GCC Telecom Insights

Impacts of COVID-19
April 2020

Issued by :
Investor Relations and M&A Department
Finance Sector
Kuwait Telecommunications Company K.S.C.P.
Table of Content
 Overview 3
 GCC Telecom Market Share by Country 4
 Churn in the GCC telecom industry 5
 GCC Telecom Branding Positions 6
 Global & GCC Economy : Impact of COVID-19 7
 Moody’s : Global COVID-19 Impact Heatmap 10
 COVID-19 & the Telecom Industry 11
 Supply Chain 11
 5G and Fiber rollout services 12
 Equity Market 12
 Consumers Demand 12
 Capital Expenditure 13
 Cybersecurity 14
 Digital Transformation 14
 Long Term Financial Impacts 14
 GCC Telecom – Estimated Financial Results 15
 KSA 16
 Kuwait 17
 UAE 18
 Qatar 19
 Oman 20
 PESTEL Analysis 21
 SWOT Analysis 22
 Data Bank – GCC Telecom 23
 Key Financial Indicators 24
o Revenue - 2019 Vs. 2018 24
o EBITDA - 2019 Vs. 2018 24
o Net Profit - 2019 Vs. 2018 24
o CAPEX - 2019 Vs. 2018 25
o Total Debt - 2019 Vs. 2018 25
o Free Cash Flow - 2019 25
 Key Financial Ratios 26
o EBITDA Margin 26
o Return on Equity 26
o Return on Assets 26
o Profit Margin 26
 Valuation Indicators 27
o Market Cap 27
o P/E (x) 27
o P/BV (x) 27
o Dividend Yield 27
 References and Source of Information 28
 About stc Kuwait 29
Overview
The Telecom Industry in the GCC region continues to display signs of growth. Driven by a
strong demand for mobile handsets, a higher demand for data as well as needs for digital
solutions and growth in the enterprise segment. The GCC Telecom industry is also
considered as one of the most advanced in the world in terms of the provided telecom
services to consumers, as some operators were between the first companies in the world
to provide 5G services.

Major Telecom Players and their presence in the GCC

Saudi Arabia

Kuwait

UAE

Bahrain

Oman

Qatar

Defensive in short term, negative in 6M+ from COVID-19

Most of the telecom analysts across the world were unable to assess the size of COVID-19
impact on the financial results of the telecom operators. The telecom sector in the GCC
will be defensive in the short term , while the sector is still heavily exposed to a protracted
isolation. COVID-19 impact should be limited in the 1st half of 2020, but prolonged social
distancing beyond 6 months would sharply reduce earnings in the 2nd half of 2020.

Handset Roaming Data Cloud &digital

sales income Income solutions
- - + +

Opportunities resulted from COVID-19 crisis

Recently, the Coronavirus crisis revealed the weak infrastructure of most companies in
the GCC region, which makes the investment opportunities for the telecom operators
for potential revenue growth in this sector large and, thus, one of the most important
goals of telecommunications companies and technical companies to provide their
services to this wide segment of companies. On the other hand, the focus in most
markets is on reducing costs without impacting the service quality.

Page 3
 GCC Telecom Market Share by Country
Subscriber Market Share Revenue Market Share
As of 31 Dec 2019 For the FY 2019

MVNO Zain
Zain 2% 11%
19%
Mobily
stc 18%
KSA 50%
stc
Mobily
71%
29%

stc
Zain Zain
27% stc
38% 39%
34%
Kuwait
Ooredoo Ooredoo
35% 27%

Du
Du
28%
41%

UAE
Etisalat Etisalat
59% 72%

MVNO
15%
Ooredoo
Omantel 45%

Oman 42%
Omantel
Ooredoo 55%
43%

Vodafone Vodafone
37% 32%

Qatar Ooredoo
63% Ooredoo
68%

Source: Arqaam Capital Research

We excluded Bahrain from the above charts due to no disclosures for stc Bahrain
Revenue market share of KSA and Oman excluding the revenue of the MVNOs

Page 4
Churn in the GCC telecom industry

In the GCC region, which is considered to be one of the most advanced in terms of the
newest technology provided to its customers, the main churn reasons are the price,
data speeds, customer experience, data allowance network coverage and roaming
charges. Meanwhile, price was the main churn driver across the GCC in 2019 within a
range between 22% and 25% mainly in Kuwait, UAE, Qatar and KSA, reflecting pressure
on consumer spending.

Based on analysys mason’s Connected Consumer Survey 2019, having a third of

respondents who consider paying extra for 5G in order to improve the speed of the
related services, explains the reason behind not having a correlation between the uses
of digital channels and customer satisfaction in all the GCC telecom operators except
that for KSA.

The following table shows the churn rate within six months in the GCC region, by
operator, according to the Connected Consumer Survey 2019 done by analysis mason:

Churn rate as per mason’s survey 2019

31%

27% 27%
26% 26% 26%
25% 25%
24%
23%
22% 22%

Ooredoo stc KSA du Etisalat stc Vodafone Ooredoo Mobily Zain KSA Zain Omantel Ooredoo
Kuwait Kuwait Qatar Kuwait Oman Oman

In general, telecom operators must refocus their efforts and find solutions to provide
their customers with an effortless customer experience, boost loyalty and reduce the
churn rate.

