the internet penetration
is low and has potential to expand in future. Internet based services such
as broadband, IPTV, E-governance, Voice IP are expected to grow
further in future and are good sectors to venture for new entrants.
FALCOM RESEARCH
26
Saudi Telecom Company
Saudi Telecom Company
26
FALCOM Research
Industry Rivalry - High
Though the telecommunication industry in Saudi
concentrated, the level of competition in the mobile
three players is high; with the increase in number
providers, rivalry in this segment is also expected to
FALCOM RESEARCH
FALCOM Research
Saudi Telecom Company
Saudi Telecom Company
Arabia is relatively
segment among the
of fixed line service
be relatively high.
27
27
ANALYSIS
SWOT
Strengths
¾
¾
¾
¾
¾
¾
¾
Sole integrated telecommunication services provider in KSA and
market leader in both mobile and fixed line segments
Strong and expanding international presence and increasing
revenue contribution from international operations
Robust brand recognition due to strategic focus on marketing,
advertisement and branding
Professional management team
Good corporate governance policies in place
Technologically advanced operations
Focus on consumer acquisition and retention practices
Weaknesses
¾
¾
¾
¾
High currency losses in FY 2008 and Q1 2009 signifying exposure
to exchange rate risks arising from international operations
Goodwill charges for 2008 indicating overpayment for licenses
and acquisitions
Declining profitability ratios
Increasing leverage
Opportunities
¾
¾
¾
¾
¾
¾
Increasing population and favorable demographic profile of KSA
Developing IPTV and VoIP markets
Potential demand from the ICT infrastructure development in
economic cities
High
revenue
potential
from
under-penetrated
telecommunication markets of India and Indonesia (through its
direct and indirect subsidiaries)
Further
expansion
of
operations
through
international
acquisitions
Better placed than rest of the competitors to offer bucketed
offers and to cross sell its products
Threats
¾
¾
¾
¾
¾
¾
FALCOM RESEARCH
28
Decline in market share due to increasing competition in both
GSM and fixed-line market
More than 100% penetration levels in local GSM market
Decline in margins due to price erosion
Mobile number portability
Decline in growth of fixed line segment
Further appreciation of USD with respect to operational
currencies like Turkish Lira.
Saudi Telecom Company
Saudi Telecom Company
28
FALCOM Research
ANALYSIS
ANALYSIS
FINANCIAL
FINANCIAL
Top Line Analysis
Top Line Analysis
In 2008, STC reported a 37.8% increase in its operating revenues which
In
STC reported
a 37.8%
increase
in its operating
revenues
which
was2008,
substantially
higher
than the
corresponding
2007 figure
of 6.4%.
was
substantially
higher
than
the
corresponding
2007
figure
of
6.4%.
The increase was mainly due to the revenues from its subsidiaries
The
increase
was mainly
to the
fromfees
its increased
subsidiaries
outside
the kingdom.
Usagedue
charges
andrevenues
subscription
by
outside
the
kingdom.
Usageincharges
and
subscription
fees increased
by
31% and
73%
respectively
2008, as
opposed
to activation
fees which
31%
and
73%
respectively
in
2008,
as
opposed
to
activation
fees
which
declined by 9%.
declined by 9%.
Operating Revenue Distribution
Operating Revenue Distribution
Operating Revenue Distribution
1%
1% 1%
21%
21%
21%
1% 1%
1%
1%
1% 1%
17%
1% 1%
17%
2008
2008
2008
1%
17%
2007
2007
2007
81%
81%
81%
77%
77%
77%
Usage
Charges
Usage Charges
Usage Charges
Subscription Fees
Activation Fees
Other
Subscription Fees Activation Fees Other
Subscription Fees Activation Fees Other
(Source: STC Annual Report, FALCOM Research)
(Source: STC Annual Report, FALCOM Research)
Bottom Line Analysis
Bottom Line Analysis
40,000,000
40,000,000
40.0%
40.0%
20,000,000
20,000,000
20.0%
20.0%
(20,000,000)
(20,000,000)
(40,000,000)
(40,000,000)
2007
2007
2008
2008
Other
Other
income
income
and
and
expenses,
expenses,
net
net
0
0
0.0%
0.0%
-20.0%
-20.0%
-40.0%
-40.0%
Growth
Growth
rate
rate
of of
revenues,
revenues,
expenses
expenses
and
and
other
other
income
income
60.0%
60.0%
Total
Total
Operating
Operating
Expenses
Expenses
60,000,000
60,000,000
Operating
Operating
Revenues
Revenues
SRSR
'000
'000
In spite of 37.8% growth in revenues, STC’s net income for 2008 fell by
In
spite
of 37.8%
growth
in increase
revenues,
net income
for 2008
by
6.7%
mainly
due to
53.7%
in STC’s
operating
expenses,
large fell
losses
6.7%
mainly
due
to
53.7%
increase
in
operating
expenses,
large
losses
related to foreign currency fluctuations (SR 2.3 billion in 2008 as
related
foreign
currency
(SR
2.3 billion
in 2008
as
opposed to
to 6.9
million
in 2007)fluctuations
and high tax
provisions
(SR 456.8
billion
opposed
to
6.9
million
in
2007)
and
high
tax
provisions
(SR
456.8
billion
in 2008 as opposed to SR 42.02 billion in 2007). The increased currency
in
2008and
as opposed
to SR 42.02
2007).
increased
currency
losses
tax provisions
were billion
mainlyin due
to The
increased
international
losses
and
tax
provisions
were
mainly
due
to
increased
international
operations of STC through its subsidiaries.
operations of STC through its subsidiaries.
Growth (2007-08)
Growth (2007-08)
(Source: STC Annual Report, FALCOM Research)
(Source: STC Annual Report, FALCOM Research)
FALCOM RESEARCH
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FALCOM Research
Saudi Telecom Company
Saudi Telecom Company
Saudi Telecom Company
29
29
29
ARPU and Minutes of Usage
STC had fairly high blended ARPU of SR 115 – 120 in 2008 which was
slightly lower than the 2007 figure of SR 125. The low decline in ARPU
was mainly due to the launch of various value added services by STC in
2008.
