Zain shares drop on disappointing quarterly profit

Kuwait City: Mobile Telecommunications (Zain) shares fell on Sunday after Kuwait's biggest mobile phone operator posted its first decline in quarterly profit in a year.

Zain stock, the third most-heavily traded on the Kuwaiti index, bucked a gain on the benchmark, shedding 2.53 per cent after the firm's second-quarter profit eased 3.6 per cent.

Shares of Zain had surged 5.1 per cent, or 100 fils, early in the trading session after daily Al Watan reported the company had received a takeover offer from a global investor of 2.80 Kuwaiti dinars. The paper gave no source.

But Zain shares took a hit after the firm said it had not received any official offer to buy a stake, with investors turning their attention to a quarterly decline in profit as costs of expansion into Saudi Arabia and Africa took their toll. The stock closed at 1.54 dinars.

"Zain's profits will be under pressure in the short term because of the costs of expansion in various markets, but it is set for good growth in the longer term," said Jithesh Gopi, head of research at SICO investment bank. "When investors see a decline in profits while other companies are reporting growth and during a good macroeconomic environment, it is not taken well by the market," he said.

Trading volumes

Trading volumes in Zain hit 9.1 million shares, more than double the 90-day average, according to Reuters data. Zain said on Saturday it was on track to boost net profit by five per cent this year and more than 30 per cent next year.

But the firm could face further pressure on profits later this year as Saudi Telecom (STC) begins Kuwait's third mobile phone operator, said Naser Al Nafisi, general manager at Al Joman Centre for Economic Consultancy.

"[STC is] very aggressive even in their home country and will take market share from Zain," Nafisi said. "Maybe the next quarter will be even worse... Zain is expanding but it will take time for this to pay off."

Zain Saudi Arabia, an affiliate of the Kuwaiti operator, is gearing up to start the kingdom's third operator next month.