Price competition is hitting bottom lines across all of Saudi Arabia's telecommunications companies, but with the added burden of debt, Zain KSA appears in the worst position to weather the storm.
NCB Capital forecasts that the Saudi telecoms sector - currently trading 9 per cent below regional peers - has good growth potential, particularly in the broadband segment.
At first glance, Zain looks like a key driver of this growth. Its stock is up 103.6 per cent so far this year.
However, NCB believes the jump is unjustified.
It has downgraded the company to "underweight", which means it expects a 10 per cent fall in its share price over the next 12 months.
Zain has had problems for some time. The company is on its third chief executive in six months, having hired again two weeks ago. It had been hoped the company was turning around. But in another blow, data published on the Saudi Stock Exchange website shows the kingdom's public pension agency no longer features as a holder of 5 per cent or more of Zain shares, hardly a vote of confidence.
Zain's biggest problem is its 10 billion riyals of long-term debt and the interest accruing on it. The company has for months been planning a 6bn riyal rights issue to ease some of this burden but has faced constant delays, and the issue is now expected in May.
Of the long-term debt, 9.75 billion riyals is due for repayment in July.
Sources close to the situation have said that without serious restructuring at the company, no bank will refinance the borrowings, which would be likely to force Zain to delist.
The vast majority of Saudi stock-market players are retail investors who look at share prices before price-to-equity ratios.
At about 11.20 riyals, Zain's stock is ripe for speculation. However, investors should be cautious.