KSA IT Sector U Capital

KSA IT Sector, Opportunities galore… 12 May 2022
 The Saudi IT industry is comprised of both organized and unorganized players in roughly equal
Company Rating proportions. Amongst the local players, Solutions by STC has the largest market share
 The Kingdom’s spending in its IT sector is less than a percent of its GDP (as in 2018), lower than
the average of more mature markets
Arabian Internet & Hold
Communication  The development of the IT sector is an important pillar in the economic diversification plan under
Services Co. Vision 2030. Transforming the Kingdom into a regional digital hub is also a goal of the Vision 2030
(Solutions by STC)  The ICT sector is set to expand at a rapid pace at least until 2025. Newer technologies like cloud
and IoT are expected to grow faster than the industry average
Al Moammar Buy
Information We initiate coverage on the KSA IT Sector with the only two listed names – Arabian
Systems
(MIS)
Internet & Communication Services Co. (Solutions by STC), and Al Moammar Information
Systems (MIS). Overall, we have a favorable view of the sector and expect it to remain on
a strong growth trajectory in the foreseeable future, supported by the government’s digital
transformation drive. We have used two valuation methodologies (DCF, relative valuation
– P/E), and applied equal weightage to both the methods to arrive at the target price.
• IT spending share of GDP in KSA is below the developed markets. Saudi Arabia’s IT
spending as % of GDP is below the matured markets and even its neighbor UAE (0.7% vs.
1.3%, and 0.9%, respectively, as of 2018). This indicates the Kingdom needs to keep on
investing in the sector as a developed IT market would be imperative, in our view, to
achieve its long-term economic goals. The Ministry of Communications & Information
Technology (MCIT) has initiated steps in this direction and formulated an ICT strategy for
2023, which is a stepping stone to realizing the broader goals of Vision 2030. Some of its
salient objectives are to raise the size of the IT sector by 50%, which is estimated at ~SAR
38bn in 2021, increase the sector’s contribution to GDP by SAR 50bn (4.6% of GDP by 2023
vs. 3.6% in 2017), and create over 25,000 jobs.
• The ambition to develop Kingdom as the region’s digital hub is a major catalyst for the
sector’s growth. The government intends to make the Kingdom region’s digital hub, as
part of its broader economic diversification plan. The IT sector can be seen at the forefront
to achieve this considering the increasing role technologies like AI, data analytics, IoT, etc.
are playing in almost every business. Further, megaprojects like smart cities, changing
dynamics of the entertainment industry with higher usage of live streaming services, post-
COVID developments like hybrid work environments, and increasing digitization &
automation by the private sector to become more nimble and efficient are the additional
demand drivers for the sector. Hence, the ICT sector is estimated to gain traction, clocking
between 8% and 9% CAGR during 2021-2025 (vs. 4-5% CAGR during 2018-2021).
• Organized IT players well placed to capitalize on upcoming opportunities. In our view,
both Solutions and MIS are well equipped to benefit from the upcoming opportunities in
the IT sector, given their proven capabilities, and availability of requisite infrastructure.
Solutions, because of its relationship with STC, gets significant business opportunities
internally. Also, with the highest market share of 19%, a good brand presence, and its
association with major global IT players works in its favor in attracting more business. On
the other hand, MIS’s involvement in the data centers project appears to be a major
Ayisha Zia catalyst for the earnings growth going forward, while its diverse segments covering almost
every domain of the IT Services sector are expected to expand in tandem with the industry.
Acting Head of Research
Last Px Target Price Upside / P/E'22e, P/B'22e, EV/EBITDA ROE'22e, Cash Div
Name
[email protected] (SAR) (SAR) (Downside) (%) (x) (x) '22e, (x) (%) Yield, %
Solutions by STC 226.00 233.50 3.3% 23.5 9.9 16.6 46.1% 1.8%
Tel: +968 24 94 90 36 Al Moammar Information System 120.60 158.50 31.4% 18.9 7.2 17.5 42.2% 1.7%
Average 21.2 8.5 17.0 44.2% 1.7%
Source: Bloomberg, U Capital Research; Last price as of 12 May 2022
Page 1 of 27
P.O.BOX 1137, PC 111 – CPO, Sultanate of Oman l CR No. 1279406 l Tel: +9682494 9000 l Fax: +968 2494 9099 l Email: [email protected] l Web: www.u-capital.net
KSA IT Sector
Contents
Valuation ................................................................................................................................................... 3
Risks to Valuation...................................................................................................................................... 4
Sensitivity Analysis .................................................................................................................................... 4
Peer Group Valuation ............................................................................................................................... 5
Macro-economic & Sector Overview ....................................................................................................... 6
Solutions by STC ...................................................................................................................................... 13
Al Moammar Information....................................................................................................................... 20
Disclaimer ................................................................................................................................................ 27
Page 2 of 27
Valuation
We have used DCF and relative valuation methodologies with equal weights assigned to each of them to derive the target price for
each company. For DCF, we have used a 5-year explicit forecast period (2022-26) and afterward assumed a terminal growth rate of
2% for Solutions and 3% for MIS. The higher terminal growth rate for MIS is considering its smaller size, and stronger growth prospects
aided by the data centers project. We have then calculated the present value of future cash flows (Enterprise Value or EV) using the
weighted average cost of capital (WACC). After computing EV, we have made the required adjustments such as net debt, minorities,
etc. to derive equity value.
For the relative valuation (P/E), we have considered the company’s average historical and forward multiples as well as the average
multiples of relevant peers. Then, these were adjusted by giving a premium or discount, as required, considering the recent and/or
expected movement in the multiples to reflect our assessment of each company’s future financial performance. The adjusted
multiples are then multiplied by the forecasted EPS.
Valuation
Solutions MIS
DCF (50% weight)
PV of Free Cash Flow (SAR mn)
Year 1 1,455 172
Year 2 1,359 158
Year 3 1,278 143
Year 4 1,288 155
Year 5 1,343 159
Terminal 28,490 4,579
Total PV of Excess Returns 18,905 3,182
Assumptions
Risk Free Rate (%) 3.0% 3.0%
Adjusted Beta 0.65 0.65
Risk Premium (%) 10% 10%
Cost of Equity (COE) (%) 9.3% 9.3%
WACC (%) 9.2% 8.2%
Equity value (SAR mn) 27,136 3,629
Outstanding Shares (mn) 120.0 25.0
Target Price (SAR) 226.1 145.2
P/E based Relative Valuation (50% weight)
Target P/E multiple for 2022e 25.00 27.00
EPS 2022e (SAR) 9.63 6.36
Target Price (SAR) 240.9 171.8
Weighted Average Target Price (SAR) 233.5 158.5

Current Market Price (SAR) 226.0 120.6
Upside/(Downside), % 3% 31%
Recommendation Hold Buy
Source: Company Filings, Bloomberg, U Capital Research; Current market prices as of 12 May 2022
Page 3 of 27
Risks to Valuation
Key downside risks to our valuations include:
• Below expected growth rate and/or market share of different business verticals.
• More-than-estimated impairment expense, and less-than-expected improvement or deterioration in margins.
• Macro headwinds negatively impacting or constraining the forecasted expansion of the overall market
Key upside risks to our valuations include:
• The more-than-expected growth rate in the existing domains and/or higher-than-forecasted market share gains by the
different business verticals
• Less-than-estimated impairment expense, and above-expected expansion in margins.
• IT industry expanding at a more than forecasted rate
Sensitivity Analysis
Our TP for Solutions is not sensitive to +/- 0.25% changes to terminal growth or in WACC assumptions (changes about +/-1-2%). Our
TP is also not sensitive to +/-0.5x changes in the target P/E multiple, affecting our TP by c. +/-1% with every change.
Solutions by STC
Terminal growth 2022e EPS (SAR)

235.50 1.50% 1.75% 2.00% 2.25% 2.50% 235.50 8.7 9.2 9.7 10.2 10.7
8.8% 235.1 238.2 241.5 245.0 248.9 24.00x 216.7 222.7 228.7 234.7 240.7
P/E multiple
9.0% 231.5 234.3 237.4 240.6 244.1 24.50x 218.8 225.0 231.1 237.2 243.3
WACC
9.3% 228.1 230.7 233.5 236.5 239.8 25.00x 221.0 227.3 233.5 239.8 246.0
9.5% 224.8 227.3 229.9 232.7 235.7 25.50x 223.2 229.5 235.9 242.3 248.7
9.8% 221.8 224.1 226.5 229.1 231.9 26.00x 225.3 231.8 238.3 244.8 251.3
Our TP for MIS is slightly sensitive to +/- 0.25% changes to terminal growth or in WACC assumptions (changes about +/-2-3%). Our
TP is not sensitive to +/-0.5x changes in the target P/E multiple, affecting our TP by c. +/-1% with every change.
MIS
Terminal growth 2022e EPS (SAR)

158.50 2.50% 2.75% 3.00% 3.25% 3.50% 158.50 5.4 5.9 6.4 6.9 7.4
7.7% 159.7 163.2 167.0 171.3 176.1 26.00x 142.3 148.8 155.3 161.8 168.3
P/E multiple
7.9% 156.0 159.1 162.5 166.3 170.6 26.50x 143.7 150.3 156.9 163.5 170.2
WACC
8.2% 152.6 155.4 158.5 161.9 165.6 27.00x 145.0 151.7 158.5 165.2 172.0
8.4% 149.5 152.0 154.8 157.9 161.2 27.50x 146.3 153.2 160.1 167.0 173.8
8.7% 146.6 148.9 151.4 154.2 157.2 28.00x 147.7 154.7 161.7 168.7 175.7
Page 4 of 27
Peer Group Valuation
Mkt Cap (SAR Last Px Px Change Px Change 3M, Px Change EV/EBITDA' P/E'22e, ROE'22e, Div Yield' 22e, FCF Yield'22e
Name
mn) (SAR) 1M, % % YTD, % 22e, (x) (x) (%) (%) (%)
IT Services
AL MOAMMAR INFORMATION SYST 3,015.0 120.60 -13 -23 -20 17.5 18.9 42.2% 2.4% 6.0%
ARAB SEA INFORMATION SYSTEMS 1,910.0 191.00 -4 -2 -3 122.1 nm 1.6% 0.3% 0.1%
ELM CO 20,400.0 255.00 15 99 na na 36.0 na 1.2% 3.4%
MANNAI CORPORATION QSC 3,779.5 8.07 -14 4 70 na 13.3 12.3% 3.7% 18.0%
ARABIAN INTERNET & COMMUNIC 27,120.0 226.00 3 9 20 16.6 23.5 46.1% 2.4% 5.7%
Average 52.1 22.9 25.5% 2.0% 6.6%
Median 17.5 21.2 27.2% 2.4% 5.7%
Source: Bloomberg, U Capital Research, na – not available, nm – not meaningful; *valued as of 12 May 2022; #valuation ratios, RoE data for peers is current/TTM
Fig. 1: IT Services - Price to Earnings & Dividend Yield Fig. 2: IT Services – Price to book & EV to EBITDA
Arab Sea
4.0% 14.0
3.5% 12.0
Mannai Solutions
3.0% Solutions
Price to Book (x)
10.0
Dividend Yield
2.5% 8.0 MIS

