JORDAN TELECOM GROUP EQUITY VALUATION REPORT

Transcription

1 JORDAN TELECOM GROUP EQUITY VALUATION REPORT

2 JORDAN TELECOM GROUP EQUITY VALUATION REPORT Trading Code JTEL Stock Exchange ASE *Current Price JD 5.41 Fair Price Target JD 6.03 Upside Potential 11.46% Recommendation Hold JTEL 30 Dec Dec Dec 09 *Current price as of April 22 nd, JD (million) Net Revenues Gross Profit Operating Expenses EBITDA Net Income Total Assets Property & Equipment Intangible Assets Cash & Short Term Deposits Total Current Assets Total Liabilities Total Loans Total Current Liabilities Total Shareholders Equity Financial Ratios Current Ratio Cash Ratio EBITDA Margin 42.84% 44.60% 45.16% Net Profit Margin 23.56% 24.75% 25.85% Loans to Equity 8.39% 8.12% 8.23% PE PBV Highlights Total revenues edged down by a slight 0.34% during 2009 due to the drop in fixed lines revenues and the slowdown in mobile revenues. Operating expenses descended by 1.21% in 2009 due to the drop in cost of services & government share of income. EBITDA improved to JD million at the end of 2009 relative to JD 179 million registered in Net income came at JD million, or JD per share, in 2009 in comparison to JD million, or JD per share, registered in Total assets expanded by 2.38% to reach JD million at the end of December 2009, mainly driven by the jump in intangible assets. Total Equity stood at JD million in December 2009 relative to JD million recorded at the end of the prior year.

3 Establishment of Telecommunications Corporation (TCC) Know n as Jordan Telecom later. TRC was incepted on the back of Law No. 19 Fastlink launched its services The first Internet Service Provider emerged - Global One The government sold 40% of JTEL to consortium led by France Telecom and Arab Bank The Ministry of Post and Communication was renamed tothe Ministry of Information and Communications Technology Xpress was granted the first license to operate radio trunking services. Umniah became the third GSM services provider Jordan Telecom companies were consolidated under the group Orange after France Telecom took over the majority of shares Fastlink was acquired by Zain and joined its regional group, Fastlink was renamed to Zain Jordan TRC announced its intention to introduce 3G services in Jordan and issued a tender to local operators Jordan Telecom obtained the first 3G license in Jordan TELECOMMUNICATION SECTOR IN JORDAN Telecom sector is a major building block in Jordan s economic and social tissue. The soundness and solidness of the telecommunication infrastructure was emphasized by Global Information Technology Report released by World Economic Forum that ranked Jordan on the 44 th place out of 134 countries on network readiness index; the first non GCC country and the forth after United Arab Emirates, Qatar and Bahrain. Jordan s relatively outstanding performance was reflected on all sub indices including environment component, readiness component and usage component. Telecommunication sector has been actively taking part in the country s developmental evolution since the kingdom s early existence in 1921; the first automatic telephone service appeared back in 1961 when 5,000 fixed lines were installed. With the expansion of telecom service, a need for an organizing body to control service provision aroused, hence, the establishment of the Telecommunications Corporation (TCC) took place in 1971 to govern telephone, telegraph and telex services. The corporation later in 1997 became Jordan Telecommunications Company (JTC); a commercial company owned by the government. Mobile services weren t introduced to the Jordanian social frontier till it was 1995 when FastLink (known as Zain Jordan afterwards) penetrated the market, the same year, the sector s legal infrastructure got a clearer frame as the telecommunication law No. 13 was passed,which sat the path for the establishment of the Telecommunication Regulatory Commission (TRC). During the 1990s, internet services were launched to offer a major breakthrough that reshaped all communication segments. Global One Communication was the first Internet Service Provider (ISP) to launch its services by 1996, since then, many ISPs emerged, dragging prices to low levels as they were fiercely competing on a narrow market. Global one was later acquired by Jordan Telecom in In January 2000, the first step for Jordan Telecom s privatization took place, when the government sold 40% of the company to a consortium led by France Telecom and Arab bank, 8% to Social Security Corporation and 1% to employees. Since then, the group took on the sole responsibility to administer the kingdom s telecom infrastructure. During the same year, mobile market witnessed the break of Faslink s monopoly as Mobilcom (later known as Orange) was founded, which was acquired by Jordan telecom. 2

