By Shaji Mathew and Matthew Brown
Oct. 26 (Bloomberg) -- Saudi Telecom Co., the Arab world's largest phone company, said third-quarter profit fell 4.1 percent, missing analysts' estimates, as expansion costs hurt earnings.
Net income declined to 3.01 billion riyals ($804 million) from 3.14 billion riyals a year earlier, the company said in a statement to the Saudi bourse today, without providing earnings per share. Global Investment House KSCC had estimated third- quarter profit of 3.92 billion riyals, while EFG-Hermes Holding SAE predicted 3.5 billion riyals. The company's net income fell 22 percent on a quarter-on-quarter basis.
``We were expecting a 9 percent quarter-on-quarter decline in profit mainly due to consolidating newly acquired start-ups in South Africa, Indonesia and Turkey,'' Nadine Ghobrial, telecommunications analyst at EFG-Hermes, said in a phone interview from Cairo today. Ghobrial has a ``buy'' recommendation on Saudi Telecom and a price estimate of 101 riyals.
Saudi Telecom has expanded its operations into Malaysia, India, Indonesia, South Africa and Kuwait to offset declining subscriber growth and competition from regional mobile-phone service providers in the Arab world's largest economy. The company faces competition in its home-base from Etihad Etisalat Co. and Zain Saudi Arabia, a unit of Kuwait's biggest mobile- phone company, which began operations in the country in August.
Mobile-phone annual subscriber growth in Saudi Arabia may decline to 5.3 million in 2009, from 6.4 million in 2008, according to a June report by EFG-Hermes.
Shares Decline
Saudi Telecom fell 1.3 percent to 58.75 riyals in Riyadh trading, valuing the company at 117.5 billion riyals. The stock, which has lost 30 percent this year, declined as much as 7.6 percent in intra-day trading. The benchmark Tadawul All Share Index, down 50 percent this year, today closed 1.7 percent lower. The measure lost as much as 4.7 percent during the trading day.
``The share-price fall is in line with the overall market trend, and it's hard to tell whether the stock was reacting to the earnings numbers,'' Simon Simonian, telecommunications analyst at Shuaa Capital PJSC, said today in a phone interview from Dubai.
Last year, Saudi Telecom bought a mobile-phone license in Kuwait and a 25 percent interest in Malaysia's Maxis Communications Bhd. The Maxis stake gives the company access to 1.4 billion people in Asia and enables it to provide roaming services to at least 1.5 million Indians working in Saudi Arabia. In January, Saudi Telecom gained access to customers in Turkey and South Africa when it paid $2.56 billion for a 35 percent stake in United Arab Emirates-based Oger Telecom Ltd.
``International operations are a very small component to Saudi Telecom's earnings and its main driver remains the domestic market,'' Simonian said. ``It might take years for the foreign operations to make contributions to the company's balance-sheet.''
Saudi Telecom will pay a dividend of 2 billion riyals, or 1 riyal a share, for the third-quarter, the company said.
To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.net
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