2.0% MIS 6.0 Elm Co.
1.5%
4.0
1.0% Elm Co.
2.0 Mannai
0.5% Arab Sea
0.0
0.0%
0.0 50.0 100.0 150.0
0.0 10.0 20.0 30.0 40.0
Price to Earnings (x) EV to EBITDA (x)
Source: Bloomberg, U Capital Research; As of 12 May 2022
Page 5 of 27
Macro-economic & Sector Overview
The economy is on a healthy recovery path as the pandemic subsides and the outlook improves
Saudi Arabia’s economic growth gained momentum as the real gross domestic product (GDP) expanded 9.6% YoY in 1Q 2022, clocking
its highest growth rate in the last 10 years, after expanding by 6.7% YoY in 4Q 2021. The oil sector’s GDP climbed 20.4% YoY (aided by
a rise in crude oil production, and elevated levels of crude oil prices), whereas non-oil activities grew 3.7% YoY (rollback of COVID
restrictions amid gradually normalizing economic situation post the pandemic). In 2021, the Kingdom’s real GDP grew by 3.2%,
recording the fastest expansion since 2015 and beating the International Monetary Fund’s (IMF) estimate of 2.8%. The economy
witnessed strong domestic non-government demand as private final consumption expenditure increased 9.7% YoY while gross fixed
capital formation jumped 10.1% YoY.
Fig. 3: GDP remains on a solid growth trajectory Fig. 4: Real GDP forecast for 2022 raised upwards by the IMF
15.0% 10.0% 7.6%
9.6% 8.0%
10.0% 7.0% 6.7% 6.0%
4.7% 2.5% 3.2%
5.0% 1.9% 4.0%
1.5%
0.8% -0.3% -1.1% -2.6% 2.0% 0.3%
0.0% -7.2% -3.8% 0.0% -4.1%
-2.0%
-5.0%
-4.0%
-10.0% -6.0%
2018 2019 2020 2021 2022e
Real GDP growth YoY - KSA

Real GDP growth YoY - KSA
Source: GASTAT, U Capital Research Source: GASTAT, IMF, U Capital Research
In April, the IMF raised its 2022 and 2023 GDP growth forecast for Saudi Arabia at a time when it downgraded global economic forecasts
due to the Russia-Ukraine war, high inflation, and China grappling with the re-emergence of the COVID-19 pandemic. The global lender
increased the Kingdom’s 2022 economic growth estimate by a sharp 2.8 percentage points to 7.6%, factoring in the gradual rise in oil
production following a July 2021 OPEC+ agreement deal to completely phase-out oil production cuts by September 2022, an elevated
level of crude oil prices, and an above-expected increase in non-oil output. Saudi Arabia’s GDP forecasts for 2023 have also been raised
to 3.6% from 2.8%, previously.
Fig. 5: Multi-year high levels of oil prices a boon for the economy Fig. 6: KSA’s crude oil production continues to rise on OPEC+ deal
140.0 120.7 19% 10% 26%
340 6% 11% 30%
120.0 107.3 9%
91.2 320 12% 8% 12% 20%
100.0 76.3 78.5 70.6 1%
63.5 69.3 300 10%
USD/barrel
80.0 -16%
51.8
YoY growth
41.2 45.3 37.5 280 0%
mn barrels
60.0 -20% -32%

40.0 25.3 260 -10%
20.0 240 -20%
0.0 220 -30%
200 -40%
Jun-20
Dec-20
Jun-21
Dec-21
Oct-20
Oct-21
Apr-20
Feb-21
Apr-21
Feb-22
Aug-20
Aug-21
Apr-22
Jun-21
Nov-21
Dec-21
Jul-21
Oct-21
Feb-21
Apr-21
Sep-21
Feb-22
May-21
Aug-21
Mar-21
Jan-22
Brent crude price (period end) KSA breakeven oil price Crude oil production YoY growth (RHS)
Source: Bloomberg, IMF, U Capital Research Source: JODI, U Capital Research
This seems quite likely as the government continues to take initiatives to stimulate the economy. For instance, to ensure long-term
growth and as part of its economic diversification plan, Saudi Arabia’s Crown Prince Mohammed bin Salman launched a program named
‘Shareek’ in March 2021. Shareek aims to bring SAR 5tn worth of private investment into the economy by 2030 and is part of a larger
SAR 12tn investment program. Further, the Crown Prince also announced a new strategy in March 2022 under which the National
Development Fund (NDF) is required to invest SAR 570bn in the Kingdom to stimulate its real GDP growth. Also, to expedite the
Page 6 of 27
economic diversification process, the NDF has been directed to target tripling non-oil GDP to SAR 605bn by 2030. These initiatives
should catalyze domestic demand while creating a more resilient Saudi economy over the medium-to-long term. The IMF estimates
Saudi Arabia’s breakeven crude oil price to fall to USD 72.4/barrel in 2022 as compared to USD 82.4/barrel in 2021 amid the Kingdom’s
rising average crude oil production YoY, higher level of crude oil prices, spending cuts taken by the government like a reduction/removal
of subsidies, etc. Accordingly, the government estimates to record a budget surplus for the first time in around 10 years in 2022 at
~2.5% of GDP.
Development of the ICT sector to play a key role in the Kingdom’s economic diversification plan under Vision 2030
The ICT (information & communication technology) sector can be broken down into two main verticals. 1). IT (information technology)
services which include system integration, software & hardware application and support, data center & cloud services, cybersecurity,
internet of things (IoT), artificial intelligence (AI), etc. 2). Communication and connectivity services, comprising wireline and wireless
voice and data services. The IT Services sector in Saudi Arabia is a fragmented one, where the organized sector accounts for slightly less
than half (48% as of 2018) of the total market size. Apart from IT firms like Solutions and MIS, the other key players comprising the
organized market are telecommunication companies like Integrated Telecom (ITC), Sahara Net, NourNet, etc., international IT
companies, and local system integrators. Among them, Solutions is the market leader with a 13% market share in 2018 (~19% in 2021),
followed by local system integrators with a 23% cumulative share as of 2018, international players (2018: 9% share), and telecom firms
(2018: c.2% share).
Saudi Arabia is focusing big time on developing its ICT sector under its Vision 2030 program to cement its position as the largest digital
economy of the GCC and MENA (the Middle East & North Africa) region. The investments thus incurred/to be incurred to achieve this
will aid in boosting the non-oil sector’s growth and achieve economic diversification. In this regard, the Kingdom’s Ministry of
Communication & Information Technology (MCIT) has formulated an “ICT Sector Strategy 2023”.
Fig. 7: Major objectives of the Kingdom’s ICT strategy 2023
Source: KSA MCIT, U Capital Research
To achieve this, the government has identified several priorities and objectives, such as improving regulation & policies to foster
emerging technologies, enhance the Ease of Doing Business in the ICT sector, stimulating demand for IT products and services from the
private sector, attracting multinational technology companies to Saudi Arabia to localize their presence, increase local content &
support the growth of local IT businesses, enable 5G adoption, increase female participation in the ICT sector, scale-up skill set of the
ICT workforce, enhance digital literacy, among others.
Sustained launch of new initiatives to ensure all-round development of the Kingdom’s ICT sector
Some of the steps taken by the government toward achieving digital transformation goals and the ICT sector objectives under Vision
2030 are:
• In an event named “Launch” co-hosted by MCIT in 2021, the Kingdom launched various technology programs amounting to more
than USD 1.2bn, aimed at improving the digital skills of the younger generation by 2030.
• Another skill enhancement program for students focusing in the fields of cybersecurity, AI, programming, and electronic gaming
sector was launched, supported by MCIT.
Page 7 of 27
• MCIT also announced the establishment of the National Technology Development Programme with a budget of SAR 2.5bn.
• Furthermore, MCIT along with two partners launched two technology events – LEAP and @HACK. The LEAP event was held in
Riyadh in February 2022 whereas @HACK will be held in November 2022 under which an ethical hacking training session will be
conducted to help tackle hostile cyberattacks. In the LEAP event held earlier this year, Saudi Arabia announced it would invest USD
6.4bn in future technologies and entrepreneurship.
• The Kingdom also launched an advanced connectivity technology WiFi 6E, which is expected to significantly boost the overall
contribution of WiFI to Saudi’s GDP to over USD 18bn by 2030 as compared to USD 4.7bn in 2021.
• Another important announcement made at the event was that a spectrum auction for 5G mobile services will be organized by the
Communications & Information Technology Commission during 1H 2022, which is likely to push 5G technology contribution to GDP
by more than 10x from USD 1.4bn in 2021 to over USD 15bn by 2030.
• Separately, the Digital Content Council unveiled a USD 1.1bn initiative – Ignite – intending to boost the size of the Kingdom’s digital
content sector in the field of advertising, gaming, video, and music. The event also witnessed several business announcements
from the private sector. Some of the notable ones were:
 NEOM Tech & Digital Company revealed plans to launch metaverse platform XVRS, which is a part of its USD 1bn investment
in AI-driven technology
 STC launched MENA HUB to invest USD 1bn in data center infrastructure and submarine cables
 Logistics firm J&T Express Group, in association with its partners, announced to invest USD 2bn to build its MENA headquarters
in Riyadh, and develop e-commerce industry parks, sorting centers, and other facilities.
In our opinion, such events and programs will play an important role in achieving many of the government’s long-term objectives like
attracting foreign capital and technologies, increasing participation of the local players, developing new ideas and content, nurturing
relevant skills among locals, etc., thereby ensuring a well-rounded development of the ICT sector.
The ICT sector is forecasted to remain on a rapid growth path…
While the Kingdom’s IT sector is witnessing brisk activities in the recent years, it lags developed markets in terms of IT services
spending’s share in the GDP (0.7% vs. 1.3% average of developed markets, as of 2018) as well as the overall size of the IT Services sector
(~SAR 20bn vs. more than SAR 100bn in France and over SAR 150bn in Germany, as of 2018).
Fig. 8: KSA lags in terms of IT spending as % of GDP… Fig. 9: …as well as the size of the IT Services market
1.6% 1.4% Spain 72.0

