Saudi Telecom Q2 profit surges to beat forecasts

Gulf's second largest provider by market value reports $1bn income.

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By  Souhail Karam Published  July 20, 2008

Saudi Telecom (STC) said on Sunday second-quarter net profit beat forecasts to rise 24 percent, on higher income from foreign ventures as well as domestic mobile and broadband services.

STC, the second-largest Arab telecom provider by market value, made a net profit of 3.84 billion riyals ($1.02 billion) in the three months to June 30, compared to 3.1 billion riyals in the same period a year earlier, it said in a statement on the Saudi bourse website.

It was STC's highest quarterly net profit in at least 12 months. Annual quarterly profit growth also more than doubled compared to the first-quarter when it was at 11.4 percent.

STC beat forecasts by analysts who were expecting a second-quarter profit of between 2.8 billion riyals to 3.51 billion riyals in a survey conducted by newswire Reuters last month.

"This (rise) is attributed to increases in revenues of mobile and broadband and a rise in income from foreign investment," it said.

The company began consolidating the Turkish and South African businesses acquired for $2.56 billion this year through a 35 percent stake in Oger Telecom.

Its earlier and first foreign ventures, in Asia and Kuwait, have yet to start making money. Saud Al-Duweish, STC's chief executive officer, said in January the Oger Telecom purchase would boost profit by 4 percent and revenue by 30 percent in 2008.

Saudi Telecom lagged regional rivals in growth terms, having made its first foreign investment last year, taking a 25 percent stake in Malaysia's Maxis in a $3 billion deal that opened up markets in India and Indonesia. Still, those operations have yet to start making profit, board member Abdul-Rahman Mazi said in January.

Oger Telecom owns 55 percent of fixed-line operator Turk Telekom and 75 percent of Cell C, South Africa's third-largest mobile operator. It offers Internet services in Saudi Arabia, Lebanon and Jordan.

Oger Telecom had 35 million users and revenues of $6.9 billion in 2006. Its parent, Saudi Oger, is a construction company controlled by the family of late Lebanese prime minister Rafik Al-Hariri.

At home, Saudi Telecom has been losing ground to rival Etihad Etisalat (Mobily), which grew to a 40 percent market share by the end of 2007 from 30 percent a year earlier.

STC's Chairman Mohammed Al-Jasser sought to downplay this, saying his firm earned 73 percent of mobile phone revenues generated in the world's top oil exporter this year.

"This percentage has been stable for a year... Our ARPU [average revenue per user] is higher," Al-Jasser told Al-Arabiya television.

"It seems that Saudi Telecom's subscribers... spend more. If the competitor [Mobily] has a 40 percent share of the market, its share of revenues is 27 percent," he added.

Both STC and Mobily are bracing for tougher competition this year with the expected launch of a third mobile phone led by Kuwait's Mobile Telecommunications Co (Zain) in a market where mobile phone penetration already hovers around 100 percent.

"We expect the third operator to grab market share from us and from the second operator, but we expect Saudi Telecom to post rises in both the number of subscribers and revenues," Al-Jasser said.

STC's operating profit reached 3.91 billion riyals, 21 percent above its level a year earlier. Earnings per share in the second quarter was 1.92 riyals against 1.55 riyals per share a year earlier and 1.51 riyals in the first quarter of 2008.

Shareholders will get a dividend of 1 riyal per share for the second quarter of this year, it added. First-half net profit rose 18 percent to 6.87 billion riyals.

Shares of STC were down almost 27 percent this year by Sunday's close, compared with 17.7 percent for the main stock index and 31 percent for the telecommunications sector index. (Reuters)

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