Page 5
GCC Telecom Branding Positions
Seven GCC telecommunications companies ranked among the world’s 150 top valuable
telecoms operator brands in 2020 according to Brand Finance:

1
The UAE telecom operator Emirates Telecommunications Group (Etisalat) was
named the most valuable telecoms brand in the region with a total value of USD 8.47
billion in April 2020, from USD 8.30 billion in 2019. Based on 150 Telco Companies in
the world, Etisalat advanced from the 19th position to the 16th, while its ranking
Remain at the same level AAA.

2
Saudi Telecom Company (STC) came in at the second place among GCC telecom
operators, registering a total value of USD 8.02 billion in April 2020, from USD 7.10 in
2019. STC ranked the 18th in a list of 150 Telco Companies in the world, from the 24th
spot last year and kept its AA+ position in 2020.

3
Ooredoo Group was the third most valuable telecoms operator in the region with a
total value of USD 3.56 billion, down from USD 3.78 billion last year. The Doha-based
telecom operator kept its position at the 41th spot in a list of 150 Telco Companies in
the world and maintained its AA+ position.

4 5 6 7

Source: Brand Finance – April 2020

Page 6
Global & GCC Economy : Impact of COVID-19
Similar to the global economy and all the countries
of the major economy players in the world, the
economies of the GCC states will experience a
major negative impact from both the COVID-19 crisis
and the drop in oil prices. With the severe damages
caused by COVID-19 to the global economy, will
witness cumulative loss to global GDP over 2020 and
2021 is expected to be around USD 9 Trillion.

Historically, countries in the GCC region were also

greatly impacted by the sluggish GDP growth, the
falling and volatile oil prices, as well as the overall
regional turbulence, resulting in varying effects on
their budget deficits and economic growth. Due to
the sharp decline in oil prices, GCC countries will
experience a slow growth in the real GDP
accompanied with a significant drop in revenues
from exports, an expansion in the budget deficit & a
shrinkage in the current accounts.

Europe Brent Spot Price FOB since 2010 (Dollars per Barrel) As a result of COVID-19, Oil
160 prices dropped to it lowest
Europe Brent Spot Price FOB (Dollars per Barrel) level which will heavily
140
impacted global GDP over
120 2020 and 2021 from the Covid-
100
29 crisis is expected to be
around USD 9 Trillion.
80
60 Advanced economies are
expected to witness a -6.1%
40
decline in GDP %, whereas
20 emerging market and
0 developing economies are
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 expected decline by -1.0% in
2020
Source of oil prices : KAMCO Research and Thomson Reuters

In addition, while the industrial world has been gradually automated using the artificial
intelligence and machine learning algorithms, many human jobs will be replaced,
leaving high rates of unemployment. These crises combined will result in a huge
change in the GCC in terms of the demographic composition and reliance on foreign
labor. Accordingly, this will add a big pressure on the consumer price index as the
standards of living are drastically downshifted as a vibrant consumer base is weakened
by the exit of expatriates.
Page 7
 Global & GCC Economy: Impact of COVID-19..Cont’d

The IMF lowered world real GDP Real GDP Growth Rates 2019 2020e 2021e

forecast to a decline of -3% for Saudi Arabia 0.30% -2.30% 2.90%

2020, a reversal from a promising UAE 1.30% -3.50% 3.30%
growth projection of 3.3% made Qatar 0.10% -4.30% 5.00%
at the start of 2020. The decline Kuwait 0.70% -1.10% 3.40%
comes primarily on the back of
Oman 0.50% -2.80% 3.00%
the shutdown of economies led
by the Covid-19 outbreak. This Bahrain 1.80% -3.60% 3.00%

compare to a decline of 0.1% in Oil Exporters -0.20% -3.90% 4.60%

world GDP during the 2009 global MENA 0.30% -3.30% 4.20%
financial crisis. China 6.10% 1.20% 9.20%
India 4.20% 1.90% 7.40%
IMF’s projections assume that
Euro Area 1.20% -7.50% 4.70%
the pandemic peaks during Q2-
2020 for most countries in the US 2.30% -5.90% 4.70%
world, and then gradually World 2.90% -3.00% 5.80%
declines during 2H-2020, Brent Crude Average (USD/b) 61.4 34.8 36.4
resulting in a growth of 5.8%
Source: IMF, World Economic Outlook, April 2020.
during 2021.

KSA UAE
GCC Real GDP +5.2% +6.8%

Growth Rates (-2.6%) 2.9%

(-4.8%)
3.3%
1.3%
The economic growth of the 0.3%
GCC economy is expected to
witness a sharp decline in -2.3% -3.5%
2020, in addition the MENA 2019 2020e 2021e 2019 2020e 2021e
region won’t be spared from
the slowdown and is expected Kuwait Qatar
to see a GDP decline of 3.3% in +4.5% +9.3%
2020 followed by a revival to
4.2% growth in 2021. (-1.8%)
3.4% (-4.4%) 5.0%

0.7% 0.1%
Saudi Arabia is expected to
see a decline of 2.3% with non-
-1.1% -4.3%
oil GDP contracting by 4%. The 2019 2020e 2021e 2019 2020e 2021e
decline in oil prices has
significantly dimmed the near-
Oman Bahrain
term prospects of oil-
exporting countries which are +5.8% +6.6%
(-5.4%)
collectively expected to see a (-3.3%) 3.0% 3.0%
1.8%
decline of 3.9% in 2020. Bahrain 0.5%
and UAE will be the most
impacted countries in 2020
from the GCC with expected -2.8% -3.6%
healthy recovery for all GCC 2019 2020e 2021e 2019 2020e 2021e

countries in 2021. Source: IMF World Economic Outlook, April 2020.