Credit Ratings
STC has an investment grade rating by both Standard and Poor’s and
Moody’s. It has been assigned ‘A+’ long term rating by Standard and
Poor’s and A1 long term local and foreign currency issuer ratings by
Moody’s.
Financial Risk Management
STC faces several risks owing to its operations in capital intensive
industry and its international exposure. Following are some of the risks
faced by STC and the policies it undertakes to reduce such risks.
¾
¾
¾
¾
FALCOM RESEARCH
30
Commission rate risk – Given the fact that commission income
comprised of 13.6% of STC’s net income in 2008, changes in
commission rates can have significant impact on STC’s financial
position and cash flows. The company manages its cash flows by
checking the cash inflows and outflows timings, also, it invests
the surplus cash in short-term and long-term bank deposits.
Currency risk – Since STC has subsidiaries in various countries
outside the kingdom, the consolidated financials are subject to
currency exchange movements. Management monitors the
foreign currency exchange rates, however, the high currency
exchange losses of 2008 is indicative of the exposure to
exchange rate risks arising from international operations.
Credit risk – This is the risk which STC faces from counterparty
defaults on its cash balances and accounts receivables. The
group has deposits with various financial institutions and tries to
limit its exposure to any particular institution. Also, given the
diverse customer base of STC (residential, professional, large
business and public entities), the risk of default on receivables is
also reduced.
Liquidity risk – It is the risk related to raising adequate funds for
meeting current and future commitments. Though currently most
of the developed nations are facing liquidity crunch, Saudi Arabia
has not been hit hard by the global crisis. STC is 70% owned by
the government and is in good financial position, so the exposure
to liquidity risk is minimal for the company.
Saudi Telecom Company
Saudi Telecom Company
30
FALCOM Research
Ratio Analysis
Ratios
2006
2007
2008
2009E
2010E
2011E
2012E
Operating Profit Margin
39.0%
36.6%
29.3%
27.6%
27.9%
27.4%
27.0%
Net Profit Margin
39.5%
34.9%
23.3%
22.8%
25.0%
25.5%
25.2%
EBIDTA Margin
49.3%
46.9%
41.4%
39.7%
40.3%
40.0%
39.7%
Return on Avg. Equity
38.2%
34.3%
28.1%
25.7%
26.8%
25.6%
24.2%
Return on Avg. Assets
28.2%
20.9%
13.1%
11.2%
12.4%
12.7%
12.4%
Profitability Ratios (%)
Growth (%)
Revenues
-0.4%
6.4%
37.8%
4.0%
3.0%
3.0%
4.0%
Operating Income
-5.3%
-0.2%
10.2%
-1.9%
4.0%
1.0%
2.7%
Net Income
2.8%
-6.1%
-8.2%
2.1%
12.9%
4.8%
2.8%
Fixed Assets
-1.3%
14.1%
29.1%
4.0%
3.0%
3.0%
4.0%
Shareholders’ Equity
4.0%
5.0%
4.9%
7.2%
11.0%
10.4%
9.7%
Total Assets
3.1%
49.2%
45.0%
1.2%
3.0%
2.4%
7.3%
Current Ratio (x)
1.4
0.8
0.8
0.8
0.8
0.9
1.1
Quick Ratio (x)
0.7
0.7
0.7
0.6
0.7
0.8
1.0
Total Asset Turnover (x)
0.7
0.5
0.5
0.5
0.5
0.5
0.5
Fixed Asset Turnover (x)
1.1
1.0
1.1
1.1
1.1
1.1
1.1
Current Assets Turnover (x)
2.4
2.5
2.5
2.7
2.6
2.5
2.1
Liquidity / Turnover Ratios (x)
Receivables Turnover Ratio (x)
8.6
7.7
7.3
6.0
6.1
6.1
6.1
130.3
84.4
58.6
45.6
45.9
46.3
46.2
8.6
8.7
6.9
5.6
5.9
5.9
6.0
42.6
47.2
50.3
60.4
59.9
59.7
60.2
2.8
4.3
6.2
8.0
8.0
7.9
7.9
42.2
42.1
52.9
65.5
62.4
61.9
61.3
3.2
9.4
3.7
2.9
5.5
5.7
6.8
Shareholder's Equity/Assets
0.74
0.52
0.38
0.40
0.43
0.46
0.47
Total Debt/Total Equity
0.00
0.38
0.75
0.70
0.60
0.50
0.50
Debt/Capital Employed
0.00
0.27
0.43
0.41
0.38
0.33
0.33
Debt/Total Assets
0.00
0.20
0.32
0.31
0.29
0.26
0.26
Debt/EBITDA
0.00
0.82
1.73
1.66
1.42
1.24
1.30
Total Liabilities/Shareholders' Equity
0.35
0.92
1.52
1.38
1.21
1.05
1.02
Total Liabilities/Total Assets
0.26
0.48
0.57
0.55
0.52
0.49
0.48
Current Liabilities/Total Liabilities
0.80
0.52
0.40
0.43
0.44
0.45
0.44
6.4
6.0
5.5
5.6
6.4
6.7
6.9
17.1
17.9
18.8
20.2
22.4
24.7
27.1
Inventory Turnover Ratio (x)
Payables Turnover Ratio (x)
Working Capital Cycle (days)
Receivables Outstanding (days)
Inventory Outstanding (days)
Payables Outstanding (days)
Cash Conversion Cycle (days)
Leverage Ratios (x)
Per Share Data
EPS (SR)
BVPS (SR)
Cash Dividend/Share (SR)
Sales/Share (SR)
5.8
5.0
3.8
3.7
4.1
4.3
4.5
16.2
17.2
23.7
24.7
25.4
26.2
27.2
(Source: STC, FALCOM Research)
FALCOM RESEARCH
FALCOM Research
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Saudi Telecom Company
31
31
Valuation Ratios
2006
2007
2008
2009E
2010E
2011E
2012E
PE (x)
13.0
13.9
8.9
9.0
8.0
7.6
7.4
PBV (x)
4.9
4.7
2.6
2.5
2.3
2.1
1.9
PEG (x)
29.3
-13.8
-6.0
4.2
0.6
1.6
2.6
Dividend Yield (%)
14.4%
16.8%
13.1%
7.2%
8.1%
8.5%
8.7%
Earnings Yield (%)
7.7
7.2
11.2
11.1
12.5
13.1
13.5
EV/Revenues (x)
3.8
5.0
2.6
2.6
2.4
2.3
2.2
89.9%
83.2%
67.9%
65.0%
65%
65.0%
65.0%
Dividend Payout Ratio
(Source: STC, FALCOM Research)
Profitability Ratios and Growth
Over the last three STC’s operating profit, net profit and EBIDTA margins
have declined by around 10, 16 and 10 percentage points respectively
mainly due to declining net income and increasing revenues. Going
forward STC is expected to maintain its margins at or slightly above its
current levels mainly due to increasing top-line and bottom-line
contributions from international operations and surging growth in
broadband segment. Return on average assets and average equity are
expected to grow to 12.4% and 24% in 2012 respectively from their
2008 levels of 13% and 28% repsectively.