4 In 2005, Umniah was granted the third GSM licenses, before being acquired by Bahrain s Batelco Group in In the year 2002, the Ministry of Post and Communication was renamed to the Ministry of Information and Communications Technology on the back of Law 13 amendment of During the same year, Jordan Telecom took further step to privatization as 10.49% of its shares were sold to the public through an IPO, Jordan Telecom became a listed on Amman Stock Exchange (ASE) under the ticker JTEL. Xpress Company was granted the first license to operate radio trunking services in the year 2003 and introduced an infusion of technological services. Another milestone in Jordan Telecom s journey toward liberalization prevailed by 2006 as France Telecom became the major shareholder of Jordan Telecom. Operations of the group and its subsidiaries were consolidated under one umbrella to become a single organization, functioning under a shared management structure under the commercial name -Orange. In September 2007 Faslink was acquired by the Kuwaiti Zain to join its group (formally MTC group) and which operates in various countries of the region. Later in 2008 the government withdrawn completely from Jordan Telecom for the benefit of France Telecom that obtained 51% of ownership while the remaining shares were divided between Social Security Corporation, Noor Financial Investment, the armed force and security agencies and the final 7% left for public trading. In August 2009, Jordan Telecom was granted the first 3G license in Jordan after submitting the only offer meeting the requirements of the TRC. It is worth mentioning here that Jordan Telecom submitted the sole technical and financial offer for the 3G services in May 2009, but the offer was faced by refusal. 3

5 SERVICES TYPES Fixed lines Fix Phone Subsciber ('000) Penetration Rate per 100 inhabitant (%) Fixed line dominated the communication arena for a considerable period of time as it was the first mean to be introduced. Fixed line services continued to witness considerable developments supported by the fact that liberalization of Jordan Telecom has shown its positive reflection on services and prices. Fixed lines users are capable of conducting local, national, international and land to mobile calls smoothly; subscribers can also access the internet via computers modems using their fixed lines. Jordan Telecom enjoys the exclusive administration of fixed line service provision despite the end of its monopoly in Nevertheless, the demand on land lines retreated back for the favor of mobile services, by the year 2009 subscribers of fixed phone reached 501,238 retreating by 24.09%% when compared to 2001 s figure. Penetration rate decreased by 35.88% to reach 8.5% in 2009 compared to 13.1% in Mobile Services Mobile & Trunking Subscribers ('000) Mobile Penetration Rate per 100 inhabitants (%) Mobile technology s massive dissemination by the beginning of this century levered by the intensive competition led number of subscriber to jump up to 6,014,366 in 2009, from 866,000 subscribers in 2001, with penetration rate jumping above 100% for the first time in 2009 settling at 101% by the end of the year. Mobile infrastructure received the highest portion of investments among all telecom segments as JD 65 million were allocated in 2008, comprising 56.52% of total telecom investments. 4

6 In Jordan, apart from Orange there are two competing GSM operators and one radio trunking operator as follows; Zain Jordan Zain was the pioneering mobile operator in Jordan since 1995, it also instigated the MMS services on the Middle East level, the first to introduce WAP (Wireless Application Protocol) connectivity to Jordan and the first to enter a mobile banking partnership. Zain Kuwait took over the company in 2007 through one of the largest acquisition deals in the Middle East and Jordan s private sector. Umniah Umniah won the third GSM license in 2004 for an amount of JD 4 million to become the third GSM services provider in Jordan. Since its introduction, the company was able to increase its market share from 32% to over 60% despite the fierce competition characterized the sector all the time. Umniah was able to capture a significant customer s base with 1.43 million subscribers by end of 2008 and a penetration rate of 24.4%.. The company offers high quality internet connection through ADSL technology (Asymmetric Digital Subscriber Line) for business and corporate clients, connectivity speed reach up to 2 Mbps with multiple download options. In addition, the company also introduced the WiMax technology to Jordan and provides internet related business solutions for various needs. Xpress By the year 2004, Xpress brought in a new type of telecom services to Jordan and to the Arab world called iden (Integrated Digital Enhanced Network) after it was given exclusivity of deployment by the international corporation Motorola, who developed that technology in 1994 to provide solutions that satisfy business sector needs. Such technology combines both the mobile capabilities and Direct Connect (walkie-talkie) service. 5

