Revenue – SAR13,498mn, +5% Y-o-Y, -1% Q-o-Q, -1% vs. EFGe EBITDA margin – 32.2%, -6.3pp Y-o-Y, -2.0pp Q-o-Q, -3.8pp vs. EFGe Net income – SAR2,148mn, -7% Y-o-Y, +15% Q-o-Q, -14% vs. EFGe   STC released a disappointing set of numbers for 3Q16, as earnings fell 7% Y-o-Y to SAR2,148mn, missing our estimate by 14%. The miss was driven by a weaker-than-expected EBITDA margin of 32% vs. our estimate of 36%, as total operating expenses were 5% ahead of our estimate. It is unclear what drove the increase in costs; STC did not provide any colour regarding the quarterly trends that affected its operating performance. We suspect the margin weakness was the result of an increase in costs related to the biometric verification process, in addition to further pressure from the latest mobile termination rate cut, given STC’s position as a net interconnect receiver. Revenue totalled SAR13,498mn, up 5% Y-o-Y and almost unchanged Q-o-Q (-1%). STC said the annual increase in revenue is the result of increased contribution from the enterprise segment, especially cloud computing and managed data services, supporting a 5% Y-o-Y growth in the domestic (KSA) operation’s top-line. This, in turn, was partially driven by the 33% Y-o-Y increase in the fibre-to-the-home (FTTH) customer base. Total enterprise business unit revenue grew 20% Y-o-Y, according to STC, driven by a 28% Y-o-Y increase in business sector data revenues and a 21% Y-o-Y increase in enterprise mobile service revenue. The international operations’ aggregate revenue performance was uninspiring, with flattish growth Y-o-Y (-11bps) and Q-o-Q (+90bps).   We remain concerned about the lack of clarity in STC’s weak margins for the second quarter in a row. Revenue growth may be somewhat encouraging, but Mobily and Zain’s revenues are falling, which could mean that STC is spending a lot to capture most of the growth in the market (in 3Q16 it likely captured the bulk of pilgrims’ traffic) at the expense of margins. In accordance with its three-year dividend policy, the company announced a cash dividend of SAR1.00/share for the quarter, in line with our estimate. This translates into an attractive yield of 7.5%. (Earnings release, Omar Maher, Karim Riad)   Saudi Telecom Company: SAR53.47 as of 19 October 2016, Rating: Neutral, FV: SAR68.29 per share, MCap: USD28,517mn, STC AB / 7010.SE