Liquidity / Turnover Ratios
STC reported declines in current ratio in 2008 from 2006 levels mainly
due to greated increase in current liabilities (mainly payables) as
compared to current assets. The turnover ratios have also been
declining, however, the decline in 2008 was mainly attributed to the
contributions from recent acquisitons. Going forward, STC is expected to
maitain sufficient liquidity and to operate close to the current turnover
ratios.
Leverage Ratios
STC had a debt-free balance sheet till the end of 2006, in 2007, STC
took loans for acquiring Maxis and Oger Telekom. The increase in debt
levels for 2008 are mainly due to the contributions from STC’s
subsidiaries which it acquired in 2007 and 2008.
Valuation Ratios
In 2008, STC’s PE and PBV ratios declined due to fall in stock prices. At
current levels, STC’s stock is trading at PE level which is less than that of
the TASI and telecommunications industry of Saudi Arabia.
Quarterly Performance
STC’s revenues have grown at a quarterly CAGR of 4.8% over the last
eight quarters from Q1 2007 to Q1 2009, over this period the company
reported highest revenue in Q3 2008 and a highest q-o-q fall of 9% in
Q4 2008 mainly due to increasing competition in the domestic GSM
market. STC’s international operations contributed for 21% and 27% of
the total revenues in Q4 2008 and Q1 2009. In Q1 2009, the revenues
from international operations increased by 27% (q-o-q) whereas the
FALCOM RESEARCH
32
Saudi Telecom Company
Saudi Telecom Company
32
FALCOM Research
revenues from domestic operations declined by 9% (q-o-q) which can be
mainly attributed to the erosion in market share in the GSM segment.
Operating Revenues
Net Income (SR million)
Q1'09
1,000
Q4'08
1,500
8,000
Q3'08
2,000
9,000
Q2'08
2,500
10,000
Q1'08
3,000
11,000
Q4'07
3,500
12,000
Q3'07
4,000
13,000
Q2'07
14,000
Q1'07
Revenues (SR million)
Quarterly Revenues and Net Income
Net Income
(Source: STC Quarterly Report, FALCOM Research)
STC experienced fairly high and steady net income till second quarter of
2008, after which the net income declined by 22% and 61% in the next
two quarters respectively. The sharp decline in net profits in Q4 2008
was mainly due to foreign exchange losses, increase in marketing and
administrative expenses, employee costs (Human Resources structure
change) and start-up costs in Kuwait and Indonesia. Instead of 1% q-o-q
decline in revenue in Q1 2009, STC’s net income in Q1 2009 increased
by 113%, mainly due to 29% decline in access charges and 34% decline
in administrative and marketing expenses.
Quarterly Ratio Analysis
Ratios
Q1’08
Q2’08
Q3’08
Q4’08
Q1’09
Profitability Ratios (%)
Operating Profit Margin
35.5%
32.5%
31.0%
19.3%
31.6%
Net Profit Margin
31.6%
31.9%
22.3%
9.5%
20.5%
Return on Avg. Equity
8.3%
9.6%
6.8%
2.7%
5.7%
Return on Avg. Assets
4.4%
4.4%
2.9%
1.1%
2.5%
Revenues
-0.6%
25.6%
12.5%
-9.1%
-1.3%
Operating Income
13.6%
15.0%
7.4%
-43.3%
61.2%
Net Income
-0.8%
26.8%
-21.6%
-61.3%
113.4%
0.9%
4.6%
1.7%
-2.9%
-1.0%
Current Ratio (x)
0.8
0.8
0.8
0.8
0.8
Total Asset Turnover (x)
0.1
0.1
0.1
0.1
0.1
0.5
0.4
0.4
0.4
0.4
Growth (%)
Shareholders’ Equity
Liquidity / Turnover Ratios (x)
Leverage Ratios (x)
Equity/Assets
(Source: STC, FALCOM Research)
FALCOM RESEARCH
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33
33
After recording sharp q-o-q declines in operating and net profit margins
in Q4 2008, STC reported significant increase in margins in Q1 2009 due
to increase in operating and net income attributed to decline in
expenses. Over the last five quarters, the return on average assets and
equity has declined, however, in Q1 2009, the performance was better
than that in Q4 2008. STC has maintained steady liquidity, turnover and
leverage ratios over the last five quarters.
FALCOM RESEARCH
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OUTLOOK
FUTURE
Industry Outlook
Increase in subscriber base and penetration levels
As per Economist Intelligence Unit estimates, the mobile subscriber base,
the number of fixed lines and the number of broadband subscribers in
Saudi Arabia are expected to grow at a CAGR of 5.7%, 1.2% and 29.1%
from 2008 to 2012. The broadband market is still very thinly penetrated
with penetration levels of 3.0% in 2008 which is expected to grow to
9.4% by 2010. The penetration level in fixed line market is expected to
decline slightly whereas the mobile penetration is expected to improve
gradually from its 2008 level of 139% to 148% by 2012.