Page 8
Global & GCC Economy : Impact of COVID-19 .. Cont’d

IMF said that a number of countries face crises on different front that includes a health
crisis, a financial crisis, and a collapse in commodity prices. As a result, there is
considerable uncertainty about what the economic landscape will look like when the
world emerges from this lockdown.

According to the IMF, countries that depend on sectors like tourism, travel, hospitality,
and entertainment are experiencing particularly large disruptions.

Meanwhile, emerging market and developing economies face additional challenges with
unprecedented withdrawal of capital flows as global risk appetite wanes, further
exacerbated by currency pressures, weaker health systems and more limited fiscal space
to provide support. Moreover, several economies entered this crisis in a vulnerable state
with sluggish growth and high debt levels.

Consumer Price of the MENA Region

Consumer Price Index ( 2017 – 2021e)

After the 2% decline in
consumer prices in 2019, the 11

MENA region CPI is expected 9 9.1

8.2
to fall by 0.8% further in 2020
6.7
due to the health crisis. On
the other hand and with the
appropriate fiscal/monetary
policies taking place,
consumer prices are
expected to increase by 0.9%
2017 2018 2019 2020e 2021e
in 2021.
Source: IMF, World Economic Outlook, April 2020.

GCC Government Net Lending/Borrowing

The current crisis has not
Growth of Net Lending/Borrowing( 2019 vs. 2020e) only shifted the consumer
2019 2020e spending but also
dramatically tightened the
global financial market
5.2
4.9

conditions. GCC government

4.1

net lending/borrowing
activities are expected to
-0.8

decline by an average of 8.1%

-4.5

of that in 2019 with Qatar is

-7.0

the least affected among the

-10.6
-11.1

-11.3

GCC countries. After

-12.6

recovery, the
-15.7

-16.9

KSA UAE KUWAIT QATAR BAHRAIN OMAN lending/borrowing late will

face difficulty getting to its
Source: IMF, World Economic Outlook, April 2020.
normal rates before the crisis.

Page 9
Moody’s : Global COVID-19 Impact Heatmap

Passenger airlines, shipping, Grocery stores,

lodging, restaurants, gaming, packaging, and
and retail will be hardest hit by telecommunications
coronavirus-related market will survive relatively
chaos in the short term, unscathed, Moody's
according to a new Moody's found.
report.

Automotive Manufacturers Lodging/Leisure & Tourism

Automotive Suppliers Passenger Airlines

Consumer Durables Retail (Non Food)

Gaming Global Shopping

Apparel

Beverages Constructions
Materials
Chemicals High
Defense
Exposure
Manufacturing
Equipment &
Media Transportation

Metals and
Mining Rental
Moderate Low
Oil & Gas / Oilfield Exposure Exposure
Services Defense Packaging

Property Developers
(China) Potential Pharmaceuticals
Positive
Protein & Impact Real Estate REITS
Agriculture
Food / Food Retail
Services
Gold Mining
Companies Telecoms

Steel Products Waste Management

Retails Online
Technology
Hardware
Internet Services Companies

Source: Moody’s

Page 10
COVID-19 & the Telecom Industry

Being a supply shock, a demand

shock and a market shock to the
world economy, Coronavirus’s
effects on the telecom industry in
the GCC region can be illustrated
in the following areas:

1. Supply Chain
With the uncertainty of the time it will take for the Coronavirus to diminish and following
a recent study on the COVID-19 effect, statista found that forecasts of the global
smartphone unit shipments for the year 2020 witnessed a decrease of 4.5% compared to
last year’s forecasts, showing how the outbreak has upended China’s technology supply
chains. Putting the supply chain under pressure due to the lengthy factory shutdown
and/or the significant under-utilization would, in turn, lower the global output of tech
components, subassemblies, or finished goods. On the other hand, statista showed an
optimistic view for the year 2021 shipments with a decrease of only 0.9% compared to
previous forecasts.

The following table shows how the global supply chains have been severely impacted along all
dimensions of the value chain:
Suppliers Manufacturing Logistics Sales Labor

- Challenges in - Total/partial - Travel -Consumers -Labor shortages

distributing shutdown of restrictions by all shifting demand and temporary
supplies due to factories and means from/to away from stores unemployment
the lockdown and production plants specific countries to online and leading to
trade restrictions prioritizing their financial stress
- Market closures
- Availability of purchases based
- Consumers raw materials - Carriers suffering on their needs - Some employees
concerned with shortage of drivers prefer to
traceability and - Scarcity of due to being - Closures of stay/work from
source country of manpower infected or scared retail stores home or in
products resources due to of being infected quarantine and
being infected or those in service
scared of being - Restricted hours
industries unable
infected of driving affecting
to do so
far places

It is worth mentioning that the global smartphone unit shipments has decreased by 37.7%
in Feb 2020 compared to the same period in 2019. The decrease in global shipments also
include the handset and headset shipments, which witnessed negative YoY growth for
both Q1 & Q2 of 10.5% and 24.1% respectively.

