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SICO recommends 'buy' rating on STC

SICO, which is based in Bahrain, reaffirmed in its report, which was received here on Tuesday, that despite stiff competition STC is expanding and leveraging its infrastructure and coverage and is expanding outside the Kingdom with an estimated 10 percent of total revenue generated from outside Saudi Arabia by 2010.

"We initiate coverage of STC with a target of SR76.35 per share (12.7 per cent upside potential) and a buy recommendation. We believe that the possibilities of positive surprises and further upsides are high, with downsides limited by the attractive dividend yield," the SICO report said.

In a statement, made available to Khaleej Times here, SICO said that the report is part of its aim to provide investors with in-depth information and analysis of leading companies in the Gulf Cooperation Council (GCC), so that they can make better investment decisions.

The report underscored STC's key strength of bundling services as its key competitive advantage. While STC's market share is set to decline to 52 percent, the SICO forecast strong customer growth prospects for the company, which it expects will post a 7.4 per cent compounded growth in earnings over the horizon.

STC's attempts to expand outside Saudi Arabia finally seem to be paying off. The report said that the STC could raise as much as US$14 billion of debt to pursue its international acquisitions toward its objective of generating over 10 per cent of revenues from outside Saudi Arabia by 2010. STC's recent SR11b acquisition of a 25 per cent stake in Malaysia's Maxis provides it with access to over 14 million customers in Malaysia, India and Indonesia. The deal is expected to add about 5 percent to the STC growth.

The SICO report added that at current prices STC trades at a P/E ratio of 11.0x on 2007's forecasted earnings — a steep discount to both regional and emerging market telecom firms, as well as to Saudi equities (despite a significantly higher dividend yield and profitability).