Revenue – SAR1,634mn, -7% Y-o-Y, -5% Q-o-Q, -7% vs. EFGe EBITDA margin – 29.9%, +4.8pp Y-o-Y, +8.3pp Q-o-Q, +6.4pp vs. EFGe Net loss – SAR267mn, +20% Y-o-Y, -19% Q-o-Q, +7% vs. EFGe   Zain KSA released its 3Q16 headline figures, showing a net loss of SAR267mn, widening by 20% Y-o-Y, contracting by 19% Q-o-Q and beating our estimate of a net loss of SAR287mn. The beat is despite a 7% miss at the top-line, owing largely to better-than-expected margins. EBITDA margin beat our estimate by 6.4pp at a record 29.9%, chiefly due to distribution and marketing costs coming in lower than expected. The company said it had won some legal settlements that it accounts for in its operating expenses. However, the enhancement in the EBITDA margin did not fully trickle down to the bottom-line, as net financing charges came in at SAR265mn, 21% ahead of our estimate, due to higher interest rates in KSA. The company mentioned that the Y-o-Y drop in revenue is the result of: i) lower interconnection revenue, following the mobile termination rate (MTR) cuts; ii) the biometric verification system impacting some revenue-generating subscribers that failed to verify their fingerprints; iii) seasonality effects; and iv) decline in number of pilgrims Y-o-Y.   Overall, we see this as a mixed set of numbers. While the recent MTR cut continues to play in favour of Zain KSA, with gross profit margin this quarter recording 64.9% (the highest since the company’s inception), we expect top-line growth to remain under pressure due to the challenging macro-economic environment in KSA (second consecutive quarterly decline in 2016). The increasing interest rate environment is troubling for Zain KSA, as the company is highly leveraged and is vulnerable to interest rate hikes, we believe. We remain of the view that bottom-line profitability is essential for Zain KSA as the company’s shareholders’ equity keeps shrinking. The impact of the mobile licence extension should be reflected in the 4Q16 figures and should lower annual amortisation charges by SAR433mn, but is insufficient for the company to turn profitable. (Earnings release, Omar Maher, Karim Riad)   Zain KSA: SAR6.98 as of 17 October 2016, Rating: Neutral, FV: SAR6.56 per share, MCap: USD1,087mn, ZAINKSA AB / 7030.SE