1.3% 1.3%
1.4% 1.2%
France 135.0
1.2%
0.9% Germany
1.0% 181.0
0.7%
0.8%
0.5% UAE 14.0
0.6%
0.4% 0.2% KSA 20.0
0.2% Kuwait 3.0
0.0%
Oman 3.0
0.0 50.0 100.0 150.0 200.0
SAR bn
Source: Solutions IPO Prospectus, U Capital Research; *data is for 2018 Source: Solutions IPO Prospectus, U Capital Research; *data is for 2018
This suggests there remains ample scope for the expansion of the overall IT sector of Saudi Arabia. According to the latest data from
the International Data Corporation (IDC), spending on ICT in the Kingdom grew by 8% from 2019 to reach USD 32.1bn in 2021 and is
expected to expand by 2.3% YoY to reach USD 32.9bn in 2022. Further, Governor of the Communications & Information Technology
Commission (CITC), Mohammed Al-Tamimi said that over the next five years, all the major digital technologies like IoT, and cloud
services, will record significant growth as a result of which their cumulative market size will grow at around 10% 5-year CAGR to reach
USD 27bn by 2025.
Page 8 of 27
…clocking mid-to-high single-digit growth to reach over SAR 50bn by 2025
Saudi Arabia’s business-to-business (B2B) ICT services market grew at ~4% CAGR from 2018 to reach an estimated ~SAR 38bn in 2021.
However, spearheaded by the efforts of the authorities to buoy the sector, the ICT sector growth is estimated to move into a higher
gear and it is expected to reach a size of SAR 53bn by 2025, clocking 8.4% CAGR between 2021 and 2025, roughly double the rate
achieved during 2018-2021. The overall ICT services market includes the IT sector and B2B Voice & Data sector. In the backdrop of the
Kingdom’s ambition to become a digital hub of the region, the IT sector is expected to witness the majority of the activity. Thus, most
of the ICT sector’s forecasted growth is expected to be driven by the IT sector. B2B Voice & Data sector is estimated to remain largely
stable, growing at a marginal rate of ~1% on average. Nevertheless, this still would provide a good business opportunity for the players
like Solutions, in our view, which has ventured into the BPO business.
Fig. 10: IT Services is expected to drive overall ICT sector growth
8.8% 8.7% 9.0%
60.0 8.3% 10.0%
7.7%
50.0 5.9% 8.0%
40.0 6.0%
37.7
SAR bn
30.0 30.5 33.8 4.0%

21.5 24.8 27.7
19.8 21.9
20.0 2.0%
10.0 13.4 0.0%
14.0 14.3 13.6 13.9 14.3 14.9 15.4
-1.4%
0.0 -2.0%
2018 2019 2020 2021 2022 2023 2024 2025
B2B Voice and Data IT Services YoY growth (RHS)
Source: Solutions IPO Prospectus, U Capital Research
As discussed above, the ICT sector’s expansion would be led by the IT Services which is forecasted to clock nearly 11% CAGR during
2021-25 (2018-21: 7.8% CAGR). The IT Services sector comprises several domains like System Integration, IoT, Cloud, etc. that have
different dynamics which will be at play in driving their growth. For instance:
 System Integration: This represents the biggest category within in overall IT Services market and it also includes hardware used in
the system integration. Being the largest, it is expected to grow at a nominal 5-year CAGR of ~6% to reach ~SAR 13bn by 2025
(2018-21: 2.3% CAGR). Digitization exercise of the government and large corporate, mega projects, and mega smart cities like
NEOM, are some of the key drivers for this segment.
Fig. 11: System Integration is the largest sub-category of the IT Services market
14.0 0.5 0.6
0.5 0.5
12.0 0.4 0.4 1.2
0.4 0.4 1.1 1.1 1.4
10.0 1.0 1.2 1.3
0.8 0.9 1.0 1.2
8.0 1.0 1.1 0.9 1.1
SAR bn
1.0 3.0 3.2 3.4

2.5 2.7 2.9
6.0 2.3 2.5
4.0
4.7
2.0 5.1 5.4 5.2 5.6 5.9 6.2 6.6
0.0
2018 2019 2020 2021 2022 2023 2024 2025
Infrastructure Integration Application Integration Network Integration IT Consulting IT Training
 IoT and Digital: This category comprises newer and in-demand technologies like IoT, AI, and Big Data. This vertical is estimated to
be among the fastest-growing, along with the Cloud & Data Centers vertical. Within this, IoT represents the largest segment which
is forecasted to grow at ~22% CAGR to reach around SAR 6.1bn by 2025 from an estimated SAR 2.8bn in 2021 (2018-21: 20.4%
CAGR), accounting for over 75% of the total IoT & Digital market. Demand for this category is emanating from smart energy
management, industrial robotics, the emergence of virtual technologies like e-learning, virtual classrooms, digital ID, remote health
monitoring, mega infrastructure projects like Riyadh Metro, Amaala, Qiddiya, Red Sea Project, etc. AI is also estimated to clock
Page 9 of 27
~22% CAGR during 2021-25 (2018-21: 20.6%), while Big Data & Analytics is expected to grow at a relatively lower CAGR of ~12%
between 2021 and 2025 (2018-21: 10.5%).
Fig. 12: IoT is the primary growth driver for this segment
10.0
8.0 0.6
0.5
0.4 1.1
6.0
SAR bn
0.3 1.0
0.3 0.9
4.0 0.2 0.2 0.9
0.2 0.7 6.1
2.0 0.6 0.6 4.2 5.0
0.5 2.8 3.5
1.6 1.9 2.1
0.0
2018 2019 2020 2021 2022 2023 2024 2025
IoT Big Data & Analytics AI
 Application Services: This can be segregated into software deployment & support which is a larger market, and custom application
development. Overall application services are forecasted to reach ~SAR 3.0bn by 2025 as compared to ~SAR 2.2bn in 2021, clocking
8.9% CAGR, the same as achieved during 2018 and 2021. Digitization is also a major driver for this segment, particularly in cases
where applications are required for sharing ideas and data.
Fig. 13: Software delivery and support are expected to expand at a CAGR of c.10%, higher than the category average
3.5
3.0
2.5 0.9
0.9
0.8
2.0 0.8
SAR bn
0.7
1.5 0.6 0.7
0.6
1.0 2.0 2.2
1.5 1.6 1.8
0.5 1.1 1.2 1.3
0.0
2018 2019 2020 2021 2022 2023 2024 2025
Software Support & Deployment Custom Application Development
 Equipment Services: This can be broken down into hardware deployment & support representing a larger market (over 80% of the
total Equipment Services category), and managed endpoint services such as server maintenance and support. This segment would
expand at 7% CAGR from 2021 to reach about SAR 2.7bn in 2025 (2018-21: 5.5% CAGR). The digitization need of medium-sized
enterprises is one of the primary demand drivers for this category.
Fig. 14: Hardware deployment drives most of the activity in this category
3.0
2.5 0.3 0.3
0.3 0.3
2.0 0.2
0.2 0.2 0.2
SAR bn
1.5
2.1 2.2 2.4
1.0 1.8 2.0
1.6 1.7 1.7
0.5
0.0
2018 2019 2020 2021 2022 2023 2024 2025
Hardware Deployment & Support Managed Endpoint Services
Page 10 of 27
 Managed Networks: Demand for this category emanates from the multi-vendor environment, 24X7 monitoring, operational
requirements post the set-up of a business, etc. Office network & endpoint infrastructure services, managed WiFi, managed area
network, managed router, and other managed services are the five sub-segments of this category. Overall, this category is expected
to grow by around 7.5% on average between 2021 and 2025 to reach ~SAR 1.8bn (2018-21: 7.0% CAGR). Among the various sub-
categories, managed WiFi is estimated to register the highest CAGR in the range of 12-13% during 2021 and 2025, followed by
managed area network which is expected to clock ~11% CAGR during 2021-25.
Fig. 15: Except for Office Network/Endpoint Service, all other segments are estimated to post strong growth rates
2,000
1,500 603
511 555
470 127
SAR mn
397 432 115 101

1,000 337 366 93 71 103 90
84 63 80
68 44 76 56
62 44 498
375 415 455 546
500 282 307 339
412
397 405 421 431 440 449 459
0
2018 2019 2020 2021 2022 2023 2024 2025
Office Network/Endpoint Service Other Managed Services Managed WiFi Managed Area Network Managed Router
 Cybersecurity: In the backdrop of a growing connected environment and an exponential increase in digital transactions, particularly
monetary transactions, cybersecurity needs have increased tremendously. Apart from this, in the context of Saudi Arabia, the
demand for cybersecurity is also expected to come from the government’s push to set up the National Cybersecurity Authority
(NCA) as well as the establishment of the Cybersecurity Framework by the Saudi Central Bank. Overall, this category is forecasted
to reach SAR 2.3bn by 2025 from SAR 1.7bn in 2021, registering a CAGR of 7.8%, marginally higher than the 7.7% CAGR clocked
during 2018-21.
Fig. 16: Rising cyber threats are at the core of cybersecurity demand
2.5
0.3
2.0 0.3
0.3 0.3
0.2 0.2 0.2 0.3
1.5 0.2 0.3
SAR bn
0.1 0.2 0.3

