• Mobily 4Q2015 earnings surprise positively on strong margins Mobily reported a better-than-expected set of 4Q2015 results with net profit of SAR11 million versus our estimate of a loss of SAR83 million. This comes in following four consecutive quarters of losses. The company reported a stronger-than-expected EBITDA margin. We believe this increase was due to i) a strong gross profit margin (GPM) on the back of the mobile termination rate (MTR) cuts imposed by the regulator; and ii) cost optimisation initiatives as indicated by the EBIT margin expansion. The recently appointed management team seems to be achieving one of the two key objectives, which is cost optimisation. We will review our forecasts and valuation once the detailed financials are available, but maintain our Neutral rating for now.
• Top-line growth slows Q-o-Q on seasonality Much like Zain KSA, Mobily’s top-line growth has fallen by 5% Q-o-Q on seasonality due to the pilgrimage season falling in 3Q2015. However, the impact of slower revenues softened as gross profit increased due to the MTR cuts instigated by the regulator.
• Ongoing negotiations with lenders on covenant breach During the quarter, the management successfully signed an agreement with the majority of its lenders to waive the breach of covenant totalling SAR12.1 billion. However, it is still in discussions with the other creditors for ECA (export credit agencies) facilities and certain other bilateral facilities, in order to conclude a similar waiver for its relevant facilities. We have communicated previously that in order for the stock to rerate, the company would have to deleverage its balance sheet and a potential tower sale would accelerate the process, freeing up much needed liquidity.

Omar Maher
Karim Riad