Telecom Industry Indicators for Saudi Arabia
000’s
2008E
2009E
2010E
2011E
2012E
4,200
4,300
4,450
4,450
4,450
Fixed Line Penetration
(%)
16.2%
16.7%
16.7%
16.3%
15.8%
Mobile Subscribers
34,545
36,272
38,086
39,038
40,014
Mobile Penetration
(%)
139%
142%
145%
147%
148%
Broadband Subscriber
Lines
741
1,123
1,560
2,071
2,651
Broadband Subscriber
Penetration (%)
3.0%
4.4%
5.9%
7.6%
9.4%
Fixed Lines
(Source: Economist Intelligence Unit, FALCOM Research)
Changing demography
Currently under-15s represent around 33% of the Saudi population and
the proportion is expected to be constant in future as the birth rates in
the kingdom are expected to be high. With the 3% expected growth rate
of the population, the increasing young population will drive the demand
for mobile phones. Also, the broadband connection is expected to rise
due to better infrastructure and service provisions.
Increase in affluence and brand-consciousness
The relatively high income levels, spending habits and brand
consciousness of Saudi population is expected to drive the demand for
high-end mobile phones, fashionable models, smart phones, internet and
third generation mobile services.
Telecommunication infrastructure development for “economic cities”
The Saudi General Investment Authority (SGIA) has plans to turn seven
major Saudi cities into “smart cities” with universal wireless broadband
access and build six new economic cities across the kingdom. All these
economic cities will require strong telecommunication infrastructure
development, thus, generating more business for the telecom players in
the region.
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Saudi Telecom Company
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Increase in levels of computer ownership
As per the 2007 CITC survey, only 43% of the individuals in the kingdom
own a computer, however, with the high disposable income, the
ownership of personal computers is expected to increase in future, thus
increasing the demand from retail customers. Also, as per the survey,
around 24% of the companies did not have a computer (as opposed to
government sector where the figure stands at 1%); this percentage is
expected to decline in future thus fueling the demand from business
customers as well.
Increasing popularity of E solutions
The coming future is expected to see increase in investments towards
developing e solutions. The e-government initiative undertaken by the
Saudi government and the increase in e-commerce solutions are
expected to boost the demand for internet infrastructures and services.
The survey conducted by Arab Advisors Group found that 48% of the
Saudi Internet users did online shopping for the year 2008.
Technical developments on the supply side will support the increasing
demand for internet
According to 2007 CITC report, more than 50% of the ADSL (Asymmetric
Digital Subscriber Line) applications were rejected by STC due to the fact
that the applicants were located at a distance of more than 5 km from
the exchanges. However, with the development of 3G mobile network,
the entrance of three new fixed line service providers; the supply of
required technically improved infrastructure is expected to improve.
Company Outlook - Forecast
Revenues, Gross Profit and Net Profit Margins
50%
60,000
40%
55,000
35%
30%
50,000
Margins (%)
45%
25%
20%
Operating Profit Margin
Net Profit Margin
2012E
2011E
2009E
Operating Revenues
2010E
45,000
2008
Revenues (SR million)
Forecast Revenue and Margins
EBIDTA Margin
(Source: STC Annual Report, FALCOM Research)
According to our forecasts, STC’s revenues and net income are expected
to grow at a CAGR of 3.5% and 5.6% from 2008 to 2012 due to
increasing contributions from the international operations, increasing
expected demand of broadband and decline in capital expenditures and
marketing and administrative expenses. Continuing with the momentum
gained in Q1 2009, the margins (operating profit, net profit and EBIDTA
FALCOM RESEARCH
36
Saudi Telecom Company
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36
FALCOM Research
margins) for STC are expected to slightly decline in 2009 and increase
steadily attaining a plateau by 2011-12.
Returns
35%
Returns (%)
30%
25%
20%
15%
Return on Avg. Assets
Return on Avg. C apital Employed
2012E
2011E
2010E
2009E
2008
10%
Return on Avg. Equity
(Source: STC Annual Report, FALCOM Research)
Assuming constant paid-up capital, STC’s return on average equity,
average assets and capital employed are expected to decline in 2009 and
increase steadily thereafter till 2012 mainly due to lower increase in net
income in 2009.
100%
120,000
90%
80%
100,000
70%
80,000
60%
Total assets
Total Equity
2012E
40%
2011E
40,000
2010E
50%
2009E
60,000
Debt/Equity (%)
140,000
2008
Total Assets and Equity (SR
million)
Capital Structure
Total Debt/Total Equity
(Source: STC Annual Report, FALCOM Research)
According to our forecasts, STC’s total asset base and total equity are
expected to grow at a CAGR of 3.5% and 8.6% respectively from 2008
to 2012. As per our forecast, STC’s leverage is expected to decline from
2008 levels to around 50% by 2012 as most of the debt is currently held
by the subsidiaries and going forward with increasing involvement of STC
management in their operations, STC will advocate lower debt levels for
them.
FALCOM RESEARCH
FALCOM Research
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Saudi Telecom Company
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VALUATION
FALCOM Research has valued STC using the following three valuation
methods.
1.
2.
3.
Free Cash Flow to Equity Model
Dividend Discount Model
Comparable Method
Free Cash Flow to Equity Model
Due to the lack of information regarding the capital structure and cost of
debt of some of the privately held subsidiaries of STC, FALCOM Research
has used Free Cash Flow to Equity method for DCF calculation.
Following are the assumptions used to determine the present value of
Free Cash Flow to Equity.
1.
2.
3.
Beta is calculated to be 0.76 on the basis of daily return with
respect to TASI for the period from 6th July 2008 to 6th July
2009.
Cost of equity on the basis of above assumptions is calculated to
be 8.92%.
The terminal growth rate of 2.0% has been assumed from 2012
onwards for FCFE
The Free Cash Flow to Equity (FCFE) has been calculated using the
following formula.
FCFE = Net Income + Depreciation + Amortization – Change in Net
Working Capital – Capital Expenditures + Net Borrowings
The FCFE for the years 2009 to 2012 have been discounted using the
calculated cost of equity of 8.92%.
The number of shares outstanding has been assumed to be constant at 2
billion.
The Fair Value of STC’s share using the DCF Model is calculated to be SR
69.4.
Following table provides the sensitivity analysis for fair value of STC
stock with respect to cost of equity and terminal growth rate of FCFE.
