Mobile Telecommunications Company K.S.C.P is positioned for significant revenue and EBITDA growth starting in 2025, driven by its subsidiary ZainTECH’s expansion, Zain Group’s fintech initiatives, and investments in 5G infrastructure. However, high debt levels and economic challenges in certain markets present risks to profitability and flexibility.
Catalysts for Growth
ZainTECH, part of Zain Group, is set for substantial growth through continued acquisitions and high-value deals, expected to positively impact revenue and potentially EBITDA by the end of 2025. Zain’s fintech services, including Zain Cash and microfinance initiatives, are also projected to contribute significantly to revenue growth from 2025 onwards.
Zain Group’s 5G investments across key regions are poised to enhance its market position, accelerate customer acquisition, and drive revenue growth, particularly in the government and corporate sectors. Additionally, the digital transformation initiatives in Zain Kuwait and digital operators like Yaqoot in Saudi Arabia and oodi in Iraq are expected to increase average revenue per user (ARPU), further boosting revenue and EBITDA.
Swifter cost management and operational optimization strategies, especially in markets like Iraq and Sudan, will help counter the effects of currency devaluation, improving net margins and providing stability to earnings.
Financial Projections and Assumptions
Analysts expect Mobile Telecommunications Company K.S.C.P’s revenue to grow at an annual rate of 4.7% over the next three years. Profit margins are anticipated to rise from 8.7% today to 11.8% in three years. Earnings are projected to reach KWD 263.2 million by December 2027, up from KWD 168.3 million currently, with earnings per share estimated at KWD 0.06.
In order for these expectations to justify the analysts’ price target, the company would need to trade at a price-to-earnings (PE) ratio of 16.4x by 2027, up from 11.9x today. Analysts also forecast a 1.85% increase in the number of shares outstanding annually over the next three years. To account for this, analysts are using a discount rate of 18.71%.
Risks to the Outlook
Several risks could undermine this positive outlook. The economic crisis and currency devaluation in Sudan have had a significant impact on financial performance in the region, posing a risk to revenue and net income growth. Additionally, a decline in service revenue in Kuwait, coupled with an increase in device revenue, may signal a shift to lower-margin offerings, potentially impacting overall profitability.
The expected implementation of corporate tax in Kuwait could hinder future profitability, potentially limiting the company’s ability to maintain its current dividend policy. Furthermore, high debt levels, with a net debt-to-EBITDA ratio of 2.2x, may constrain financial flexibility and pressurize earnings if interest rates rise or access to capital becomes more expensive.
The entrance of a fourth operator in Iraq adds competitive pressure, potentially affecting market share and revenue growth in this key market.
Valuation and Price Target
Analysts have a consensus price target of KWD 0.56 for Mobile Telecommunications Company K.S.C.P, reflecting expectations for future earnings growth and profitability. However, there is some divergence among analysts, with the most bullish target set at KWD 0.7 and the most bearish at KWD 0.49.
For the analysts’ consensus price target to be justified, revenue by 2027 would need to reach KWD 2.2 billion, earnings would need to total KWD 263.2 million, and the company would be trading at a PE ratio of 16.4x, assuming a discount rate of 18.7%. The current share price of KWD 0.46 suggests that the price target of KWD 0.56 offers a potential upside of 17.8%.
Investors are encouraged to conduct their own analysis based on these assumptions and expectations, evaluating whether these projections align with their understanding of the company’s future performance.