7 Internet Number of Interest Users ('000) 1,715 1,500 1, JTEL has the sole authority to grant network access to all ISPs in its different forms of connectivity including analogue telephone lines, ISDN (Integrated Service Digital Network), and dedicated lease lines among others. Internet subscribers reached 244,513 in 2009, growing from 66,000 subscribers in Whereas users of internet reached 1,741,866 in 2009 compared to 238,000 users in 2001 driving internet usage penetration rate to 29% in 2009, up from 4.8% realized in 2001; such massive growth in usage is still under the aspirations of the government as the ministry is targeting an internet usage penetration rate of 50% by Investments in internet grew by 3 times during the 7 years period elapsing between 2001 and 2008 to reach JD 22 million in 2008 compared to only 5.5 million in 2001; still such allocations are way below the ones devoted for Mobile & Trunking telecom Internet Users Penetration Rate per 100 inhabitants (%) The wide spread of internet was validated through the entry of the City of Ibid into the Guniess Book of World Records of Internet cafes. Broadband connections through ADSL lines administered by Orange came afterwards in 2001 to make a significant diversion from the traditional and expensive analogue dial up method, broadband subscriptions were expensive at first too, but with the entry of increased number of ISPs, prices were notably driven down. Wireless broadband access was available by 2006 after the TRC issued a tender for the provision of Fixed Broadband Wireless Access- FBWA), accordingly, five companies were granted the license to provide the broadband services. Further progress took place when Umniah introduced WiMax service (Worldwide Interoperability for Microwave Accesscommercially known as UMax). Such technology supplements users with wireless internet connection with wide coverage and for long distance through the support of a simple hardware known as CPE (Customer Premises Equipment) that looks like an ordinary flash memory, speed range offered between 256Kbps 2Mbps. Zain E- go wireless broadband was the following brand using the same technology. 6

8 JORDAN TELECOM STORY 1997 TCC Transformed to Jordan Telecom Company (JTC) 2000 The Government Sold 40% of JTC 1999 Mobilcom was Granted a Mobile License Jordan Telecom Milestones 2002 The Government Sold 10.5% in an IPO 2001 Jordan Telecom Acquired Global One 2006 The Government sold its remaining stake 2005 Fixed Line Monopoly ended 2009 JT granted 3G license 2007 JT rebranded its services to Orange 1971 The Establishment of Telecom Corporation (TCC) The Telecommunications Corporation (TCC) was established in 1971 as a state-owned entity with main responsibility to provide a variety of telecommunication services. In 1997, the first step towards privatizing the TCC was made by transforming it to a Governmentowned company operating on commercial basis, the company's name was changed to Jordan Telecommunications Company (JTC). In 1999, MobilCom was granted the second license in Jordan to provide mobile services based on the GSM technology. The company commenced its operations in After becoming a full member of the World Trade Organization in 2000, the Government decided to privatize JTC and 40% of the company's shares were sold to a consortium (JITCO) for total amount of $ 508 million. France Telecom held 88% share in JITCO while the Arab Bank held a 12% stake. An additional 8% were sold to the Social Security Corporation and 1% of the company's shares were sold to JTC employees. In 2001, Jordan Telecom acquired Global One, a leading internet provider in Jordan. In 2002, the Government sold 10.5% of its shares equaling million shares in an initial public offering at a price of JD 2.35 per 7

9 share. The public subscribed to 5.5%, while the Social Security Corporation bought 10%, increasing its stake in the company to 13%. Jordan Telecom became the first government entity to be privatized though an IPO. Jordan Telecom fixed line monopoly came to an end in 2005 and the fixed line market became fully liberalized. In 2006, the Government decided to sell its remaining stake in Jordan Telecom where 11% were sold to France Telecom, 10% were purchased by Al-Nour Company and the Social Security Corporation increased its stake by 5%. A stake of 2.5% in Jordan Telecom was offered to the Public in a Secondary offering whereby 0.9% was purchased. The Government allocated 3% to the Jordan Armed Forces and Public Security Agencies. During 2007, Jordan Telecom re-branded all of its services into Orange, the commercial brand for France Telecom. The government sold another 11.6% stake in Jordan Telecom to the Social Security Corporation for a total amount of JD million. Social Security Corporation, 28.89% JTEL Shareholders Noor Telecom Company, 10% Investment & Developmental Projects Fund fot the Armed Forces & Security Bodies, 3% Free Float, 7.1% JITCO, 51% 8