0.2 0.2
1.0 0.2
1.4 1.5 1.6
1.2 1.2 1.3
0.5 1.0 1.1
0.0
2018 2019 2020 2021 2022 2023 2024 2025
Project-Based Cybersecurity Managed Disaster Recovery Managed Security
 Cloud and Data Centre: With the government’s digital transformation push, development of smart urban centers, initiatives to
make the Kingdom a commercial hub, a hybrid working environment involving office and home in the aftermath of the COVID-19
pandemic, increase in online gaming, video streaming services, among others, connectivity requirements have increase manifold
which in turn has boosted physical and virtual data storage demand for instant access and sharing. In addition, regulatory demand
for banks to set up in-house data management is also an important driver of this category in Saudi Arabia. As per a report from
consultancy Knight Frank, available data storage space capacity, in terms of megawatts (MW) per million people in Saudi Arabia
stands at 1.71, which is below the GCC average of 3.41 and much lower than the European average of ~106. Thus, recognizing the
supply-demand imbalance in local data storage space, MCIT has this year launched a USD 18bn data center strategy for setting up
large-scale data centers, with an ultimate aim to transform the Kingdom as the regional data center hub. We reckon MCIT to be a
Page 11 of 27
major beneficiary of this development, as it has been selected among the first batch of key investment partners to implement this
strategy, and it has also allied to develop data centers in various stages across Saudi Arabia.
Overall, this category is estimated to clock a 5-year CAGR of ~20% to reach nearly SAR 7bn by 2025 (2018-21: 20.8% CAGR). Within
this, Datacenter Managed Services is forecasted to continue growing at ~10% average annual rate during 2021 and 2025. Public and
Private Cloud, on the other hand, are expected to register ~25% CAGR during 2021-25 (2018-21: between 30% and 31% CAGR).
Given that Cloud is a relatively nascent technology, it is expected to grow at similar rates globally. According to a report by IDC, the
worldwide public cloud market is expected to grow to USD 809bn by 2025 as compared to USD 317bn in 2021, implying an annual
growth rate of 21%. Public cloud finds more preference among enterprises owing to factors such as lower ownership costs, little
maintenance, and higher flexibility and scalability. According to government estimates, spending on cloud-related services would
account for up to 30% of the total spending in the Kingdom’s ICT sector by 2030. While the global IT giants like Microsoft, and
Amazon, have superior capabilities and experiences in offering cloud and other similar hi-tech services, they prefer operating
through partnership routes in the Kingdom rather than on their own, amid the cultural differences. Needless to say, this offers
significant potential opportunities for the local IT companies such as Solutions and MIS.
Fig. 17: Demand drivers for data centers Fig. 18: KSA lags GCC average in per capita data storage space
Major European markets 106.0
Big Data Major Asia Pacific markets 45.1
Artificial MEA 0.3
Automat
Intellige GCC 3.4
ion
nce Oman 3.2
Kuwait 2.4
Data Bahrain 7.5
Creative Center Saudi Arabia 1.7
media IoT UAE 9.6
content
Abu Dhabi 15.4
Dubai 18.8
Cloud
5G
based 0.0 50.0 100.0 150.0
rollout
services Megawatts (MW) per million people
Source: Knight Frank, U Capital Research Source: Knight Frank, U Capital Research
Fig. 19: Public cloud space is expected to swell the most

8.0
7.0
6.0
5.0 4.2
SAR bn
4.0 3.3
2.6
3.0 2.1
1.7 0.9
2.0 1.3 0.6 0.7
0.8 1.0 0.4 0.5
1.0 0.2 0.2 0.3 0.8 0.9 1.0 1.1
0.5 0.6 0.7 0.7 0.3 0.4 0.5
0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.3 0.2 0.2 0.4 0.2 0.2
0.0
2,018 2,019 2,020 2,021 2,022 2,023 2,024 2,025
Hosted Infrastructure Datacenter Managed Services Co-Location Private Cloud Public Cloud
Page 12 of 27
Solutions by STC
Solutions by STC Target Price: SAR 233.5/share

Upside: 3.3%
Recommendation Hold • Solutions by STC is likely to further boost its leadership position in a fragmented Saudi
Bloomberg Ticker SOLUTION AB IT services market
Current Market Price (SAR) 226.00 • The backing of a strong client (STC) offers various advantages, such as exposure to a large
52wk High / Low (SAR) 246.800/166.000
clientele, high brand presence, cross-selling opportunities, etc.
• The company has generated industry-beating performance and is set to replicate it going
12m Average Vol. (000) N/A
forward in an expanding market, given its market-leading position
Mkt. Cap. (USD/SAR mn) 70,512/27,120
• Profitability is expected to maintain the improving trend of the last two years, thus
Shares Outstanding (mn) 120.0 further strengthening an already solid balance sheet and cash flows
Free Float (%) 20%
3m Avg Daily Turnover (SAR'000) 53,534.8 We initiate coverage on Solutions by STC (Solutions) and assign a Hold rating with a
6m Avg Daily Turnover (SAR'000) 51,933.8 target price of SAR 233.5 per share, offering an upside of 3.3%. Currently, the stock
P/E'22e (x) 23.5 trades at a P/E of 23.5x, based on our FY22 estimates. Solutions has successfully
P/B'22e (x) 9.9 leveraged its relationship with its parent STC and built on it to become the largest
Dividend Yield '22e (%) 2.4%
player in the Kingdom’s IT market, with a market share of c.19% during FY21. The
company has outpaced the industry growth in the past and looks well set to capitalize
on the upcoming opportunities, driven by Saudi’s digitization drive, with its time-
Price Performance:
tested capabilities and diverse offerings. Having said that, we opine the company’s
1 month (%) 2.7
current valuation levels, post ~20% appreciation in the stock price YTD till 12 May, has
3 month (%) 9.1
already discounted most of the near-term positives, which forms the basis for our
12 month (%) N/A current stance on the name.
Source: Bloomberg, valued as of 12 May 2022
Investment Thesis
Valuation and risks: Our target price is based on blended valuation methodologies –
Price-Volume Performance
(i) Discounted Cash Flow (DCF) and (ii) Relative Valuation (using P/E multiple). Key
250.00 3,000 downside risks to our valuation include i) below-expected performance of the
2,500 business verticals, ii) less-than-estimated improvement in operating efficiency, and iii)
225.00 higher-than-expected impairments. Key upside risks to our valuation include i) more-
2,000
than-expected expansion in market share of different verticals, ii) better-than-
200.00 1,500 forecasted revenue growth, and iii) higher-than-estimated expansion in margins.
1,000 Expected to maintain the lead: Solutions is a dominant player in the Kingdom’s ICT
175.00
500 market i) clocked 25% revenue CAGR during FY18-FY21, outperforming the overall ICT
services industry CAGR of 4% ii) The company is expected to continue outperforming
150.00 -
the industry growth, albeit at a slower pace, iii) Focus on entering new related
verticals with high-margin products to ensure sustained growth, accompanied by
profitability improvement iv) solid balance sheet with no debt v) prudent working
Vol, '000 (RHS) Px, SAR (LHS)
capital management, with reducing receivable days, vi) healthy cash flows are
Source: Bloomberg expected to continue on the back of an improvement in profitability, should be able
to easily fulfill capex requirements which are likely to remain low vii) Ample liquidity
to ensure sustained dividend payments
Year FY19 FY20 FY21 FY22e FY23e FY24e

Revenues (SAR mn) 5,257.3 6,891.4 7,815.8 8,807.5 9,691.0 10,658.5
Net i ncome (SAR mn) 393.8 701.8 832.9 1,156.2 1,354.0 1,542.0
Gros s ma rgi n 16.1% 20.6% 21.9% 22.0% 22.3% 22.5%
Net profi t ma rgi n 7.5% 10.2% 10.7% 13.1% 14.0% 14.5%
RoE 27.0% 44.1% 39.7% 46.1% 44.5% 41.8%
FCF (SAR/s ha re) 4.2 3.4 8.3 12.8 13.1 13.4
DPS (SAR/s ha re) 80.0 3.3 4.0 5.5 6.3 7.0
Di vi dend Yi el d NA NA 2.1% 2.4% 2.8% 3.1%
P/E (x) 0.0x 0.0x 27.1x 23.5x 20.0x 17.6x
P/BV (x) 0.0x 0.0x 9.9x 9.9x 8.1x 6.7x
Source: Company Reports, U Capital Research *P/E and P/B from 2022 onwards calculated on price of 12/05/2022
Page 13 of 27
Solutions by STC
Solutions further cements its already strong market position

Saudi Arabia has a fragmented IT services market, wherein the unorganized sector forms more than half of the total market. In the
organized sector, Solutions by STC has a lion’s share. On the back of more than 20 years of operating history, strong parent support, a
solid customer base, a large number of partners (150+, including global IT giants like Microsoft, IBM, SAP, etc. which help alleviate
competition), and a diverse offering of solutions and services, the company has gained market share over the years (~19% in FY21 vs.
~13% in FY18). The International Data Corporation (IDC) has ranked Solutions as the number one IT service provider in the Kingdom for
a sixth consecutive year, according to the company’s FY21 annual report.
Fig. 20: Solutions further boost its market standing
solutions'
market share
solutions, 13.0%
reach ~19% in
Telecom cos., 2.0% FY21
Unorganized, Organized, Local System Integrators,
53.0% 47.0% 23.0%
Foreign players, 9.0%
Source: Company Reports, U Capital Research; *data for FY18
The increase in the company’s market share is a testimony to its superior capability and execution levels, a satisfied customer base, and
solid brand positioning.
Another point worth noting here is that Solutions earn over 50% (54% in FY21) of its revenue from the government and government-
related entities (GREs), though this share is gradually coming down with an increase in the business from the private sector. Given that
the government has been pushing digitization as part of its Vision 2030 program, and in the backdrop of an improved fiscal position
driven by higher oil prices, we expect sovereign spending on the Kingdom’s digital transformation to rise going forward. This culminates
in more growth opportunities for the company, considering that it generates a large part of its business from the government and GREs.
A healthy relationship with the parent augments business opportunities
Solutions by STC has a strong relationship with its parent Saudi Telecom Company (STC), which is the top telecom operator in Saudi
Arabia. Solutions has immensely benefitted from its association with STC, in our view, as it generates a decent revenue (~29% in FY21)
by catering directly to the parent. In addition, Solutions also get various indirect benefits such as access to STC’s large institutional
customer base comprising of government entities and private firms, cross-selling opportunities, brand reach & awareness, etc. Thus,
the parent STC also indirectly plays an important part in the revenue generation of Solutions.
Fig. 21: Revenue share from the direct sale to parent STC gradually coming down
100%
80%
54.4% 57.3% 60.8% 64.8% 71.3%
60%
40%
20% 45.6% 42.7% 39.2% 35.2% 28.7%