FALCOM RESEARCH
38
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FALCOM Research
Sensitivity Analysis for the Fair Value (SR per share)
Cost of Equity
Perpetual Growth Rate
1.5%
1.8%
2.0%
2.3%
2.5%
7.9%
76.0
78.8
81.8
85.2
88.8
8.4%
70.1
72.5
75.1
77.9
80.9
8.9%
65.1
67.2
69.4
71.7
74.3
9.4%
60.7
62.5
64.4
66.4
68.6
9.9%
56.9
58.4
60.1
61.8
63.7
(Source: FALCOM Research)
Dividend Discount Method (“DDM”)
STC has historically been very consistent in its dividend payments and
we assumed the same to continue in future. Following assumptions have
been made for DDM calculations.
1.
2.
3.
Cost of Equity at 8.92%; as calculated under the DCF method.
Target dividend payout ratio has been assumed to be 65% till
2012.
Dividend growth rate has been assumed to be 2.0% after 2012.
Based on our calculations the Fair Value of STC stock using the DDM
approach comes out to be SR 62.9.
Following table provides the sensitivity analysis of the fair value of STC
stock with respect to cost of equity and terminal growth rate of dividend.
Sensitivity Analysis for the Fair Value (SR per share)
Cost of Equity
Perpetual Growth Rate
1.5%
1.8%
2.0%
2.3%
2.5%
7.9%
68.4
70.7
73.3
76.0
79.0
8.4%
63.5
65.5
67.7
70.0
72.5
8.9%
59.3
61.0
62.9
64.8
66.9
9.4%
55.7
57.2
58.7
60.4
62.2
9.9%
52.4
53.7
55.1
56.6
58.1
(Source: FALCOM Research)
Comparable Model
FALCOM Research identified the following six companies in the region
(GCC) operating in the same sector as STC.
1.
2.
3.
4.
5.
FALCOM RESEARCH
FALCOM Research
Bahrain Telecom Company (Batelco), Bahrain
Etisalat, UAE
Mobily, Saudi Arabia
Zain Group, Kuwait
Qatar Telecom, Qatar
Saudi Telecom Company
Saudi Telecom Company
39
39
6.
Oman Telecom, Oman
Following chart compares the profitability ratios of the above mentioned
companies with corresponding financials of STC.
C omparison of Regional Telecommunication C ompanies
65.0%
EBITDA Margin (2008)
Size of the Bubble is Return on Equity for 2008
55.0%
45.0%
Omantel
Qtel
STC
Zain
35.0%
Etisalat
Mobily
25.0%
15.0%
8.0%
Batelco
13.0%
18.0%
23.0%
28.0%
33.0%
38.0%
Net Profit Margin (2008)
STC
Batelco
Etisalat
Mobily
Zain
Qtel
Omantel
(Source: Zawya, FALCOM Research)
Note – Size of the Bubble represents Return on Equity for 2008
We have considered the price to earnings and price to book value
multiples for calculating the fair value for STC.
P/E and P/B ratios for Comparable Companies
Comparable Companies
As on 6th July 2009
P/E
P/BV
Batelco, Bahrain
8.18
1.92
Etisalat, UAE
8.32
2.32
Mobily, Saudi Arabia
11.10
2.57
Zain, Kuwait
14.48
2.21
Qtel, Qatar
8.29
1.85
Omantel, Oman
8.32
2.93
9.8
2.3
Average
(Source: Zawya, FALCOM Research)
Based on comparable P/E of 9.9x, STC’s stock fair value is calculated as
SR 52.0 and on the basis of P/B of 2.3x, it comes out to be SR 43.0. We
calculated the weighted average fair value by assigning 60% weight to
FALCOM RESEARCH
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Saudi Telecom Company
40
FALCOM Research
P/E ratio and 40% weight to P/B multiple and calculated the fair price to
be SR 48.4.
Recommendation – Strong Buy
FALCOM Research is releasing the updated report with amendments in
valuation that has resulted in a fair value of SR 64.7 which is at 26.9%
premium to its price of SR 51.0 on 6th July 2009. FALCOM Research
maintains “Strong Buy” recommendation on the stock. The fair value of
the stock is based on FCFE, DDM and comparable valuation methods. For
our valuation we have assumed the perpetual growth rate of FCFE and
dividend to be 2%.
FALCOM RESEARCH
FALCOM Research
Saudi Telecom Company
Saudi Telecom Company
41
41
FALCOM RESEARCH
42
2,909,320
3,938,639
149,700
6,364,622
13,362,281
4,004,821
3,623,634
153,288
4,168,401
11,950,144
Cash and cash equivalents
Accounts receivable, net
30,128,383
731,766
30,532,590
753,750
2007
Borrowings - current
Saudi Telecom Company
Saudi Telecom Company
5,818,458
8,339,223
(3,342)
0
34,154,339
0
34,154,339
13,320,212
(3,342)
0
32,855,438
0
32,855,438
44,743,877
Retained earnings
Total Equity
Total liabilities and Equity
Unrealized Gain/loss on investments
(Source:
STC,
FALCOM Research)
(Source: STC,
FALCOM
Research)
Minority interest
Total shareholders’ equity
Financial statements` translation differences
46,121,773
20,000,000
4,538,568
Authorized, issued and outstanding shares
15,000,000
0
11,967,434
0
11,888,439
623,569
0
0
2,443,971
1,820,402
1,612,540
821,168
0
2,433,708
0
0
Statutory reserve
Total liabilities
Total non-current liabilities
Deferred Revenues
Other payables
Employees’ end of service benefits
Borrowings
Total current liabilities
0
560,448
1,394,028
1,329,277
0
65,006
207,249
9,523,463
3,749,277
2,915,864
Accrued expenses
Dividends Payable
0
1,959,937
2,355,215
2,605,975
2,396,366
Accounts payable
Other payables
9,454,731
1,773,107
46,121,772
44,743,876
Total assets
Deferred revenues – current
32,759,491
32,793,732
Total non-current assets
2,406,625
759,183
68,811,246
35,891,882
15,629
35,876,253
196,839
0
8,658,704
7,020,710
20,000,000
32,919,364