10 BUSINESS SEGMENTS Fixed Line Orange Fixed line is still the main provider for fixed line services in Jordan despite the end of its monopoly in 2005, with a market share of 98%. In 2009, total number of fixed lines stood at around 679 thousands relative to thousands registered at the end of the prior year with the main growth coming from ADSL lines which rose by 25.72%, while PSTN lines dropped by 3.4% during the same period. Mobile Orange Mobile, formerly known as MobileCom, is the second mobile operator in Jordan. The company's management believes that Orange Mobile market share stood between 31%-34% at the end of 2009 relative to 32.3% registered at the end of The number of Orange Mobile subscribers grew during 2009 to 1,938.7 thousands, with the percentage of postpaid subscribers growing to 6.9%. In 2008, the number of subscribers grew by 2.6% to 1,755.5 thousands, of which 6.8% were postpaid subscribers and 93.2% were prepaid subscribers. Orange Mobile blended monthly ARPU declined to JD 9.4 at the end of 2009, compared to JD 9.7 and JD 10.3 recorded at the end of 2008 and 2007 correspondingly. Internet Orange Internet, formerly knows as Wanadoo, is the leading Internet Services Provider in Jordan with a market share of 50%. Orange Internet subscribers reached thousands at the end of December 2008 relative to 65.7 thousands in 2007; posting an impressive growth of 55.6%. 9

11 We believe that Orange Internet will be the main provider of growth for the group as the internet market in Jordan still has room for further expansion. JTEL ACQUISITIONS OUTSIDE JORDAN Jordan Telecom made its first acquisition outside Jordan in April 2007 when it acquired 51% stake in Lightspeed Communications in Bahrain. Lightspeed Communications is an alternative fixed-line telecommunications operator providing value-added and innovative services. Lightspeed ADSL subscribers grew during 2009 to 1,884 relative to 1,193 registered at the end of 2008; showing a growth of 57.9%. The company's revenues stood at JD 1.91 million at the end of the 2009, compared to JD 1.19 million recorded during the same period of 2008; displaying an increase of 59.9%. 3G license On August 2009, Orange was granted the first 3G license in Jordan for an amount of JD 50 million. The license is valid for a period of 15 years. Orange will have an exclusivity period of 12 months. 10

12 Total Revenues (JD million) GROUP FINANCIAL PERFORMANCE Revenues Total revenues displayed a minimal retreat during 2009 as the fixed line segment revenues continued to retreat due to the drop in traffic revenues, while the mobile segment revenues growth slowed down, which is mainly attributed to the fierce competition in the mobile market. On the other hand, data communication segment continued to achieve considerable growth on the back of the increase in the subscribers base. Total revenues stayed above the JD 400 million mark in 2009 as it slightly fell by 0.34%, or JD 1.36 million, landing at JD million in comparison to JD million posted during the previous year. Notwithstanding its declining trend, the fixed line segment continued to be the main contributor to total revenues, making up 46.51% of the total revenues in On the other hand, mobile segment contribution to total revenues increased from 44.62% in 2008 to settle at 45.22% at the end of The switch from fixed to mobile has affected to the contribution of fixed and mobile segments to total revenues. Data services made up 8.27% of total revenues in 2009 relative to 5.15% registered in Revenue Breakdown-2008 Revenue Breakdown-2009 Mobile 45% Data 5% Mobile 45% Data 8% Fixed line 50% Fixed line 47% 11