0%
FY17 FY18 FY19 FY20 FY21
Sell through STC and sell to direct customers (STC is not the end customer), as % of revenue Sell to STC (STC is the end customer), as % of revenue
Source: Company Reports, U Capital Research
Page 14 of 27
Solutions by STC
We contend that Solutions would continue to benefit from its relation with STC going forward as well. For instance, Solutions has inked
several contracts with STC over the last six months amounting to nearly SAR 700mn and can benefit further from new ventures of STC
like its plan to build new data centers with a cumulative 125 MW capacity. Solutions currently generate a majority of its revenue from
the Kingdom and only a meager amount from outside (around 0.15% of the total revenue from Kuwait and Bahrain during FY20).
However, the company could leverage STC’s overseas presence to achieve a higher level of geographical diversification. While the
revenue generated from STC has kept growing over the past few years, except in FY21 (down 7.3% YoY), we note that its share of
Solutions’ total revenue is gradually coming down, implying a diversification of revenue stream.
The company looks set to maintain its track record of industry-beating revenue growth…
Solutions has leveraged well its advantages highlighted in the points above, and registered strong top-line growth during the last 4-5
years, including the pandemic years.
The company’s revenue clocked a 25% CAGR during FY18-FY21, outshining the 8% CAGR growth of the total ICT services market during
that period. Solutions segregate its offerings under three verticals:
 Core ICT Services: This is the largest revenue segment of the company, although its share of the total revenue has come down over
the years (~54% of total revenue in FY21 vs. ~68% of total revenue in FY17). It includes system integration services and
communication & internet services. System integration involves the integration of networks, infrastructure and applications, and
the related advisory and consulting services. Under the communication & internet services, the company provides high-quality
connectivity services through the internet and satellite to the businesses. We expect this segment to retain its major share in the
company’s total revenue during our forecast period, though the contribution is likely to gradually ebb. The segment is expected to
clock a lower revenue CAGR of 7-8% during FY21-26 (vs. ~20% during FY17-21), albeit on a higher base.
 IT managed and operational services: Under managed services, the company provides end-to-end management of business
networks and systems of the customers. The operational services involve Business Process Outsourcing (BPO) services on behalf
of its clients in the domain of customer care, HR, and other similar activities. The segment’s share of the total revenue has hovered
between 20% and 25% historically, and we expect this trend to continue in the future.
 Digital services: This line of business focuses on the latest technologies and services such as data center and cloud services,
encompassing infrastructure as a service (“IaaS”), platform as a service (“PaaS”), and software as a service (“SaaS”). It also includes
cybersecurity integration services, and other digital services like the Internet of Things (IoT), digital solutions to collect and analyze
data from machines/devices, etc. This segment’s share of the total revenue grew from 7.5% in FY17 to nearly 21% in FY21, as it
clocked ~65% CAGR revenue growth during FY17-21. We expect the technologies covered under this vertical will continue to
witness high demand and application amid the growing digitization. Accordingly, this segment is estimated to keep expanding at
double-digit rates, between 15% and 20%. Thus, its share in total revenue is forecasted to increase by another 6-7 percentage
points by the end of FY26.
Fig. 22: Solutions expected to maintain an above-average revenue growth rate
12
10
8
SAR bn
6
9.7 10.7
4 7.8 8.8
6.9
5.3
2
0
FY19 FY20 FY21 FY22e FY23e FY24e
Total revenue
Page 15 of 27
Solutions by STC
The growth rate achieved by Solutions has been across the board. Along with registering rapid growth, the market share of each
business segment in its business vertical has also increased, which indicates the company’s holistic growth approach. Since 2007, the
company has worked on different strategies. From 2007 to 2014, which was termed Horizon One, the objective was to develop a solid
foundation upon which to build a business. Horizon Two (2014-2019) was dedicated to giving the business rapid traction, which is visible
in the revenue trend of the past few years.
Now under its Horizon Three (2020-2025), Solutions aim to achieve stable growth along with improved profitability. For FY22, Solutions
has given guidance of mid-to-high single-digit revenue growth. However, considering 1Q 2022 financials, the company’s market
standing, industry growth prospects, and the fact that it has easily beaten its guidance in the past, we opine the management’s
expectation to be on the conservative side, and accordingly, we expect it to clock a top-line growth in the low-to-mid double-digits.
Accordingly, over the medium term, we estimate the company to clock an 11% total revenue CAGR during FY21-25, slightly higher than
the 8% CAGR at which the Kingdom’s overall ICT services market (including IT services and B2B voice & data) is expected to expand
during this period.
Fig. 23: Core ICT services’ share in total revenue is receding Fig. 24: Core ICT services’ revenue growth and market share
60% 56.3% 54.3% 54.1% 55.0% 53.6% 52.3% 30% 26.5% 25%
25% 20%
Share in total revenue
40% 20% 15.4% 19.3% 19.9% 20.4%

25.0% 24.3% 24.2% 17.6% 15%
23.7% 23.9% 16.4% 14.5%
22.0% 22.2% 15%
20.8% 20.7% 23.9%
21.7% 22.0% 7.3% 7.2% 10%
10% 12.1% 13.0%
20%
5% 5%
0% 0%
0%
Core ICT services IT Managed and Operational Services Digital Services Core ICT services revenue growth YoY
Core ICT services market share (RHS)
Source: Company Reports, U Capital Research Source: Company Reports, U Capital Research
Fig. 25: IT Managed services’ revenue growth and market share Fig. 26: Digital services’ revenue growth and market share
50% 40% 100% 83.6% 20.9% 22%

41.1%
35.3% 21%
40% 35.9% 80%
34.7% 34.9% 35.6% 30% 20%
31.5% 18.6%
30% 60% 18.1% 19%
20% 17.6% 17.7% 17.8%
23.6% 32.9% 18%
20% 40%
19.9% 9.6% 8.4% 17.8% 18.5% 17%
9.4% 10% 12.0%
10% 20% 7.4%
16%
0% 0% 0% 15%
FY19 FY20 FY21 FY22e FY23e FY24e FY19 FY20 FY21 FY22e FY23e FY24e
IT Managed & Operational Services revenue growth YoY Digital Services revenue growth YoY
IT Managed & Operational Services market share (RHS) Digital Services market share (RHS)
…accompanied by an improvement in profitability

As pointed out above, under the current strategy, Solutions will strive for its business growth to be accompanied by an improvement
in its profitability. To achieve this, the company seeks to expand into new but related business lines, offering high-margin products. In
addition, optimization of costs to enhance operational efficiency is also on the cards. We opine that the company has already initiated
steps to achieve this, which helped it in reversing a declining trend in its margins during FY17-FY19. With the above-discussed steps
bearing fruit, we expect expansion in Solutions’ margins to sustain going forward.
Page 16 of 27
Solutions by STC
Fig. 27: Profitability expansion to continue… Fig. 28: …boosting return to shareholders
44.1%
25% 21.9% 22.0% 22.3% 22.5% 46.1% 44.5%
20.6% 50%
20% 16.1% 40%

14.8% 15.3% 39.7% 41.8%
14.1%
15% 27.0%
11.0% 11.5% 30%
8.0% 14.0% 14.5%
10% 13.1% 20% 15.0% 15.1% 15.0%
12.5% 12.3%
10.2% 10.7% 8.4%
5% 7.5% 10%
0% 0%
FY19 FY20 FY21 FY22e FY23e FY24e FY19 FY20 FY21 FY22e FY23e FY24e
Gross margin Operating margin Net margin RoA RoE
Strong balance sheet, coupled with low capex requirements to ensure sustained dividend payouts
Solutions is a zero debt company, and in the backdrop of relatively low capex requirements on average, the company has enjoyed
healthy cash flows as well as liquidity. Solutions’ receivables days had increased from 4 months in FY17 to slightly over 5 months in
FY19, which we feel is due to the high volume of its business coming from the government and GREs. However, the company has
worked to reduce its receivables days to nearly 4.5 months in FY21 and we expect it to bring down further to around 4 months going
forward. Given our forecast of top-line growth and profitability improvement, we expect the company to comfortably meet its business
funding needs, both for day-to-day operations as well as capex requirements for organic and inorganic growth. We expect Solutions
would still be left with ample liquidity to maintain its dividend payouts. The company has increased its DPS in FY21 to SAR 4.0 per share
from SAR 3.3 per share in FY20, resulting in a dividend payout of ~58 (57% in FY20).
Fig. 29: Solid cash flows to easily accommodate capex and dividends
2,000 1,827 1,800

1,727
1,600 1,379
1,119 1,570 1,614
1,540
SAR mn
1,200
800
800 991
503
183 760
662
400 300 400 480
407 536
179 155 139 185 226
0
Capex Dividends Operating cash flows Free cash flows
Page 17 of 27
Solutions by STC
Fig. 30: Receivables days gradually reducing Fig. 31: Consistent dividend payments likely
200 3.5% 57.6% 3.1% 58.0%

57.0% 2.8%
155 3.0%
144 136 57.0%
150 125 125 123 2.5% 57.2%
2.4%
112 2.0% 56.0%
100 2.1% 56.2%
115 117 112 113 1.5%
55 106 55.0%
38 1.0%
50 31 32 25 22 54.8%
12 54.0%
9 12 0.5%
13 12 12
0 0.0% 53.0%
FY19 FY20 FY21 FY22e FY23e FY24e FY20 FY21 FY22e FY23e FY24e
Inventory days Debtor days CCC (days) Payable days Dividend yield Dividend payout (RHS)
Assign Hold rating