Page 11
COVID-19 & the Telecom Industry.. Cont’d

2. 5G and Fiber rollout services

Network rollouts, especially 5G and fiber rollouts are likely to face delays due to the
supply chain disruptions and trade barriers. Moreover, revenue streams from 5G services
will highly be affected due to the unavailability of 5G smartphones and devices to include
not only Chinese brands such as Huawei, but also other electronic key consumer brands
including Apple, where more than 90% of Apple’s products are made in China and the
Chinese marketplace accounts for 18% of its revenues. Therefore and as 5G is predicted
to be the significant driver of IoT and big data services, telecom operators’ forecasted
revenue streams from such services will highly be negatively influenced.

3. Equity Market
Following the lockdown and the massive reduction in the trading price of the crude oil in
the GCC region, equity markets have crashed with significant losses and market volatility
has spiked to high levels affecting all industries. However, compared to other sectors,
the telecom industry is relatively resilient under the current outbreak of COVID-19, where
the demand of customers during their lockdown period is driven by the prevalence of
smartphone and broadband connectivity that enables them to access the telecom
services easily from everywhere. However, managing investor sentiments and financial
resilience such as CAPEX guidance and working capital is critical.

4. Consumers Demand
A worldwide recession is on its way. The sharp fall in oil prices is adversely affecting the
economic conditions of the GCC countries. The economic downturn translated in
consumers staying home, businesses losing revenues and laying off workers, and
unemployment levels rise sharply, will negatively affect consumer and business
spending. The UAE economy is by far the most affected economy in the GCC due to a
number of factors including, but not limited to, the delay of the Expo 2020 as well as
travel restrictions affecting the travel and tourism industry. In KSA, consumer’s demand
is also witnessing a massive decline as 24% of the employees are forced to take unpaid
leaves, 24% have lost their jobs, 26% of companies lost their businesses and 37% of
businesses have closed leaving the financial instability as high as 37%. Not to mention
the $3 to $9 million loss in revenues related to Haj and Umrah which will highly impact
KSA’s forecasted revenues. In addition, the extremely low interest rates derived by
central bank interventions starting 2020 have affected the consumer price index
worldwide, contributing to the decline in GCC consumer’s demand.

Page 12
COVID-19 & the Telecom Industry.. Cont’d
On the other hand, while downward trends in the profitability of retail stores in most of
the telecom operators are likely to appear due to the partial/full closure of retail stores,
other revenue streams would occur due to the societal shift to online channels as social
distancing have increased, creating new forms of communications.
The Consumer Confidence index hit a 2-year low, indicating consumers are more
pessimistic towards the economic outlook, more prone to save money and more likely to
prioritize their needs; however, evidence shows that movement’s restrictions naturally
accelerating society's transition towards high-speed broadband and digitization.

As a result, COVID-19 will have a double effect on consumers demand as follows:

Positive Negative
 As some GCC countries are enabling
business owners and borrowers to postpone  Deterioration of demand on the fixed
the payment of value-added tax, excise tax, segment and device sales.
income tax and interest on loans, consumers  Due to delays in supply chain which affects
will be more able to spend on communication the 5G rollout, the demand side of 5G
services. services will be negatively impacted in 2020 .
 There is a surging demand for bandwidth,  Downward impact on demand of products in
storage, transmission and security the retail stores and/or products delivered to
capabilities as the need for cloud computing customers’ doors due to hygiene and safety
services is experiencing an upward movement issues.
due to the educational and corporate shifts  The increased pressure from social media on
towards conducting online classes at home in scarce resources and ESG investing will
addition to accessing the educational increase the demand for sustainable
resources. products and the concern about the country
 Increased demand on digital entertainment, of manufacturing.
play online games, and share videos on the  Worldwide travel restrictions will decrease
cloud. the demand on the roaming bundles and
 Increased demand on digital services with related services.
high speed broadband in order to access  The quarantine period will adversely affect
corporate data, attend online training and the sales of the handsets and other phone
engage with customers and colleagues accessories.
through the enterprise cloud.  Collection of consumer payments.
 The demand for 5G services is more likely to  Shrinkage of the postpaid segment, mobile
increase as telecommuters can collaborate in data and enterprise segment if social
real time, share and transfer larger files, and distancing continues till Q2-2020.
have seamless video conferencing,
telepresence, virtual meetings and training
experience to business.

5. Capital Expenditure
While this initiative tends to promote the telecom services nationwide, it will have an
adverse impact on the capital expenditures related to those services where companies
will have to absorb the associated costs without generating enough revenues. operators
need to find ways to re-allocate capex to more financially viable projects, as some
spending will be delayed or will have to be cancelled. CAPEX budgets need to be
immediately scrutinized and incorporated into the rolling cash flow forecast.

