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GCC TMT Summary

Core Content

This document outlines the Goldman Sachs Investment Research analysis of GCC (Gulf Cooperation Council) Technology, Media, and Telecommunications (TMT) companies, focusing on their performance in Q1 2025, valuation, and future growth prospects. The report highlights key investment ratings and provides insights into the market dynamics, including revenue growth, margin sustainability, and capital allocation strategies.

Main Points

• Investment Ratings: The report maintains Buy ratings on several companies, including Mobily, Elm Co., stc Solutions, and Zain Kuwait, while keeping Neutral on Etisalat and Sell on Zain KSA.
• Revenue Growth: Across the GCC TMT sector, all companies reported year-over-year (YoY) revenue growth in Q1 2025, driven by factors like digitization spending, population growth, and operational recovery.
• Margin and Leverage: Margin sustainability is a key concern, especially for Zain KSA and Etisalat, which face challenges due to high leverage and lower growth in higher-margin segments. Elm Co. and Mobily are noted for their ability to improve margins through operational leverage.
• Dividend Growth: Dividend growth is highlighted as a key focus for investors, particularly for Mobily and Zain Kuwait, with Mobily showing a strong interim dividend and Zain Kuwait offering the highest dividend yield in the region.
• Valuation Insights: Several companies are viewed as undervalued or trading at a discount to historical levels or global peers, providing potential entry points for investors.
• Catalysts for Growth: The report identifies various catalysts for stock performance, including recovery in Sudan, potential data price increases, and the impact of lower interest rates on financial performance.

Key Companies and Their Ratings

Outlook for 2025

• The TMT sector in the GCC is expected to continue its growth momentum, supported by digitization, population growth, and international market expansion.
• Investors are advised to focus on revenue growth, margin sustainability, and capital allocation as key factors influencing stock performance.
• The report emphasizes the defensive nature of the TMT sector amidst macroeconomic uncertainties.

Valuation Highlights

• stc Solutions: Trading at a 25% discount to its 3-year trading history and a 15% discount to global category peers.
• Zain Kuwait: Trading at a 7% dividend yield, the highest in the region, and is viewed as undervalued relative to peers.
• Elm Co.: Trading at a 20% discount to global category peers, despite a justified premium over regional competitors.
• Mobily: Trading slightly above its 3-year average, with a 5% premium on 12m forward EV/EBITDA.

Key Charts and Exhibits

• Exhibit 1: stc Solutions' FY25 revenue growth guidance is expected to be met, with EBITDA margins improving over time.
• Exhibit 2: Elm Co. is trading at a discount to global peers, reflecting its strong position in the Saudi digitization theme.
• Exhibit 3: Zain Kuwait's revenue growth guidance for the year is achievable, supported by Sudan recovery and Kuwait data price-ups.
• Exhibit 4: Mobily is up 10% year-to-date (YtD), with strong operational performance and B2B growth.
• Exhibit 5: The Digital Business is expected to remain Elm's core revenue growth engine, supported by Thiqah's integration and project execution.
• Exhibit 6: Zain Kuwait's 12m forward EV/EBITDA is expected to outperform regional peers, reflecting improved risk/reward profile.
• Exhibit 7: GCC TMT coverage has shown positive performance over the past year and quarter, with some names experiencing multiple re-rating.

Global Comparison

• GCC Telcos: Compared to global peers, GCC telcos are generally trading at lower EV/EBITDA multiples and higher FCF yields.
• Global Peers: Companies like Bharti Airtel, Turkcell, and Deutsche Telekom are highlighted for their growth and margin profiles, though they differ in valuation and operational focus.

Conclusion

The report suggests that the GCC TMT sector remains attractive, with several names offering compelling growth and margin opportunities. Investors are encouraged to focus on companies with strong digitization exposure, operational resilience, and potential for dividend growth, particularly Mobily, Elm Co., stc Solutions, and Zain Kuwait. The sector is viewed as a defensive investment with visible growth and healthy returns, despite broader macroeconomic uncertainties.