13 Operating Expenses OPEX OPEX (JD million) Total operating expenses witnessed another decline in 2009 as it stood at JD million in comparison to JD million recorded during 2008; displaying a drop of 1.21%. After rising during the past few years, the group's cost of services dropped in 2009 due to the decline in interconnection cost. Total cost of services went down by 2.27% to stand JD million as opposed to JD million registered a year earlier. The company managed to decrease its selling and distribution expenses for the second year as it stood at JD million, compared to JD million and JD million registered in 2008 and 2007 correspondingly. According to the license agreement signed between Orange mobile and the TRC, the company pays 10% of the mobile net revenue to the TRC. The government's share of income plunged by 20.13% in 2009 to land at JD million as opposed to JD million registered in During 2007, Jordan Telecom signed an agreement to use Orange brand in return to a royalty fees of 1.6% of operating income. Brand fees jumped to JD 5.5 million in 2009, compared to JD 5.3 million in 2008; showing an increase of 4%. JTEL also pays France Telecom management fees according to the Business Support Agreement. Management fees edged up in 2009 by 0.4% to reach JD 3.3 million in comparison to JD 3.2 million recorded in Operating Expenses Cost of Services 115,581, ,258, ,032, ,820, ,720,990 Administrative Expenses 16,292,964 20,489,739 32,974,071 27,673,922 31,637,435 Selling & Distribution Expenses 39,259,290 36,621,728 39,367,370 37,198,625 35,994,141 Government's Share of Income 8,061,033 10,308,157 13,873,938 12,696,002 10,140,451 Management & Copyright Fees 2,875,481 3,072,127 6,317,298 8,551,515 8,758,186 12

14 EBITDA EBITDA (JD million) EBITDA Margin 50% 48% 46% 44% JTEL's EBITDA (earnings before interest, tax, and depreciation & amortization) continued its upward trend during 2009 as it eked up by 4.8% reflecting the company's higher efficiency and the increase in gross profit. EBITDA reached JD million at the end of 2008 relative to JD million and JD million recorded in 2008 and 2007 respectively % 40% EBITDA margin went up to 45.16% in 2009, compared to 44.60% registered at the end of Finance Expenses & Income Net Income (JD million) Finance expenses slightly increased by 3.35% during 2009 landing at JD 2.25 million from JD 2.18 million registered in 2008, while finance income descended by 20.45% to settle at JD million which is mainly attributed to the drop in the company's cash and short-term deposits. This increase is attributed to the additional loan obtained from the Housing Bank during Profitability JTEL's net profit before tax posted a minimal retreat in 2009 settling at JD million as opposed to JD million recorded during 2007; displaying a slide of 0.49% 25% 25% 24% 24% 23% 23% 22% 22% 21% 21% 20% ROAE ROAA 17% 17% 16% 16% 15% 15% 14% 14% As for net income, it posted an augmentation of 4.12% during 2009 crossing the JD 100 market, mainly driven by cost effective control that pushed total costs to drop. Net income for 2009 came at JD million, or JD per share, in comparison to JD million, or JD per share, recorded in the prior year JTEL profitability ratios exhibited an enhancement during 2009 with net profit margin reaching 25.85% relative to 24.75% registered at the end of the prior year. ROAA climbed to 15.12% at the end of 2009 relative to 14.82% registered in 2008, while ROAE grew to 24.77% in 2008 relative to 24.01% registered at the end of the previous year. 13

15 Total Assets (JD million) Assets Total assets grew by JD million during 2009 mainly driven by the 415% increase intangible assets, which offset the 11.82% drop in cash. Adding to that, accounts receivables JD increase during 2009 supported the expansion in the company s financial position. Such a notable increase in intangible assets came on the back of the acquisition of the 3G license. Total assets stood at JD million at the end of December 2009 as opposed to JD million registered at the end of the prior year; showing a rise of 2.38%. Cash & Short Term Deposits 51% Assets Composition Other 4% Property & Equipment 35% Cash & Short Term Deposits 44% Assets Composition Other 4% Property & Equipment 33% Intangible Assets A/R & Other 2% Current Assets 8% A/R & Other Current Assets 9% Intangible Assets 10% Cash & Liquidity Cash (JD million) Cash/Total Assets 60% 50% 40% 30% 20% During 2009, JTEL acquired 3G license for JD 50.3 million, resulting the company's cash to drop to JD million at the end of December 2009 as opposed to JD million registered at the end of the prior year; displaying a decline of 11.82%. Accordingly, cash contribution to total assets retreated in 2009 to settle at 43.56% as opposed to 50.57% and 48.65% registered in 2008 and 2007 correspondingly. After rising during 2008, current ratio and cash ratio dropped in 2009 to stand at 1.56 and 1.21 as opposed to 2.01 and 1.63 registered in 2008 respectively. Such a retreat is attributed to the decline in 14