Page 13
COVID-19 & the Telecom Industry.. Cont’d

6. Cybersecurity
Since telecom operators are pivoting towards a more digital future, they started
encountering new types of cybersecurity risks to data, applications, and networks.
Offering 5G, cloud computing and IoT services while working remotely, will challenge
telecom operators to deal with privacy and infrastructure security concerns especially
when providing these services to the government, health care and educational systems
as well as large enterprises. Telecom operators who haven’t yet invested in cyber
insurance, must take it into consideration while those with a solid cybersecurity base
must rethink of investing in the zero trust security model to embrace a more remote
stance on handling security incident response scenarios, leveraging security platforms
that enable and simplify handling remote scenario.

7. Digital Transformation
With the societal shift towards online sales, digital entertainment, IoT and cloud
computing services, telecom operators can leverage the digital transformation on
promoting their 5G services and encourage people to use their digital channels. On the
other hand, while digital transformation and digital solutions became a necessity in the
current crisis, it is more likely for these services to continue growing post the COVID-19
crisis for the benefits generated from such services including, but not limited to,
easiness, time reduction, cost reductions, security, and the ability to gain more control.
However, the cost of such services, ease of use, management capabilities, ease of
deployment, security, compliance, and the solution's compatibility with other platforms
and technologies remain the essence of competition between the service providers.

8. Long Term Financial Impacts

As infections of COVID-19 is expected to increase up until the end of the Q2-2020 and
while expectations of a looming global recession is expected to start by Q3-2020,
telecom operators are more likely to face cash flow issues in the long term due to a
number of factors:

 Bearing the costs of the free services as well as the dip in marginal revenues of
mobile data and mobile voice.
 The negative impact on telecoms associated with the deterioration of sports related
media and advertising-driven revenues due to sports league cancellations.
 Investing in the current networks rather than new services and products in order to
increase the speed and reliability of the current services.
 Liquidity is essential for opportunities driven by technology- led M&A’s to provide
optimal services and differentiate telecoms’ assets.

Page 14
 GCC Telecom – Estimated Financial Results

Arqaam Capital run 4 duration based scenarios to

assess the impact on the P&L for each operator in GCC Telecom Sector
the GCC, assuming an extended COVID-19 full
expected to be
lockdown: based on revenue split estimates for
defensive on Short
each player and run 4 scenarios: 1-month (current), 1
term, but is still heavily
quarter (most likely/base case), half year and 1 full
year of lockdown, taking 2019 as the base year.
exposed to a protracted
Starting from top line, factor in losses in each
isolation
segment, then assessing potential cost savings and
interest expenses.

Scenario Analysis based on the period of COVID-19 full lockdown

Revenue Growth compared to the actual 2019

1 Month Quarter Half Year Full Year

stc KSA
-50%
Omantel Mobily
-40%-31.1%
-30.9%
-28.3%
-30%
Ooredoo oman Zain KSA
-28.7% -20% -32.1%

-10%

Vodafone -22.7% 0% -38.0% stc Kuwait

-34.9% -31.3%
Ooredoo Group Zain Group

-33.1%
-29.9%
Oordeoo
DU -48.1%
Kuwait
Etisalat

Source of estimates :
Arqaam Capital - MEA Telecoms: COVID-19 impact (April 2020)
Page 15
 GCC Telecom – Estimated Financial Results .. Cont’d

KSA
In KSA, the impact from the outbreak of COVID-19 differs from one
operator to another as revenue breakdown varies.

Scenario Analysis based on the period of COVID-19 full lockdown

STC KSA

Revenue (SAR Mn) Net Profit (SAR Mn)

-31.1% -55.5%
-13.1% -21.5%
-4.4% -8.7%
-0.5% -4.0%

54,368 54,079 51,961 10,665 10,239 9,738

47,265 8,370
37,443
4,742

2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Mobily

Revenue (SAR Mn) Net Profit (SAR Mn)

-28.3% -NM%
-12.0% -844%
-3.8% -77.3%
-0.5% -26.3%

13,450 13,380 12,935 31 23 7

11,840
9,643
-232

-831
2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Zain KSA

Revenue (SAR Mn) Net Profit (SAR Mn)

-32.1% -163%
-11.6% -45.9%
-3.2% 5.0%
-0.3% 8.6%

8,386 8,358 8,119 485 527 510

7,410
5,694 263

-308
2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Source of estimates :
Arqaam Capital - MEA Telecoms: COVID-19 impact (April 2020)
Page 16
 GCC Telecom – Estimated Financial Results .. Cont’d

Kuwait
In Kuwait, lower device sales and roaming to hit revenues, but
margins should remain resilient ex-provisioning. Prepaid is
heavily exposed.

STC Kuwait

Revenue (KD Mn) Net Profit (KD Mn)

-38.0% -55.9%
-14.8% -19.6%
-5.1% -7.1%
-0.8% -3.8%

294 291 279 44 42 41

250 35
182
19

2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Zain Group

Revenue (KD Mn) Net Profit (KD Mn)

-31.3% -49.8%
-11.8% -18.7%
-3.6% -6.8%
-0.4% -4.1%

1,661 1,654 1,600 217 208 202

1,466 176
1,140
109

2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Ooredoo Kuwait

Revenue (KD Mn) Net Profit (KD Mn)

-48.1% -275%
-16.1% -109%
-3.7% -25.8%
-0.5% -6.1%

633 630 610 30 28 22

532
329
-3

-53
2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Source of estimates :
Arqaam Capital - MEA Telecoms: COVID-19 impact (April 2020)
Page 17
 GCC Telecom – Estimated Financial Results .. Cont’d

UAE

UAE, vulnerable on prolonged exposure. Wholesale first to

decline, while an extended lockdown would lead to material
revenue loss.

