Saudi Telecom Company (STC) has started talks with a potential buyer to sell PT Axis, its Indonesian subsidiary, to combat a decline in profit.
Foreign exchange losses and valuation adjustments have resulted in a 41 per cent drop in the company's net profit for the second quarter of this year.
Despite a 4 per cent increase in revenue for the first six months of the year, STC recorded a net profit of 1.4 billion Saudi riyals (Dh1.36bn) for the second quarter, down from 2.4bn riyals a year earlier. The decline has also been attributed to a non-cash charge of 1.1bn riyals for a fair valuation of its investments in PT Axis and India's Aircel.
"The 4 per cent revenue growth for the group is acceptable and in line with the situation on the most stabilised telecom markets where STC operates," said Petr Molik, the chief financial officer and head of financial advisory at Menacorp.
"The ongoing profit erosion … is worrying. The currency moves are certainly a risk factor for a multiregional operator like STC, but compared to the well-performing operations in Saudi Arabia and neighbouring countries, the performance of Aircel and Axis needs to be improved."
In a statement announced on the bourse, STC said it was in negotiations to sell its 80.1 per cent direct shares and 3.7 per cent indirect shares in PT Axis Telekom Indonesia that it bought in 2007 because of its poor financial performance and inability to deliver growth.
"This negative impact from some of the international operations is not expected to continue as STC investments in Asia had been written down to its fair value, and currently we are looking into rationalisation of STC international portfolio," said Abdulaziz Al Sugair, the managing director and chairman of STC Group.
Despite its struggle abroad, the operator benefited from a 5 per cent boost in domestic revenues attributed to growth in the business sector and broadband services. Its customer base registered a modest 1.3 per cent growth to 175 million subscribers.
"It seems that STC is finding that broadband and business markets in its home market of Saudi Arabia offer better growth prospects than some of the overseas ventures that it undertook in recent years," said Matthew Reed, the principal analyst at Informa Telecoms and Media.
"The Indonesian mobile market is fiercely competitive and, according to our data, in terms of subscription numbers PT Axis is only the fifth-largest of seven mobile operators in Indonesia."
According to analysts, Malaysia's Axiata is a possible buyer of PT Axis.
Saudi's telecoms market, considered one of the most competitive in the region, is set for a shake- up in the coming months as the Communication and Information Technology Commission, the industry regulator, recently approved three mobile virtual network operator licences to help boost competition. The UAE's Axiom Telecom is one of the licence- holders, along with Virgin Mobile Middle East and Africa and Jawraa Lebara.
"Saudi Arabia boasts one of the youngest and most mobile-savvy populations on the planet. The potential to harness this technological advantage to innovate and compete on both a regional and global scale is extremely exciting, and definitely something we want to be a part of," said Faisal Al Bannai, of Axiom.
Mobile penetration in the kingdom exceeds 180 per cent and smartphone penetration is one of the highest at 65 per cent.