0
15,699,704
437,240
310,864
1,932,297
13,019,303
0
17,219,660
0
5,586,722
6,217,303
3,082,080
68,811,246
54,833,811
4,202,315
1,140,159
992,037
515,355
Equity method and other investments
13,855,574
34,369,297
13,977,435
1,018,644
367,675
4,972,988
7,618,128
(Annual)
Other non-current assets
Property, plant and equipment, net
Intangible assets, net
Total current assets
Prepayments and other current assets
Inventories
2006
(Annual)
2005
(Annual)
Balance Sheet as on (in '000 SR)
2008
99,762,135
42,561,877
4,923,899
37,637,978
(378,464)
0
9,783,301
8,233,141
20,000,000
57,200,258
0
34,301,423
0
3,482,178
2,738,025
28,081,220
0
22,898,835
3,904,714
2,248,478
0
5,762,320
4,334,601
6,648,722
99,762,135
80,815,739
2,287,350
2,451,736
31,695,114
44,381,539
18,946,396
1,986,991
778,199
8,120,037
8,061,169
(Annual)
2009E
100,986,513
45,270,129
4,923,899
40,346,230
(1,616,310)
0
12,601,942
9,360,598
20,000,000
55,716,384
0
31,795,539
0
3,482,178
2,962,089
25,351,272
0
23,920,845
6,337,818
1,879,771
0
5,197,637
4,334,601
6,171,018
100,986,513
82,649,163
2,315,423
2,481,826
31,695,114
46,156,801
18,337,350
2,011,377
787,750
8,219,694
7,318,528
(Annual)
104,038,296
49,726,813
4,923,899
44,802,914
(1,616,310)
0
15,785,288
10,633,936
20,000,000
54,311,483
0
30,576,108
0
3,656,287
3,050,951
23,868,870
0
23,735,375
5,967,218
1,879,771
0
5,197,637
4,334,601
6,356,148
104,038,296
84,178,839
2,385,394
2,556,826
31,695,114
47,541,505
19,859,458
2,072,161
811,555
8,468,091
8,507,651
(Annual)
2010E
106,539,013
54,399,060
4,923,899
49,475,161
(1,616,310)
0
19,122,607
11,968,864
20,000,000
52,139,953
0
28,741,205
0
3,839,101
3,142,480
21,759,624
0
23,398,748
5,439,906
1,879,771
0
5,197,637
4,334,601
6,546,833
106,539,013
85,723,878
2,442,731
2,618,283
31,695,114
48,967,750
20,815,135
2,121,968
831,062
8,671,634
9,190,471
(Annual)
2011E
FINANCIALS
COMPANY
2012E
114,325,180
59,203,486
4,923,899
54,279,587
(1,616,310)
0
22,554,340
13,341,557
20,000,000
55,121,693
0
30,980,630
0
4,031,056
3,268,179
23,681,394
0
24,141,064
5,920,349
1,879,771
0
5,197,637
4,334,601
6,808,706
114,325,180
88,052,460
2,621,252
2,809,635
31,695,114
50,926,460
26,272,719
2,277,047
891,799
9,305,381
13,798,492
(Annual)
Annual Balance Sheet
Annual Balance Sheet
42
FALCOM Research
FALCOM Research
(310,314)
(622,943)
Other, net
Other income and expenses, net
Saudi Telecom Company
(Source: STC, FALCOM Research)
Net Income
12,446,861
-
Minority interest
12,798,901
-
-
12,798,901
12,446,861
-
0
(342,577)
13,141,478
493,333
576,720
416,613
(500,000)
12,648,145
(19,745,426)
(1,437,633)
(1,932,412)
(3,835,792)
0
(292,249)
Comission Expense / Murabaha and Sukuk Financing commissions
Net Income before Minority interests
Provision for Tax
Provision for Zakat
12,739,110
207,274
Net Income before Minority interest, Zakat and Tax
(519,903)
13,362,053
Operating Income
Commissions
(19,177,890)
Total Operating Expenses
Cost of early retirement program
(2,140,781)
(1,622,552)
(3,836,211)
Administrative and marketing expenses
(4,283,758)
(3,883,083)
Employee costs
Depreciation and amortization
Repairs and maintenance
(3,809,662)
(2,519,941)
Access charges
(4,446,169)
(5,175,322)
Government charges
32,393,571
32,539,943
2006
(Annual)
2005
(Annual)
Operating Revenues
Statements of Income for the period ending
(in ‘000 SR)
2007
12,021,733
2,171
0 -
12,019,562
(42,020)
(384,631)
12,446,213
(171,688)
42,747
333,145
(547,580)
12,617,901
(21,839,906)
(1,772,882)
(2,442,472)
(4,098,287)
(4,274,597)
(4,426,666)
(4,825,002)
34,457,807
(Annual)
2008
11,037,846
(172,166)
11,210,012
(456,829)
(375,513)
12,042,354
(1,860,586)
(2,686,961)
1,501,375
(675,000)
13,902,940
(33,566,428)
(2,127,821)
(7,194,289)
(6,407,514)
(6,164,272)
(6,130,577)
(5,541,955)
47,469,368
(Annual)
-
2009E
11,274,566
(246,841)
11,521,407
(493,681)
(386,722)
12,401,810
(1,234,204)
(987,363)
493,681
(740,522)
13,636,013
(35,732,129)
(2,234,212)
(7,482,061)
(6,727,890)
(6,780,699)
(6,743,635)
(5,763,633)
49,368,143
(Annual)
-
2010E
12,733,383
(254,246)
12,987,629
(508,492)
(434,391)
13,930,512
(254,246)
0
508,492
(762,738)
14,184,758
(36,664,429)
(2,345,923)
(6,305,299)
(7,064,284)
(7,594,383)
(7,417,998)
(5,936,542)
50,849,187
(Annual)
-
2011E
13,349,276
(261,873)
13,611,150
(523,747)
(454,951)
14,589,847
261,873
523,747
523,747
(785,620)
14,327,974
(38,046,689)
(2,463,219)
(5,237,466)
(7,417,498)
(8,505,709)
(8,308,158)
(6,114,638)
52,374,663
(Annual)
-
2012E
13,726,933
(272,348)
13,999,281
(544,696)
(468,118)
15,012,095
303,773
544,696
544,696
(785,620)
14,708,322
(39,761,327)
(2,586,380)
(5,446,965)
(7,714,198)
(8,930,995)
(8,723,566)
(6,359,224)
54,469,649
(Annual)
Annual Income Statement
43
44
33,884,492
47,158,356
33,099,819
49,543,819
Total non-current assets
Total assets
Saudi Telecom Company
0
0
34,479,608
0
34,479,608
0
0
33,876,853
0
33,876,853
49,543,820
Unrealized Gain/loss on investments
Financial statements` translation differences
Total Equity
Total liabilities and Equity
(Source:
STC)STC)
(Source:
Minority interest