Solutions’ stock price has appreciated ~20% year-to-date till 12 May 2022 and is nearly 50% since the close of its first trading day on 29
September 2021. In our view, the current valuation levels indicate that most of the near-term positives are already priced in and
therefore, we assign a HOLD rating on the stock with a target price of SAR 233.5, implying an upside of 3.3%.
About Solutions by STC

The company was incorporated under the name of “Arabian Internet and Communication Services Company” in 2003 and got listed on
Tadawul in 2021. “Solutions by STC” is its commercial name and the telecom major Saudi Telecom Company (STC) is the largest
shareholder in the company, holding a 79% stake currently. Solutions by STC is a leading player in the Kingdom’s IT sector and offers a
range of products and services covering system integration, cloud services, cybersecurity, managed networks, and connectivity
solutions, among others. The company caters to both the public and private sector clients, with more than 50% of revenue being
generated from the government and government-related entities (as of FY21). In terms of geography, the company generates almost
all of its business from the Kingdom. Solutions’ has five offices in Saudi Arabia, two in Riyadh including the headquarters, and one each
in Jubail, Khobar, and Jeddah. As of FY21, the company has more than 1,500 professionals working for it.
Fig. 32: Solutions by STC’s Shareholding Structure
20%
Saudi Telecom Co.
0% Arabian Int. &

0% Comm.
1%
Franklin Resources
Vanguard Group
79%
Others
Source: Bloomberg, 17 April 2022
Page 18 of 27
Solutions by STC
Key financials
In SAR mn, except stated otherwise FY19 FY20 FY21 FY22e FY23e FY24e
Income Statement
Revenue 5,257 6,891 7,816 8,807 9,691 10,658
Cost of sales (4,410) (5,469) (6,108) (6,870) (7,530) (8,260)
Gross profit 847 1,422 1,708 1,938 2,161 2,398
General and administration expenses (350) (460) (462) (454) (478) (502)
Selling and distribution expenses (158) (159) (196) (217) (236) (258)
(Impairment)/reversal of impairment of accounts receivable 9 (46) (151) (35) (36) (34)
Operating profit 422 755 901 1,244 1,435 1,631
Interest expenses on lease liabilities - - - - - -
Finance income/(costs), net 13 (1) 3 12 21 28
Profit before zakat 435 754 904 1,256 1,457 1,659
Zakat expense (41) (52) (71) (100) (103) (117)
Profit attributable to shareholders of the company 394 702 833 1,156 1,354 1,542
Balance Sheet
Cash and cash equivalents 414 993 1,608 2,644 3,441 4,197
Trade and other receivables 2,635 2,804 3,021 3,034 3,331 3,605
Contract assets 1,166 1,505 1,256 1,561 1,804 1,954
Right of use assets 77 72 55 51 48 45
Property and equipment 167 594 551 408 342 349
Total assets 4,877 6,335 7,173 8,266 9,636 10,894
Contract liabilities 452 336 354 426 630 693

Lease liabilities 54 48 31 28 26 25
Trade and other payables 1,458 1,974 1,931 2,062 2,312 2,559
Total liabilities 3,621 4,411 4,902 5,520 6,300 6,861
Share capital 100 1,200 1,200 1,200 1,200 1,200

Retained earnings 1,079 610 960 1,339 1,878 2,576
Equity Attributable to Shareholders 1,257 1,924 2,271 2,746 3,340 4,037
Cash Flow Statement
Net cash generated from operating activities 183 1,119 1,379 1,827 1,727 1,800
Net cash generated from investing activities 151 (536) (155) (139) (185) (226)
Net cash (used in) provided by financing activities (813) (4) (610) (655) (741) (818)
Cash and cash equivalents at the end of the period 414 993 1,608 2,640 3,441 4,197
Key Ratios
Gross margin (%) 16.1% 20.6% 21.9% 22.0% 22.3% 22.5%
EBITDA margin (%) 9.8% 12.5% 14.2% 17.0% 17.1% 17.1%
Operating margin (%) 8.0% 11.0% 11.5% 14.1% 14.8% 15.3%
Net margin (%) 7.5% 10.2% 10.7% 13.1% 14.0% 14.5%
ROA 8.4% 12.5% 12.3% 15.0% 15.1% 15.0%
ROE 27.0% 44.1% 39.7% 46.1% 44.5% 41.8%
Current Ratio (x) 1.3x 1.4x 1.4x 1.5x 1.5x 1.6x
Capex/Sales 3.4% 7.8% 2.0% 1.6% 1.9% 2.1%
Debt-Equity Ratio 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x
EPS 3.3 5.8 6.9 9.6 11.3 12.8
BVPS 125.7 16.0 18.9 22.9 27.8 33.6
DPS 80.0 3.3 4.0 5.5 6.3 7.0
Dividend Payout Ratio 203.1% 57.0% 57.6% 57.2% 56.2% 54.8%
Dividend Yield (%) NA NA 2.1% 2.4% 2.8% 3.1%
P/E (x) 0.0x 0.0x 27.1x 23.5x 20.0x 17.6x
P/BV (x) 0.0x 0.0x 9.9x 9.9x 8.1x 6.7x
EV/EBITDA (x) 0.0x 0.0x 19.1x 16.6x 14.5x 12.8x
Price as at period end* - - 188.2 226.0 226.0 226.0
Source: Company Reports, U Capital Research *Current market price is used for forecast periods
Page 19 of 27
MIS
Al Moammar Information Target Price: SAR 158.5/share

Upside: 31.4%
Recommendation Buy • The first Saudi company in the IT sector to be listed on Tadawul has a sizeable number
Bloomberg Ticker MIS AB of government and semi-government clients
Current Market Price (SAR) 120.60 • Inked several contracts, launched new initiatives recently focusing on new and
52wk High / Low (SAR) 178.600/108.200
upcoming technologies like artificial intelligence, big data, etc.
• MIS is implementing a data centers project which is expected to boost the earnings and
12m Average Vol. (000) 204.2
profitability; a likely decline in impairments should also impact margins positively
Mkt. Cap. (USD/SAR Mn) 7,839/3,015
• Management commits to maintain dividend payout at a minimum of 45% till FY23
Shares Outstanding (mn) 25.0
Free Float (%) 52% We initiate coverage on Al Moammar Information Systems (MIS) and assign a Buy
3m Avg Daily Turnover (SAR'000) 13,083.0 rating with a target price of SAR 158.5 per share, offering an upside of 31.4%.
6m Avg Daily Turnover (SAR'000) 20,266.5 Currently, the stock trades at a P/E of 18.9x, based on our FY22 estimates. MIS is
P/E'22e (x) 18.9 undertaking a project to build some new data centers in the Kingdom by mid-2023,
P/B'22e (x) 7.2 which is expected to be a major near-term catalyst for earnings growth. Moreover,
Dividend Yield '22e (%) 2.4% revenue is also likely to rebound, tracking the general ICT industry trend, and the
government’s increased focus on progressing towards a digital economy. Initiatives
Price Performance:
and deals that were undertaken over the last one and a half year has the potential to
boost the earnings capability of MIS over the near-to-medium term, in our view, while
1 month (%) (13.5)
also lending diversification benefits to the business.
3 month (%) (23.0)
12 month (%) 11.5 Investment Thesis
Source: Bloomberg, valued as of 12 May 2022
Valuation and risks: Our target price is based on blended valuation methodologies –
(i) Discounted Cash Flow (DCF) and (ii) Relative Valuation (using P/E multiple). Key
Price-Volume Performance
downside risks to our valuation include i) below-expected performance of the
business units ii) an anticipated improvement in the receivable impairment not
200.00 2,500
materializing, iii) less-than-estimated expansion in margins, iv) higher than forecasted
180.00
leverage levels, and/or the associated debt costs. Key upside risks to our valuation
160.00 2,000
140.00
include i) better-than-estimated revenue growth, especially in the data center
120.00 1,500 segment ii) better-than-expected improvement in margins, and iii) lower-than-
100.00 estimated leverage levels and/or debt servicing costs.
80.00 1,000
60.00 Recovery on the cards: MIS has products and solutions across the domains of the IT
40.00 500 sector i) Top-line expected to return to growth after weakening for two years, backed
20.00
by several new projects & initiatives undertaken, ii) SAR 2.5bn cumulative value of
0.00 -
WIP contracts currently, highest in the company’s history, iii) New data centers
Jul-21
Jun-21
Nov-21
May-21
Apr-22
Aug-21
Sep-21
Dec-21
Jan-22
Feb-22
Mar-22
Oct-21
project to give a fillip to earnings growth, iv) gross margins expected to improve, aided
by an improvement in revenue and diversification of revenue streams, v) operating
Vol, '000 (RHS) Px, SAR (LHS)
and net margin under pressure last year but set to recover with improvement in gross
Source: Bloomberg margins and likely decrease in impairments, vi) leverage position higher than peers at
present, but a forecasted pickup in earnings should aid in better debt management
vii) sustained dividend payouts; minimum dividend payout policy of 45% till FY23
Year FY19 FY20 FY21 FY22e FY23e FY24e