Etisalat

Revenue (AED Mn) Net Profit (AED Mn)

-29.9% -42.0%
-11.9% -7.6%
-4.2% 4.9%
-0.6% 9.1%

52,186 51,853 49,994 8,693 9,482 9,120

45,961 8,032
36,576
5,042

2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

DU

Revenue (AED Mn) Net Profit (AED Mn)

-33.1% -76.5%
-15.2% -31.6%
-5.7% -11.1%
-0.9% -2.4%

12,588 12,478 11,864 1,731 1,690

10,679 1,539
8,416 1,185

406

2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Source of estimates :
Arqaam Capital - MEA Telecoms: COVID-19 impact (April 2020)
Page 18
 GCC Telecom – Estimated Financial Results .. Cont’d

Qatar

In Qatar, short term impact is limited, but prolonged COVID-19

isolation would eventually hit mobile subscriber base in an 85%
expat based population.

Ooredoo Group

Revenue (QAR Mn) Net Profit (QAR Mn)

-34.9% -171%
-12.1% -59.4%
-3.4% -16.9%
-0.4% -3.5%

29,916 29,792 28,886 1,725 1,665 1,434

26,293
19,482 701

-1,225
2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Vodafone Qatar

Revenue (QAR Mn) Net Profit (QAR Mn)

-22.7% -67.0%
-9.4% -29.1%
-3.1% -11.2%
-0.4% -5.6%

2,125 2,117 2,059 1,925 144 136 128

1,643 102

47

2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Source of estimates :
Arqaam Capital - MEA Telecoms: COVID-19 impact (April 2020)
Page 19
 GCC Telecom – Estimated Financial Results .. Cont’d

Oman

In Oman, pressure from prepaid, devices and wholesale. Revenue

loss is inevitable in a challenging macro environment, already
slowing prepaid market, while COVID-19 impact will be felt.

Ooredoo Oman

Revenue (OMR Mn) Net Profit (OMR Mn)

-28.7% -66.7%
-10.4% -20.6%
-3.0% -5.6%
-0.3% -4.7%

286 285 277 34 33 32

256
203 27

11

2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Omantel

Revenue (OMR Mn) Net Profit (OMR Mn)

-30.9% -72.4%
-11.9% -22.7%
-3.8% -8.1%
-0.4% -2.7%

2,592 2,581 2,494 78 76 71

2,284
1,790 60

21

2019 1 Month Quarter Half Year Full Year 2019 1 Month Quarter Half Year Full Year

Source of estimates :
Arqaam Capital - MEA Telecoms: COVID-19 impact (April 2020)
Page 20
PESTEL Analysis

Political

P  Worldwide political instability, global geopolitical shifts in superpower rivalries and

revolutions of non-conventional energy sector are putting the GCC economies under
fiscal stress. This will, in turn, affect the purchase and supply power of telecom operators
due to the high impact on exchange rates, currency values and consumer spending.*

Economical
 The Implementation of a contractionary fiscal policy by the governments, through

E
imposing income taxes and/or raising corporate taxes after the COVID-19 crisis affecting
both the sales and expenses of telecom operators.
 Forcing trade restrictions/foreign trade regulations that affect the telecom operations.
 Foreign traders are exiting the GCC stock markets after the sharp decline in oil prices.
 The unpredictable period of COVID-19 will create uncertainty in consumer spending &
savings rates.

Social
 The continuous changes in the cultural trends and patterns affecting both the services

S
and the means to provide those services to customers (individuals and enterprises).
 The COVID-19 crisis has highly affected the type of services that customers need in
order to continue their daily operations from home.
 The population growth is a key determinant of the telecom industry supply and demand;
as Coronavirus’s most deaths are among people over 50 years old meaning that demand
on digitization will increase more and faster than expected 5 months ago.

Technological

T
 The digital revolution represents an aggressive challenge to the primacy of business
models and infrastructure that the telecom sector has spent decades building.
 COVID-19 has created an unwavering resilience in the need for online services,
information, communication, and connectivity.
 An increasing growth in the adoption of IoT services across consumers (individuals &
enterprises).

Environmental

E  Environmental, Social and Governance issues became at the top of investor’s priority. ESG
is now one of the investing toolkits and it is a great contributor to improving and
maintaining the value-add.

Legal

L
 Any changes to the labor & employment legislations as a result of the current crisis such
as overtime policies, paid wages, rest period requirements and scheduling rules will have
a serious impact on company’s costs and its bottom line.
 Imposing travel restrictions and quarantine rules during the current crisis is highly
affecting the retail shops and operating branches of the telecom operators.
 The possibility of imposing more regulations pertaining the 5G or wireless services in
order to minimize data and personal security issues during the current crisis.

*Political : Ramady, M.A., (2014). Political, Economic and Financial Country Risk, Analysis of Gulf Cooperation Council.