Total shareholders’ equity
47,158,357
8,078,957
7,786,477
Authorized, issued and outstanding shares
Retained earnings
12,678,749
0
15,666,967
0
6,400,651
2,432,736
2,423,456
20,000,000
524,392
573,011
6,090,376
0
0
20,000,000
0
1,908,344
0
1,850,445
Statutory reserve
Total liabilities
Total non-current liabilities
Deferred Revenues
Other payables
Employees’ end of service benefits
Borrowings
Total current liabilities
0
1,381,252
Deferred revenues – current
10,246,013
1,497,226
3,047,217
Dividends Payable
0
53,065
3,727,378
Accrued expenses
13,243,511
3,727,391
2,627,625
Other payables
Borrowings - current
2,623,502
2,344,829
2,460,039
Accounts payable
Equity method and other investments
759,106
712,922
722,344
1,257,543
31,154,921
30,445,642
789,380
13,273,864
16,444,000
1,142,453
249,183
3,291,349
166,991
Other non-current assets
Intangible assets, net
Property, plant and equipment, net
Total current assets
Prepayments and other current assets
4,032,879
5,496,458
4,236,874
8,402,922
3,841,208
Cash and cash equivalents
Accounts receivable, net
Inventories
Q2'07
(Quarterly)
Q1'07
(Quarterly)
Balance Sheet as on (in '000 SR)
Q3'07
59,763,562
35,119,639
0
35,119,639
0
0
8,400,811
6,718,828
20,000,000
24,643,923
0
7,762,447
479,981
308,557
1,869,538
5,104,371
16,881,476
5,453,640
1,461,834
56,339
3,795,944
2,779,699
3,334,020
59,763,561
48,632,982
754,964
1,253,571
13,601,185
33,023,262
11,130,579
1,002,012
369,885
4,700,691
5,057,991
(Quarterly)
Q4'07
69,049,495
36,238,161
11,732
36,226,429
549,192
0
8,656,527
7,020,710
20,000,000
32,811,334
0
15,702,748
437,241
313,895
1,932,309
13,019,303
17,108,586
560,448
1,773,107
56,860
5,282,030
6,225,022
3,211,119
69,049,494
55,070,221
4,200,854
2,755,207
13,756,909
34,357,251
13,979,273
1,021,381
367,675
4,973,090
7,617,127
(Quarterly)
Q1'08
69,417,679
36,571,453
13,111
36,558,342
338,320
0
8,891,165
7,328,857
20,000,000
32,846,226
0
15,561,458
395,755
305,700
1,960,242
12,899,761
17,284,768
1,090,943
1,454,483
2,557,648
6,025,861
2,927,696
3,228,137
69,417,678
55,855,831
4,153,883
2,434,931
14,127,248
35,139,769
13,561,847
1,329,800
497,004
5,094,062
6,640,981
(Quarterly)
Q2'08
103,191,755
43,614,533
5,369,050
38,245,483
202,379
0
10,412,114
7,630,990
20,000,000
59,577,222
0
37,034,341
355,451
4,246,877
2,998,856
29,433,157
22,542,881
3,856,881
1,944,364
72,401
6,241,531
4,879,114
5,548,590
103,191,754
84,708,483
5,718,084
2,436,192
31,794,742
44,759,465
18,483,271
2,322,343
678,337
7,948,416
7,534,175
(Quarterly)
Q3'08
103,053,220
44,480,795
5,588,979
38,891,816
(180,417)
0
11,109,350
7,962,883
20,000,000
58,572,425
0
35,510,594
324,440
4,000,586
2,993,694
28,191,874
23,061,831
4,736,681
1,737,375
47,037
6,349,825
4,242,899
5,948,014
103,053,219
83,907,352
5,699,087
2,458,041
30,476,111
45,274,113
19,145,867
2,257,747
696,007
8,560,534
7,631,579
(Quarterly)
Q4'08
99,909,327
42,703,330
4,936,988
37,766,342
(471,468)
0
10,004,669
8,233,141
20,000,000
57,205,997
0
34,279,167
0
3,515,666
2,682,281
28,081,220
22,926,830
3,827,220
2,398,846
0
5,767,490
4,378,018
6,555,256
99,909,326
80,921,762
2,277,426
2,465,536
31,767,186
44,411,614
18,987,564
2,788,451
0
8,135,593
8,063,520
(Quarterly)
Q1'09
101,768,830
44,091,246
6,701,030
37,390,216
(1,616,310)
0
10,465,714
8,540,812
20,000,000
57,677,584
0
33,317,519
0
3,782,727
2,771,710
26,763,082
24,360,065
4,015,442
1,879,771
0
5,197,637
6,319,357
6,947,858
101,768,830
81,721,368
2,184,516
2,452,910
28,283,470
48,061,901
20,047,462
2,776,381
0
8,995,265
9,014,387
(Quarterly)
Quarterly Balance Sheet
FALCOM Research
FALCOM Research
Saudi Telecom Company
Provision for Zakat
(Source: STC)
Net Income
2,719,172
-
Comission Expense / Murabaha and Sukuk Financing commissions
2,719,172
-
(142,578)
Minority interest
Net Income before Minority interests
Provision for Tax
2,861,750
(58,607)
Other income and expenses, net
Net Income before Minority interest, Zakat and Tax
(43,253)
Other, net
2,920,357
Operating Income
109,646
(5,399,698)
Total Operating Expenses
(125,000)
(479,160)
Repairs and maintenance
Commissions
(623,788)
Administrative and marketing expenses
Cost of early retirement program
(922,877)
(1,103,150)
Employee costs
Depreciation and amortization
(1,179,983)
(1,090,740)
Government charges
Access charges
8,320,055
3,102,755
3,102,755
-
-
-
(129,943)
3,232,698
6,018
42,422
88,596
(125,000)
3,226,680
(5,217,322)
(360,816)
(763,216)
(960,249)
(1,094,638)
(797,731)
(1,240,672)
8,444,002
Q2'07
(Quarterly)
Q1'07
(Quarterly)
Operating Revenues
Income Statement as on (in '000 SR)
Q3'07
3,140,031
3,140,031
-
-
-
(83,517)
3,223,548
(275,746)
(56,996)
76,898
(295,648)
3,499,294
(4,559,286)
(340,045)
(134,195)
(970,230)
(884,835)
(1,152,071)
(1,077,910)
8,058,580
(Quarterly)
Q4'07
3,053,257
3,053,257
-
-
(42,020)
(28,592)
3,123,869
132,723
77,014
57,641
(1,932)
2,991,146
(6,644,013)
(592,878)
(902,089)
(1,244,695)
(1,191,790)
(1,386,124)
(1,326,437)
9,635,159
(Quarterly)
Q1'08
-
3,029,269
912
3,028,357
(78,213)
(96,050)
3,202,620