Revenues (SAR mn) 997.5 674.8 638.8 715.8 793.0 883.7
Net i ncome (SAR mn) 76.0 81.3 56.5 159.1 159.1 134.0
Gros s ma rgi n 16.4% 25.7% 26.1% 36.5% 34.2% 28.3%
Net profi t ma rgi n 7.6% 12.0% 8.8% 22.2% 20.1% 15.2%
RoE 33.7% 28.1% 17.2% 42.2% 34.5% 25.4%
FCF (SAR/s ha re) 0.3 (2.7) (0.3) 7.2 7.2 7.0
DPS (SAR/s ha re) 2.0 2.1 2.0 2.9 3.1 3.3
Di vi dend Yi el d 7.0% 2.7% 1.7% 2.4% 2.6% 2.7%
P/E (x) 9.3x 23.7x 67.0x 18.9x 19.0x 22.5x
P/BV (x) 1.8x 4.7x 11.3x 7.2x 6.0x 5.4x
Source: Company Reports, U Capital Research *P/E and P/B from 2022 onwards calculated on price of 12/05/2022
Page 20 of 27
MIS
The existing business units are expected to gain traction amid an improving business environment
The company carries out a gamut of ICT solutions and services through six business units, namely, Business Service Management Unit,
Solutions Unit, Systems Unit, Information Security Unit, Networking Unit, and Operations & Maintenance (O&M) Unit. Of these,
Networking Unit had the largest revenue share in FY21 total revenue (31.2%), followed by O&M Unit (23.1%), and Systems Unit (20.1%).
According to the management, the total value of new projects of the company during 1Q 2022 reached ~SAR 1.5bn, including SAR 1.2bn
data centers project, while the cumulative value of work-in-progress contracts and business amounted to SAR 2.5bn, which is the
highest in the company’s history. The order book position should swell further with the company adding more contracts during the
remaining quarters of the year. This provides good revenue visibility in our view, even if the company manages to book only a part of
its outstanding contract in revenue, and accordingly, we estimate MIS’ top-line to rebound in FY22, after remaining under pressure
during the last two years.
Fig. 33: Among the existing units, Networking Unit has remained the largest revenue provider
300 283
252 263
248 237
250 216
199 201 189
200 176 175
148 156 162
SAR mn
137 127 126 129

150 118
102 95
100 84 77 75 85
73 67 61 59 70 66
48 48 54 53
50 44
-
Business Service Management Unit Solutions Unit Systems Unit
Information Technology Security Unit Networking Unit Operation & Maintenance Unit
Fig. 34: Revenue share of different business units in FY21 Fig. 35: Revenue expected to grow in tandem with the industry
11% Business Service 1,200 12.6% 13.1% 12.0% 11.4% 20%
23% Management Unit 10.8%
7% 1,000 10%
Solutions Unit 8.4% 10.9%
11.6% 10.4%
800 -5.3% 0%
2.1%
SAR mn
Systems Unit
600 -10%
998
400 793 884 -20%
IT Security Unit 675 716
20% 639
200 -32.4% -30%
Networking Unit
0 -40%
31% O&M Unit Total revenue MIS revenue growth (YoY)
8% ICT sector growth (YoY)
Source: Company Reports, U Capital Research Source: Company Reports, Solutions’ IPO Prospectus, U Capital Research
Spearheaded by the government’s push toward a digital economy, the ICT sector is forecasted to clock a double-digit growth rate over
the next few years. Accordingly, the company also expects its business volume to grow over the coming years, and to ensure this, it
plans to launch new initiatives, products as well as services as per market needs. In this regard, it is to be noted that the company has
signed several agreements since the start of FY21, which enables it to participate and capitalize on the existing and new opportunities
in the IT domain like cloud services, artificial intelligence, Internet of Things (IoT), data centers, etc. Apart from the data centers' deal
with SFC and Abunayyan Holding, some of the other noteworthy contracts signed during the last 12-15 months are:
 Participated as a founding member with a consortium of commercial entities to establish a sharia-compliant digital bank in the
Kingdom having a share capital of SAR 1.5bn, with the MIS contributing SAR 25mn towards its capital
 A strategic deal with BMC Software Inc. to provide cloud information technology management services to Saudi government
agencies and large and medium companies by using the Helix software
Page 21 of 27
MIS
 Launched an investment fund as per an MoU with Al Rajhi Capital with an initial size of SAR 1bn to fund the digital & technological
infrastructure and medical equipment projects
 MIS Forward (100% subsidiary) inked a binding agreement with a European fintech company to develop and implement various
innovative applications for MIS, such as i) ‘The Venture Studio’ to support creative and emerging ideas, ii) "Buy Now, Pay Later"
application, expected to be launched during 1H 2022, iii) an e-commerce platform and application, expected to be launched during
1H 2022, and iv) “Open Banking” platforms, expected to be launched during 2H 2022
 Launched in December 2021 applications and solutions of DataRobot through MIS cloud services to fulfill the artificial intelligence,
machine learning, and data science needs of government agencies, and large and medium corporate
 In March 2022, Edarat Communications & Information Technology Company (50% owned by MIS) obtained a higher level
classification license to provide cloud computing services which allows it to deal with secret and top-secret government data
In addition, the company established a 100% subsidiary in January 2021, named EMS, specializing in the field of healthcare services and
manufacturing and selling medical equipment and products. Consequently, MIS secured several healthcare-related contracts, such as
a SAR 186mn contract for the operation and medical maintenance of King Saud Medical City, a SAR 39mn contract for the operation
and maintenance of the digital infrastructure of 48 hospitals in the Central Region of Saudi Arabia, SAR 58mn contract for the operation
and maintenance of the digital infrastructure of 72 hospitals in the Eastern Region and Northern Region, and SAR 79mn contract for
the maintenance of medical devices and equipment for Al-Noor Specialized Hospital in Makkah.
Fig. 36: MIS Critical Infrastructure Business Line Fig. 37: MIS Cloud Computing And Consulting Business Line
30 25
26.0 26.0
20.0 21.0 19.0
25 22.0 20
20 15.0
15
nos.
15 11.0
nos.
11.0 10.0 10
10
5.0
5 3.0
5
0 0
No. of active projects No. of active clients No. of active projects No. of active clients
Government Semi government Private Government Semi government Private
Fig. 38: MIS Digital Solutions Business Line Fig. 39: MIS Operation And Maintenance Business Line
7 20
6.0 17.0
6
5.0
5 15
4.0 4.0 4.0 4.0
4 10.0
10
nos.
nos.
3
5.0
2 5 3.0
1
- -
0 0
No. of active projects No. of active clients No. of active projects No. of active clients
Government Semi government Private Government Semi government Private
Thus, it can be said that the MIS has been building exposure in the right places and at a right time. Many of the recent agreements
provide MIS with the wherewithal to participate and benefit from the multitude of existing as well as upcoming opportunities across
the spectrum of the ICT sector. Moreover, operating in the various facets of the IT industry gives resilience and diversification benefits
to the company.
Page 22 of 27
MIS
Data centers project to aid in business recovery…

MIS is among the key investment partners of the Saudi government’s USD 18bn data centers strategy. The company had signed a
Memorandum of Understanding (MOU) in June 2021 with Saudi Fransi Capital (SFC) to set up a private investment fund having an initial
size of SAR 700mn, and scalable up to SAR 3.5bn, to develop, own, and operate data centers across Saudi Arabia. As part of this MoU,
Sharia-compliant Saudi Data Centers Fund 1 was launched in October 2021 with a target size of SAR 1.5bn, and subsequently, a project
to design, develop, and manage six data centers was announced at an estimated budget of SAR 1.2bn in the first phase. The cumulative
initial capacity of the first data center project would be 24 megawatts (MW), which can be increased to 120 MW. MIS will receive a
development fee equivalent to 10% of the project’s cost. In addition, it will also be entitled to a 7% management fee applied to the
revenue generated from the data centers (not modeled as of now for the lack of required information), as it has entered into an initial
agreement to manage the data centers for 15 years. In our opinion, the company might earn additional income from this project apart
from the development and management fee by itself becoming a contractor (either partially or fully) to set up the project. MIS had
received a go-ahead from SFC to commence the project on 02 January 2022 and expects to complete the project by mid-2023, and has
so far awarded civil, electromechanical, and technical contracts worth up to SAR 800mn in this regard.
Fig. 40: Data centers project to boost the earnings in FY22 and FY23
80 12.0%
10.1% Inome from data centers would fall as development fees
70
will be replaced by management fees post the 10.0%
7.6%
60 completion of the construction of data centers
8.0%
50
SAR mn
40 6.0%
30 72 1.9%
4.0%
1.5%
20 1.6%
60
2.0%
10
13 16 21
- 0.0%
FY22e FY23e FY24e FY25e FY26e
Income from data centers As % of total revenue, excluding data centers' revenue (RHS)
Source: Company Announcements, U Capital Research
We have assumed the company to get 60% of the expected income from the project (c. SAR 72mn) in FY22, which is nearly 11% of FY21
total revenue and around 10% of FY22e top-line, excluding the revenue from data centers. The remaining development fee is estimated
to be received in FY23, followed by the data centers’ management fee in subsequent years. Apart from this, the company has also
entered into a partnership agreement with Abunayyan Holding to develop green data centers. While we have not accounted for the
revenue that may accrue from this project, or the execution of phase II of the above-discussed data center project, given the lack of
specific details, we contend they hold the potential to significantly augment the company’s future revenue stream, once implemented.
…and along with a likely decrease in impairment provisions support margin enhancement
Despite pressure on the top line during the last two years, the company did well in containing its expenses, thereby improving the gross
margin to 26.1% in FY21 from 25.7% in FY20. However, operating and net margins eroded in FY21 from FY20, partly owing to an 86.0%
YoY jump in impairment expense on receivables and contract assets. Nevertheless, the company expects its receivables’ collections to
improve going forward which might result in a decrease in or reversal of some provisions, thereby positively impacting the operating
and net income.
Moreover, income from the data centers project is also estimated to lead to a healthy expansion in the margins aided by the
development, as well as the management fees. Hence, the resultant increase in the bottom line is expected to be directly proportional
to the inflow of such income, which will enhance the profitability of the company as well as returns for the shareholders.
Page 23 of 27
MIS
Fig. 41: Margins likely to expand significantly on data centers’ income Fig. 42: Return to shareholders also set to rise
30%
25% 22% 23% 60%
25% 12% 20%
12% 17% 15% 42.2%
20%
15% 15% 14% 40% 33.7% 34.5%
15%
15% 28.1%
25.4%
10% 17.2%
20% 12.6% 11.2%
5% 8.3% 7.8% 8.8%
4.9%
0%
FY19 FY20 FY21 FY22e FY23e FY24e 0%
OPM, exc. data centers' income OPM, inc. data centers' income
NPM, exc. data centers' income NPM, inc. data centers' income RoA RoE
…leading to enhanced cash flows; ease in the leverage position