Page 21
SWOT Analysis
STRENGHTS WEAKNESSES

 Exploit the offers of free 5G services and  Lack of expertise for some players in IoT
digital channels as promotional campaigns. solutions.
 Partnerships with IT solution and internet  Necessity to focus on providing exceptional
service providers to provide better services. services than launching new products.
 Lower cost of financing due to the demand  Revenue dips of fixed data and mobile voice.
on investing in sustainable products.  Supply chain disruptions and trade barriers
 Stronger brands would connect emotively to delay 5G and IoT services.
with consumers and by using the right  Online sales affected by hygiene concerns
messaging and tonality. from the local economy.
 Least affected industry with the increased  Intense competition between private cloud
demand on digitization, entertainment and vendors.
communication services and products.  The huge spike on customer care services
 More revenue streams from digital services. will add pressure on the network and affect
 Regulations on the ability to extend the the service levels at call centers.
fees, taxes and duties payments.

S W
OPPORTUNITIES
O T THREATS

 Collaborate with the government, the  Cyber-attacks due to remote working, thus,
health care and technology providers by more operating cost for cybersecurity.
leveraging the use of 5G services to create  Foreigners exit their GCC investments due
medical platforms for urgent cases and to the sharp fall of crude oil and
help controlling people's movements fluctuations in gold prices.
during the quarantine period.
 Erosion of selling prices while design costs
 Leverage the use of IoT system in rise.
automating the operations and inventory
 Decline the consumers purchasing power
management of the health care system.
affecting their demand on “leisure” more
 Invest and enhance the cloud computing than “needed” services.
and data center storage services.
 The increase of the IP or data traffic,
 Merge/acquire big tech companies and questioning the capacity of such services.
leverage on their capabilities to provide
 Government regulations on temporarily
optimal services.
absorbing the costs of unpaid services to
 Create partnerships with OTT players to aid in the quarantine process.
strengthen operators’ multiscreen and pay-
TV propositions.

Page 22
Data Bank – GCC Telecom
Key Financial Indicators

Revenue - 2019 Vs. 2018 (USD Million)

2018 2019
14,494 14,208

8,175
6,733
5,466
3,586 3,427
2,236 2,085
1,065 967 742 581 112

EBITDA - 2019 Vs. 2018 (USD Million)

2018 2019
5,509
5,270

3,267
2,851
2,395

1,302
1,019 995
707
376 307 271 189
10

Net Profit - 2019 Vs. 2018 (USD Million)

2018 2019
2,843

2,367

714
471 471
202 143 137 129 99 89 39 8

-14

Source: Bloomberg and KAMCO Invest Research

Page 24
Key Financial Indicators

CAPEX - 2019 Vs. 2018 (USD Million)

2018 2019
2,513

2,122

1,546

1,165
931

525 475
323 314
211 193 143 111
1

Total Debt - 2019 Vs. 2018 (USD Million)

2018 2019
10,221

7,242 7,361

5,235
3,970
3,250 3,274

701 748 768

10 66 113 326

Free Cash Flow - 2019 (USD Million)

3,225 2019

1,787

933 865
579
411 312
153 142 117 116 94 20 8

Source: Bloomberg and KAMCO Invest Research

Page 25
Key Financial Ratios

EBITDA Margin (%) –2019 vs. 2018

2018 2019
46
44 42
40 39 39 40 41 40 39
37 37 38 37 37 36
35 35 34 33
30 29
27 28
25 26

15

Return on Equity–2019 (%) Return on Assets–2019 (%)

25.0 14.0 12.5
21.4
20.2
19.0 12.0
20.0 10.4
16.8 16.8 9.4
10.0
14.0 8.0
15.0 13.1
12.0 8.0 6.9
11.0
5.4
6.0 4.9 4.7
10.0 7.6 7.4
5.3 4.0
2.5 2.1
5.0 3.2 2.0 1.8
2.0 1.0
0.2 0.1
0.0 0.0
DU

ORD QA
OTEL

ORD OM

ZAIN BH

DU

ORD QA
ETISALAT

ORD KWT
STC KSA

VODA QA

MOBILY

OTEL
STC KWT

ZAIN KWT

ORD OM

ZAIN BH
ZAIN KSA

BATELCO

ETISALAT

ORD KWT

MOBILY
VODA QA
STC KWT

STC KSA

BATELCO

ZAIN KWT

ZAIN KSA

Profit Margin (%) – 2019 vs. 2018

2018 2019
21 20
16 17 18
15 15 15
13 14 13 12 13 12

6 7 4
6 5 6 4 5
3 3
0

-1

-8
-13

Source: Bloomberg and KAMCO Invest Research

Page 26
Valuation Indicators

Market Cap – As of 13 April 2020 (USD Million)

48,398

35,564

7,119 6,557 5,506 5,129

1,717 1,591 1,247 1,239 1,090 964 734 100

P/E (x)- As of 13 April 2020 P/BV (x)- As of 13 April 2020

30.0 28.3 3.5
3.0 3.0
2.9
25.0 3.0

2.5
20.0 17.3
15.4 15.4 2.0 1.8
13.3 1.6 1.6
15.0 1.4
11.6 11.8 1.3
1.5
9.4 10.0 1.1
8.6 8.8
10.0 0.9 0.9 0.9
6.3 6.9 1.0
0.5 0.5
5.0 0.5

