Saudi Telecom Company's Q2 profit rises on higher demand for mobile services

Demand driven by 'significant growth' in Saudi Arabia's digital economy

Saudi Telecom Company established a cloud-computing company in the second quarter to boost its portfolio. Reuters

Saudi Telecom Company, the kingdom's biggest mobile operator, said net profit for the second quarter rose marginally amid growing demand for the company's services.

Net profit after zakat and tax for the three-month period ending in June rose nearly 1 per cent to 2.83 billion riyals ($754.6 million), the telecom operator said in a statement on Wednesday to the Tadawul stock exchange, where its shares are traded.

Revenue for the quarter rose 6.5 per cent annually to 16.9bn riyals, it said.

Earnings before interest, taxes, zakat, depreciation and amortisation (Ebitda) during the period rose about 10.3 per cent year on year to 6.2bn riyals.

Higher demand for STC's services was driven by the "significant growth" in the digital economy sector of Saudi Arabia and the wider region, said Olayan Alwetaid, group chief executive of STC.

"STC Group continued to consistently achieve positive results and increase its revenues, supported by the company's investments in various fields," he said.

Saudi Arabia is implementing its Vision 2030 strategy, which aims to steer its economy away from oil dependence. One crucial pillar is technology, with Riyadh encouraging entrepreneurship and seeking investments from local and foreign entities to develop the sector.

The kingdom, the Arab world's biggest economy, is projected to spend about $33bn on ICT development in 2022, the International Data Corporation said in an April report. The sector grew 8 per cent between 2019 and 2021.

STC's net profit for the first half of 2022 increased 1.7 per cent to 5.87bn riyals. The Ebitda for the six-month period increased more than 9 per cent to 12.5bn riyals, the statement said.

Total investments from January to June reached about 5bn riyals through strategic partnerships, acquisitions to facilitate expansion and diversification, and establishing specialised technology companies.

In May, STC and China's Alibaba Group teamed up to establish a cloud computing venture in the kingdom at an investment of 894m riyals, while in April, STC and the Public Investment Fund, Saudi Arabia's sovereign wealth fund, together created an Internet of Things company.

These moves were highlighted by Mr Alwetaid, who said that STC will continue to work on providing the latest technological solutions and reliable digital infrastructure.

The investments will "boost the kingdom's position as a leading digital service centre through innovative projects and global partnerships", which in turn would enable the digital transformation of the public and private sectors, he said.

The steps taken by STC are expected to lead to job creation, an increase in investment opportunities and support the kingdom's economic diversification agenda.

The rise in STC's revenues in the second quarter, meanwhile, was offset by the increase in cost of revenues and operating expenses — 218m riyals and 353m riyals, respectively, leading to an increase in gross profit and operating profit by 822m riyals and 470m riyals, respectively, the company said.

Total other expenses increased by 365m riyals in the three-month period, mainly because of the booking of net share in results and impairment of investments in associates and joint ventures, mainly as a result of recording an impairment provision related to an investment in Malaysia's BGSM.

"This is in conjunction with the global economic factors, including the rise in interest rates and the change in share price for one of BGSM main investments in the Malaysian market, which led to the re-evaluation of this investment based on these factors, despite the growth in BGSM revenues," STC said.

Operating expenses in the quarter rose by 128m riyals as a result of STC's continued investment in new areas, which would have a "consequent increase" in operating expenses resulting from establishing new companies associated with these investments.

In June, STC's board of directors recommended increasing the company’s capital by 150 per cent to 50bn riyals through the offering of bonus shares to support its expansion in the region.

The increase will be done by capitalising 30bn riyals from the company's retained earnings and will support STC's “growth and expansion strategy along with maximising its shareholders’ return”, the company said at the time.

STC was also among the Saudi companies that had its outlook upgraded to "positive" from "stable" by rating agency S&P Global, citing the state support the company receives.