Nomura gives 'buy' on Mobily stock, cautious on STC, Zain KSA

In the report, "GCC Telecom Services," Nomura's analysts write that the fair value target for Mobily's share price stands at SR53.4, as compared to its actual market value of SR36.3 at the end of April.

The report said:

"Among what are predominantly mobile operators, we have a favourable view towards Mobily (Buy, TP SR53.4) given its strong track record of execution and market position."

According to Nomura Equity Research's rating methodology, a buy recommendation means that a stock price will outperform its current value by more than 5% and less than 15% over the next six months.

In the case of Mobily, what appears to have caught Nomura's eye, according to the report is the company's "excellent track record in building the business," free cash flow and complete focus on the Saudi market. Mobily itself launched almost six months or commercial and technical preparations and broke even after 18 months of commercial operations.

Mobily net profits were up 47%, registering SR480m for Q1 2009 alone as compared to SR326m for Q1 2008.

In comparison, STC stock was awarded a Neutral recommendation with a target price of SR63.8, as compared to its end of April stock price of SR76.

"Saudi Telecom Company (STC) has a strong market position and robust positive cash flow but will be under pressure domestically from new competition and does not appear particularly inexpensive vis-à-vis its peer group, in our view," the Nomura report said.

Saudi Telecom Q1 2009 net profits dipped almost 18% from SR3.03bn in Q1 2008 to SR2.49bn for this year's first quarter.

Meanwhile, Zain KSA, which has yet to register a profit, was given a Reduce target price recommendation down to SR9, as compared to its end of April price of SR10.55 per share.

"Our view towards Zain KSA, the most recent entrant to the market, is weighed down by the licence acquisition fee," the report said.