0.0 0.0
ORD QA

DU
OTEL

ORD OM
ZAIN BH

ORD KWT

ORD QA

DU
ETISALAT

STC KSA

VODA QA

OTEL
STC KWT

ZAIN KWT

ORD OM
BATELCO

ZAIN BH
ZAIN KSA

ORD KWT

MOBILY

ETISALAT
VODA QA

STC KSA
STC KWT
BATELCO

ZAIN KWT
ZAIN KSA

Dividend Yield (%) – As of 13 April 2020

9.6
9.0
8.5 8.3

6.9
6.5
5.9 5.8
5.2 5.2
4.3
4.0

0.0 0.0

BATELCO ORD OM OTEL ORD ZAIN STC KWT DU ZAIN BH VODA QAETISALAT STC KSA ORD QA MOBILY ZAIN KSA
KWT KWT

Source: Bloomberg and KAMCO Invest Research

Page 27
References and Source of Information
 Accenture: Rapid Response, “A pragmatic approach to maintaining supply chain resilience in
times of uncertainty”. Navigating the human and business impact of COVID-19, March 2020.

 Analysys Mason: Connected Consumer Survey 2019: Understanding the Connected Consumer
in the Middle East, Webinar.

 Applied Value Group: Financial Performance & Trends in the Telecom Industry, Q3-2016.

 Arqaam Capital Research: Mena Core Portfolio Update, March 2020 and GCC Market Share
date, MEA Telecoms: COVID-19 impact (April 2020).
 Bloomberg: Fundamental Data and Valuation Multiples

 Deloitte Touche Tohmatsu Limited (“DTTL”): Coronavirus impact monitor – 19 March 2020,
Deloitte Economics, 2nd edition.

 Deloitte Touche Tohmatsu Limited (“DTTL”): Understanding the sector impact of COVID-
19/Telecommunications, April 2020.

 Ernst & Young, China: TMT in the fight against COVID-19: Telecommunication sector outlook,
2020.

 Ernst & Young, China: The Resilient Enterprise: Key questions across the telecoms, April 2020.
 Euromonitor International: Top 10 Global Consumer Trends 2020.

 FitchSolutions: Quarterly MENA Economic Outlook. Assessing Impacts Of Covid-19 & The Oil
Price War, April 2020.
 Global Data: Thematic Research: Technology. Tech, Media & Telecom Trends 2020, March
2020.

 IMF World Economic Outlook; Table B1. The Great Lockdown; Advanced Economies:
Unemployment and Real GDP per Capita; April 2020.

 IMF World Economic Outlook; Table A1. Summary of World Output 1; April 2020.
 KAMCO Invest Company: Fundamental Data

 KANTAR: Impact of Corona Virus, Saudi Arabia, A report on Consumer Sentiments and
Behavior

 KPMG United States: COVID-19 Economic Impacts, Beware the Ides of March. A Day Romans
Settled Debts, KPMG Economics, March 2020.

 Moody’s Investor service : Global COVID-19 Impact Heatmap

 Pwc, United States: COVID-19 and the telecommunications industry.

https://www.pwc.com/us/en/library/covid-19/coronavirus-telecommunication-impact.html
 Pwc, United States: Responding to COVID-19: Considerations for corporate boards, March
2020.
 Ramady, M.A., (2014). Political, Economic and Financial Country Risk, Analysis of Gulf
Cooperation Council.
 Statista: Coronavirus: Impact on the tech industry, February 2020.
 Strategy&: COVID-19 crisis and the GCC banking sector, Client briefing, March 2020.

 Brand Finance - Telecoms 150 - The Annual Report, April 2020.

Page 28
About stc Kuwait
Kuwait Telecommunications Company (stc) is a Kuwaiti shareholding company
incorporated pursuant to Amiri Decree No. 187 on 22 July, 2008, to operate and manage
the third GSM mobile network in Kuwait as per Law No. 2 of 2007. Accordingly, stc
launched its operations in December 2008 and was listed on Boursa Kuwait in December
2014.

It is a world-class digital leader providing innovative services and platforms to customers

and enabling the digital transformation in Kuwait, and is a subsidiary of stc Group. stc
has rapidly reached a leader stance in the market through its customer and employee
centric strategy. In 2019, stc has acquired 100% of the share capital of Qualitynet General
Trading and Contracting Company- the leading Internet Service Provider in Kuwait- with
the aim to capitalize on the new opportunities in the Kuwait Telecom Market.

stc has always aimed to support the vision of His Highness Sheikh Sabah Al-Ahmad Al-
Jaber Al-Sabah for Kuwait 2035, in positioning Kuwait as a major financial and
commercial hub in the region. Throughout a decade of excellence in service,
transparency and proactivity, and as the fastest-growing and most advanced telecom
operator with the largest 5G network in Kuwait, stc’s customer base stood at 2.0 million.

Investor Relations and M&A Department stc Kuwait

Kuwait Telecommunication Company (stc)

: [email protected]
: +965 5000 1911 stc_Kuwait

: www.stc.com.kw @stc_Kuwait