16 current assets and the jump in current liabilities due to reclassification of bonds to current liabilities Liquidity Ratios Current Ratio Quick Ratio Cash Ratio What is worthy of noticing, is that the company s cash conversion cycle has been reported at a negative figure for the past four years standing at an estimated negative days in 2009 from a negative days, 94 days, and 12 days by end of 2008, 2007, and 2006 respectively. This, not in line with the sector s average, stands as a witness of a strong collection policy and flexible credit terms with vendors. The cost of financing the company s operations could reach nil, and which has given management room during the past few years to accumulate cash and get the present value of its interest. Net Trade Receivables (JD million) Trade Receivables Net trade receivables rose in 2009 by 5.28% standing at JD million as opposed to JD million registered at the end of the previous year. Receivables collection period has increased during the past four years from days in 2006 to days at the end of Total Liabilities The company's total liabilities went up by JD million during 2009 to reach JD million, compared to JD million registered in This increase came on the back of the JD million rise Trade payables, accruals and other current liabilities, which offset the JD 9.26 million drop in Balances due to telecom operators. 15

17 Total Debt (JD million) Debt/Equity 8.6% 8.5% 8.4% 8.3% 8.2% 8.1% 8.0% 7.9% Loans In 1995 JTEL signed a FRF 52 million financial protocol with the French Government to finance development projects with an annual interest rate of 1%. In 1996, another financial protocol was signed with the French Government with a total amount of FRF15 million with an annual interest rate of 1%. On July 2002, the company issued JD 25 million local bonds to finance the mobile operations. The bonds, which are listed on Amman Stock Exchange, hold a fixed interest rate of 7.25% for the first five years and the average of Prime Lending Rates of reference banks minus 0.25% will apply for the remaining period. In 2009, total interest bearing loans edged up by 2.27% to land at JD million as opposed to JD million registered in Loans to equity ratio rose in 2009 to 8.23% relative to 8.12% and 8.39% registered in 2008 and 2007 respectively. Loans to cash ratio also went up in 2009 to 11.45% as opposed to 9.87% and 10.68% recorded in 2008 and 2007 correspondingly. Trade Creditors Total Equity (JD million) In 2007, trade creditors recorded a notable jump rising to JD 53.6 million from JD million registered at the end of Trade creditors stood at JD million at the end of December 2009, up from JD million recorded in 2008 yearend. Payable Days continued its upward trend in 2009 rising to 290 days as opposed to 268 days and 175 days registered in 2008 and 2007 respectively. Shareholders' Equity JTEL's total shareholders' equity grew by JD 3.43 million during 2009 to reach JD million paced by the company's increased profitability. Book value per share stood at 1.68 at the end of December 2009 relative to 1.66 recorded a year earlier. JTEL has a paid up capital of JD/shares 250 million, with all shares listed on the Amman Stock Exchange. 16

18 % 101% 100% 99% 98% 97% 96% 95% CAPX (JD million) Payout Ratio Dividends Per Share Capital Expenditure Due to the company's investments in expanding and improving its mobile network and its broadband network, besides acquiring 3G license, capital expenditure grew from JD 55.8 million in 2008 to settle at JD million by the end of As of a percentage of revenues, CAPEX represented 25.71% of total revenues in 2009, compared to 13.90% and 15.03% registered in 2008 and 2007 respectively. Dividends Total dividends paid for 2009 financial year stood at JD 105 million, or JD 0.42 per share, compared to total dividends of JD 100 million related to 2007 financial year, or JD 0.40 per share. JTEL's payout ratio for 2009 stood at 101.5% relative to 100.7% registered in Price Ratios JTEL PE ratio increased at the end of 2009 to settle at as opposed to 12 recorded in 2008 yearend, while PBV stood at 3.08 at the end of December 2009, compared to 2.90 recorded a year earlier. PE PBV SEGMENTS FINANCIAL PERFORMANCE

