Saudi Arabia Telecom sector update – stc upgraded to Buy; Mobily Accumulate

Issue Date: 12 September 2023

We update the investment case on the Telecom Sector comprised of the companies: Saudi Telecom Company (STC AB) and Etihad Etisalat (EEC AB). Our overall stance on the sector is Accumulate, given the positive outlook in the Middle East region amid the increasing demand for mobile data and fixed broadband services, as more people in the region adopt smartphones and other connected devices, the ongoing rollout of 5G networks and the growing popularity of OTT services such as video streaming and music streaming.

Investment Thesis

  • Saudi Arabia’s growth surge: A standout performer in GDP and inflation.
  • Deployment of 5G and other technologies drive telecommunication sector to grow globally
  • Heavy investments from Saudi Arabian government as a part of their vision 2030 set to boost the growth for telecom sector in the kingdom

Saudi Arabia: A beacon of stability in uncertain global economy:  Despite global economic headwinds in 2022, Saudi Arabia outperformed with an impressive GDP growth rate of 8.7%, driven by surging oil prices and strong non-oil sectors. The country also defied global inflation trends with a rate of 2.47%, significantly lower than the global average. The Saudi Arabian economy has grown steadily in the first half of 2023, but the IMF has downgraded its growth forecast for the year to 1.9% due to implemented production cuts. The oil sector is still the main driver of the economy; however, the non-oil growth has been strong in recent years.

Global Telecommunications Sector: evolving with proliferation of mobile devices and deployment of 5G and the IoT. The market is expected to grow at a CAGR of 6.2% from 2023 to2030, driven by the increasing demand for high-speed data connectivity, the proliferation of mobile devices, and the deployment of new technologies such as 5G and the IoT.  The growth of the market will be driven by the continued demand for high-speed data connectivity, the proliferation of mobile devices, and the deployment of new technologies such as 5G and the IoT.

Saudi Telecom sector to grow in coming years: Saudi Telecom giants are expected to grow in the coming years amid the Vision 2030 where the government plans to invest heavily in telecommunications sector. As part of this plan, the government is building a new national fiber optic network and is expanding the availability of 5G services. Saudi telecom sector is relatively under-penetrated in terms of mobile connections when compared to GCC peers – we believe this will provide strong growth in the near to medium term.  The future for the sector remains positive.

STC upgraded to Buy; Mobily to Accumulate:  STC, has the largest market share in the region. With growing penetration in Saudi mobile connections and the group’s investments in expanding its infrastructure, STC is poised for growth. We assign STC a Buy rating with TP SAR48.4. Mobily has solid market presence in KSA with market share behind STC. We expect Mobily to benefit from forecast expansion in Saudi Telecom market. We assign Mobily ‘Accumulate rating with TP SAR49