Given our expectation of an expansion in the company’s profitability on the back of a recovery in top line and implementation of
new projects, cash flows are also forecasted to be relatively better-off. Improved cash flows would equip the company to
comfortably meet its capex requirements, which are expected to remain low at a historical average of ~2.0% of revenue, while also
lowering its outstanding debt levels. Lower debt levels are desirable under the current situation as the economy is likely to witness
a rising interest rate environment.
Fig. 43: Cash flows are estimated to improve gradually Fig. 44: D/E expected to come down aided by earnings growth
250 209 5.0x 4.31x

200 201
200 4.0x
150 2.92x
180 180 176 3.0x
SAR mn
100
45
50
29 2.0x 1.88x 1.32x
0.87x 0.85x
0 (28) 0.46x
(7) 1.0x
7
FY19 FY20 FY21 FY22e FY23e FY24e 1.15x 1.11x
-50 0.84x 0.66x
0.0x 0.57x
-100 (68) FY19 FY20 FY21 FY22e FY23e FY24e
Operating cash flows Free cash flows Debt-Equity Ratio Net Debt/EBITDA
Assign a Buy rating on better income visibility

Based on the recent business development initiatives undertaken by the company, we reckon the company might enter a new, higher
growth phase over the coming few years, which is expected to be complemented by enhanced profitability. Accordingly, we assign a
BUY rating on the stock with a target price of SAR 158.5, implying an upside of 31.4%. The company has proposed a bonus share issue
in January 2022 in the ratio of 1:5, to be approved by an EGM. This will increase the size of the capital to SAR 300mn from the current
SAR 250mn. We will make the required changes in our estimates once the decision is implemented. While the bonus issue will not alter
the market value of the firm, it will lead to a reduction in the current market price which could raise the attractiveness of the stock,
particularly among retail investors. A consistent dividend payment (minimum 45% dividend payout policy till FY23) also bodes well for
the investors.
About MIS
MIS was established in 1979 in Khobar. It is currently headquartered in Riyadh and has an Eastern Region office in Dammam, and a
Western Province office in Jeddah. The primary activity of the company is to provide a wide variety of solutions and services in the
Information Technology (IT) sector like network integration, information security, cybersecurity, software solutions, support, and
maintenance activities, carried out through six strategic business units. MIS is also foraying in setting up and management of data
Page 24 of 27
MIS
centers in the Kingdom. The company became the first Saudi public listed company in the IT sector after it got listed on the Saudi Stock
Exchange (Tadawul) in 2019. As of 2021, MIS had around 200 employees as part of its central team and more than 700 personnel in the
operation and maintenance team.
Fig. 45: MIS’ Shareholding Structure
26%
Ibrahim Al
Moammer
Al Moammar Khalid
50%
Samba Capital
Dimensional Fund
Advisors
22%
Others
1% 1%
Source: Bloomberg, 17 April 2022
Page 25 of 27
MIS
Key financials
In SAR mn, except stated otherwise FY19 FY20 FY21 FY22e FY23e FY24e
Income Statement
Revenue 998 675 639 716 793 884
Cost of sales (834) (502) (472) (526) (581) (647)
Gross profit 164 173 167 262 272 250
General and administration expenses (44) (55) (61) (67) (74) (83)
Selling and distribution expenses (12) (10) (10) (11) (12) (13)
(Impairment)/reversal of impairment of accounts receivable (8) (10) (18) (2) (6) (6)
Operating profit 100 98 77 182 179 148
Finance costs (22) (18) (19) (19) (19) (18)
Finance income 3 2 1 2 4 6
Profit before zakat 83 89 65 171 171 144
Zakat expense (7) (8) (8) (12) (12) (10)
Profit attributable to shareholders of the company 76 81 56 159 159 134
Balance Sheet
Cash and cash equivalents 29 81 22 108 177 243
Trade and other receivables 351 516 388 432 478 533
Contract assets 428 375 568 650 612 573
Contract costs 104 139 90 90 90 90
Property and equipment 21 37 42 48 55 62
Total assets 936 1,148 1,152 1,377 1,469 1,568
Contract liabilities 93 139 123 100 110 122

Loans and borrowings 220 373 371 353 333 314
Trade and other payables 317 243 265 292 323 359
Total liabilities 682 823 818 957 968 1,013
Share capital 160 200 250 250 250 250

Retained earnings 72 108 71 142 207 247
Equity Attributable to Shareholders 254 324 334 420 502 555
Cash Flow Statement
Net cash generated from operating activities 29 (28) 45 209 200 201
Net cash generated from investing activities (11) (18) (38) (13) (14) (16)
Net cash (used in) provided by financing activities (95) 98 (67) (110) (116) (119)
Cash and cash equivalents at the end of the period 29 81 22 108 177 243
Key Ratios
Gross margin (%) 16.4% 25.7% 26.1% 36.5% 34.2% 28.3%
EBITDA margin (%) 10.2% 14.8% 12.7% 26.0% 23.3% 17.4%
Operating margin (%) 10.0% 14.6% 12.1% 25.4% 22.6% 16.7%
Net margin (%) 7.6% 12.0% 8.8% 22.2% 20.1% 15.2%
ROA 8.3% 7.8% 4.9% 12.6% 11.2% 8.8%
ROE 33.7% 28.1% 17.2% 42.2% 34.5% 25.4%
Current Ratio (x) 1.4x 1.4x 1.3x 1.6x 1.7x 1.7x
Capex/Sales 1.1% 2.7% 2.1% 1.8% 1.8% 1.8%
Debt-Equity Ratio 0.9x 1.1x 1.1x 0.8x 0.7x 0.6x
EPS 3.0 3.3 2.3 6.4 6.4 5.4
BVPS 15.9 16.2 13.3 16.8 20.1 22.2
DPS 2.0 2.1 2.0 2.9 3.1 3.3
Dividend Payout Ratio 42.1% 51.7% 88.5% 45.6% 48.7% 60.6%
Dividend Yield (%) 7.0% 2.7% 1.7% 2.4% 2.6% 2.7%
P/E (x) 9.3x 23.7x 67.0x 18.9x 19.0x 22.5x
P/BV (x) 1.8x 4.7x 11.3x 7.2x 6.0x 5.4x
EV/EBITDA (x) 9.0x 22.4x 50.8x 17.5x 17.1x 20.0x
Price as at period end* 28.4 77.0 151.4 120.6 120.6 120.6
Source: Company Reports, U Capital Research *Current market price is used for forecast periods
Page 26 of 27
Disclaimer
Recommendation
BUY Greater than 20%
ACCUMULATE Between +10% and +20%
HOLD Between +10% and -10%

REDUCE Between -10% and -20%
SELL Lower than -20%
Ubhar Capital SAOC (U Capital)
Website: www.u-capital.net
PO Box 1137
PC 111, Sultanate of Oman
Tel: +968 2494 9000
Fax: +968 2494 9099
Email: [email protected]
Disclaimer: This report has been prepared by Ubhar Capital (U Capital) Research and is provided for information purposes only. Under no circumstances is it
to be used or considered as an offer to sell or solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information
contained therein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be
relied upon as such. The company accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its
contents. All opinions and estimates included in this document constitute U Capital Research team’s judgment as at the date of production of this report and
are subject to change without notice. This report may not be reproduced, distributed or published by any recipient for any other purpose.
Page 27 of 27

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KSA IT Sector, Opportunities galore… 12 May 2022

Sensitivity Analysis .................................................................................................................................... 4

Peer Group Valuation ............................................................................................................................... 5

Macro-economic & Sector Overview ....................................................................................................... 6

Solutions by STC ...................................................................................................................................... 13

Weighted Average Target Price (SAR) 233.5 158.5

Terminal growth 2022e EPS (SAR)

Terminal growth 2022e EPS (SAR)

2.5% 8.0 MIS

Source: Bloomberg, U Capital Research; As of 12 May 2022

Real GDP growth YoY - KSA

Source: GASTAT, U Capital Research Source: GASTAT, IMF, U Capital Research

60.0 -20% -32%

Source: Bloomberg, IMF, U Capital Research Source: JODI, U Capital Research

Source: KSA MCIT, U Capital Research

1.6% 1.4% Spain 72.0

0.0 50.0 100.0 150.0 200.0

30.0 30.5 33.8 4.0%

B2B Voice and Data IT Services YoY growth (RHS)

Source: Solutions IPO Prospectus, U Capital Research

1.0 3.0 3.2 3.4

Infrastructure Integration Application Integration Network Integration IT Consulting IT Training

Source: Solutions IPO Prospectus, U Capital Research

IoT Big Data & Analytics AI

Source: Solutions IPO Prospectus, U Capital Research

Software Support & Deployment Custom Application Development

Source: Solutions IPO Prospectus, U Capital Research

Hardware Deployment & Support Managed Endpoint Services

Source: Solutions IPO Prospectus, U Capital Research

397 432 115 101

Source: Solutions IPO Prospectus, U Capital Research

0.1 0.2 0.3

Project-Based Cybersecurity Managed Disaster Recovery Managed Security

Source: Solutions IPO Prospectus, U Capital Research

Fig. 19: Public cloud space is expected to swell the most

Source: Solutions IPO Prospectus, U Capital Research

Solutions by STC Target Price: SAR 233.5/share

Year FY19 FY20 FY21 FY22e FY23e FY24e

Solutions further cements its already strong market position

Fig. 20: Solutions further boost its market standing

Foreign players, 9.0%

Source: Company Reports, U Capital Research; *data for FY18

20% 45.6% 42.7% 39.2% 35.2% 28.7%

Source: Company Reports, U Capital Research

Fig. 22: Solutions expected to maintain an above-average revenue growth rate

40% 20% 15.4% 19.3% 19.9% 20.4%

50% 40% 100% 83.6% 20.9% 22%

…accompanied by an improvement in profitability

20% 16.1% 40%

Gross margin Operating margin Net margin RoA RoE

2,000 1,827 1,800

200 3.5% 57.6% 3.1% 58.0%

Assign Hold rating

About Solutions by STC

0% Arabian Int. &

Source: Bloomberg, 17 April 2022

Contract liabilities 452 336 354 426 630 693

Share capital 100 1,200 1,200 1,200 1,200 1,200

Al Moammar Information Target Price: SAR 158.5/share

Year FY19 FY20 FY21 FY22e FY23e FY24e