(195,029)
(78,280)
33,251
(150,000)
3,397,649
(6,177,058)
(443,173)
(889,989)
(1,335,380)
(1,146,602)
(1,143,879)
(1,218,035)
9,574,707
(Quarterly)
Q2'08
-
3,839,882
(158,497)
3,998,379
(116,023)
(94,015)
4,208,417
299,766
(251,009)
775,887
(225,112)
3,908,651
(8,121,811)
(533,002)
(1,616,825)
(1,446,555)
(1,589,755)
(1,502,980)
(1,432,694)
12,030,462
(Quarterly)
Q3'08
-
3,012,329
(328,222)
3,340,551
(232,836)
(98,736)
3,672,123
(524,344)
(371,303)
87,584
(240,625)
4,196,467
(9,341,289)
(523,202)
(2,210,615)
(1,877,222)
(1,585,201)
(1,643,704)
(1,501,345)
13,537,756
(Quarterly)
Q4'08
1,165,577
322,967
-
842,610
(69,113)
(86,712)
998,435
(1,381,280)
(1,927,932)
605,915
(59,263)
2,379,715
(9,922,357)
(629,152)
(2,439,863)
(1,747,200)
(1,890,138)
(1,831,758)
(1,384,246)
12,302,072
(Quarterly)
Q1'09
2,487,749
43,107
2,444,642
-
(116,732)
(103,367)
2,664,741
(1,171,750)
(755,152)
(266,598)
(150,000)
3,836,491
(8,306,293)
(577,277)
(1,597,954)
(1,774,477)
(1,664,524)
(1,302,647)
(1,389,414)
12,142,784
(Quarterly)
Quarterly Income Statement
45
GLOSSARY
FALCOM RESEARCH
46
CAGR
Compounded Annual Growth Rate
EBITDA
Earnings Before Interest, Tax (zakat),
Depreciation and Amortization
EPS
Earnings Per Share
EV
Enterprise Value
LTM
Last Twelve Months
PBV
Price to Book Value ratio
PEG
Price Earnings to Growth
PE
Price to Earnings ratio
ROE
Return On average Equity
ROA
Return On average Assets
ROCE
Return On average Capital Employed
WACC
Weighted Average Cost of Capital
GSM
Global System for Mobile Communications
PSTN
Public Switched Telephone Network
ADSL
Asymmetric Digital Subscriber Line
ARPU
Average Revenue Per User
HSDPA
High Speed Downlink Packet Access
CDMA
Code Division Multiple Access
DSL
Digital Subscriber Line
IPTV
Internet Protocol Television
VoIP
Voice Over Internet Protocol
ICT
Information and Communications Technology
CITC
Communications and Information Technology
Commission of Saudi Arabia
pp
Percentage Points
Saudi Telecom Company
Saudi Telecom Company
46
FALCOM Research
Rating Rationale
FALCOM RESEARCH
FALCOM Research
Rating Rationale
FALCOM Research assigns ratings based on the calculated fair value of a
stock. Recommendation assumes, unless specifically mentioned, the
holding period of 2 years for a stock to get closer to its fair price.
We assign
ƒ
Strong Buy if Fair Value > 20% of the Current Market Price
ƒ
Buy if Fair Value > 10% of the Current Market Price
ƒ
Hold if Fair Value is between +10% and -10% of the Current
Market Price
ƒ
Sell if Fair Value < 10% of the Current Market Price
ƒ
Strong Sell if Fair Value < 20% of the Current Market Price
Saudi Telecom Company
Saudi Telecom Company
47
47
DISCLOSURES
Analyst certification
¾ The views expressed herein accurately reflect the personal views
of the analyst provided in good faith and with reasonable due
care and diligence.
¾ No part of the analyst’s compensation was, is or will be directly
or indirectly be related to the specific recommendation(s) or
views contained in this research report.
¾ The analysis contained herein is based on number of
assumptions and investor should be aware that different
assumptions could result in materially different results.
¾ Analyst/s covering the report may take investment decisions
inconsistent with the recommendations in this report.
Corporate
¾ FALCOM Financial Services did not receive any compensation for
the preparation of this report.
¾ FALCOM Financial Services was not involved in the management
of public issue of the company in the last 12 months.
¾ FALCOM Financial Services does not hold equity shares of the
researched company.
¾ FALCOM Financial Services may provide oral or written market
commentary or trading strategies to FALCOM clients and
proprietary trading desks that reflect opinions that may be
contrary to the opinions expressed in this research report.
¾ FALCOM asset management, FALCOM proprietary funds
management desk, FALCOM brokerage division and FALCOM
investment banking may take decisions that are inconsistent with
the recommendations or views expressed in this research report.
¾ No employee of FALCOM Financial Services serves on the Board
of Directors of the company.
Others
¾ This report is prepared after meeting the management of the
Company. The report represents the final views of the analyst
which may or may not match with the views of the management.
¾ All stock price data included in this report are dated as at close
of July 6, 2009 and market data for the nearest available period,
unless otherwise indicated in the report.
¾ FALCOM Financial Services has procedures in place to identify
and manage any potential conflicts of interest that arise in
connection with its Research reports.
¾ Chinese wall procedures are in place between the different
business units to ensure that any confidential and/or price
sensitive information is handled in an appropriate manner.
FALCOM RESEARCH
48
Saudi Telecom Company
Saudi Telecom Company
48
FALCOM Research
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