19 Orange Fixed & Internet Orange Fixed & Internet Revenues (JD million) Revenues from fixed and internet lines grew by 2.6% during 2009 reaching JD million in comparison to JD million registered during the prior year, mainly pulled up by the increase in Orange internet revenues, which offset the drop in Orange fixed revenues. Operating expenses for Orange fixed and internet notched up by 2.7% to settle at JD million as opposed to JD million registered at the end of Such an increase is mainly attributed to the rise 6.3% rise in cost of services. Accordingly, operating profit enhanced from JD million in 2008 to reach JD million at the end of 2009; posting a lift of 2.7%. However, EBITDA margin showed a minimal retreat standing at 42.1% at the end of 2009 relative to 42.2% registered at the end of the prior year. - Orange Fixed Revenues from fixed line continued its retreat during the first nine months of 2009 as it stood at JD million in comparison to JD million registered during the same period of 2008; showing a slide of 6.58%. During 2008 fixed line revenues marginally declined by 0.29% standing at JD million against JD million registered in 2007, with the 28.21% enhancement in leased lines and data revenues offsetting the drop in traffic revenues. Orange Fixed Revenues Traffic Revenues Connection, Subscription and Others Leased Lines and Other Data Total Traffic revenues has been under pressure for the last few years due to the substitution from fixed to mobile, besides the increased competition in the international outgoing calls. Nonetheless, traffic revenues remain to be the main contributor to fixed lines revenues making up more than 50% of total fixed line revenues. Leased lines and data revenues continued to achieve strong growth during 2008 driven by the increased demand on ADSL and leased lines. Leased lines and data revenues rose by 28.21% during 2008 to 18

20 JD 60.9 million in comparison to JD 47.5 million recorded during the pervious year. Fixed line operating expenses descended by 4.78% to JD million from JD million in Such a decline is attributed to the 2.3% slide in cost of services and the 13.7% drop in selling and administrative expenses. EBITDA went up in 2008 by 6.02% as the drop in OPEX outpaced the marginal decline in revenues. EBITDA increased to JD million, compared to JD million registered in Accordingly, EBITDA margin rose to 44.2% from 41.6 % in Orange Internet Data communication revenues enjoyed strong growth over the past few years driven by the increase usage of internet in Jordan. Data communication revenues jumped by 50% during 2008 reaching JD 21.2 million in comparison to JD million registered in As for the first nine months of 2009, data communication revenues stood at JD million relative to JD million recorded during the same period of Data Communication Revenues ISP Services and Content International Data Service Lightspeed Revenues Total Data Communication Revenues ISP services and content revenues rose from JD 11.3 million in 2007 to reach JD 17.5 million at the end of 2008; showing an increase of 55%, which came on the back of the increasing demand of ADSL services in Jordan. Lightspeed revenues jumped to JD 1.2 million in 2008 relative to JD 0.44 million recorded in 2007; a lift of 172.7%. In 2008, data communication OPEX went up to JD 17.7 million from JD 13.3 million registered in Such an increase is mainly attributed to the increase in cost of services which inflated by 36.6% during 2008 to reach JD 12.7 million. After a steep decline in 2007, EBITDA soared by more than 300% during 2008 settling at JD 3.5 million relative to JD 0.9 million 19

21 registered in Such an enhancement was mainly driven by jump in revenues. EBITDA margin also posted an improvement during 2008 to 16.51% as opposed to 6.4% registered in Orange Mobile Orange Mobile Revenues (JD million After enjoying a handsome growth during the past few years, orange mobile revenues growth slowed down during 2009 due to increased competition in the market. Compared to 2008, mobile revenues edged up by 0.9% settling at JD million at the end of Such an increase is mainly attributed to the growth in Orange mobile number of subscribers during 2009 relative to the end of Blended monthly ARPU slightly declined during 2009 to settle at JD 9.4 relative to JD 9.7 registered at the end of Orange Mobile Revenues Traffic Revenues Other Mobile Revenues Total Traffic revenues declined in 2008 by 2.8% despite the increase in the subscribers base as the increased competition pushed the company to present discounted offers to its customers, which affected the total traffic revenues. Other mobile revenues, which includes connection and subscription charges and roaming revenues, compensated for the drop in traffic revenues with an enhancement of 28.6%,that is attributed to the increase in postpaid subscribers base which reached thousands at the end of 2008, compared to thousands in Orange mobile operating expensed went up by 2.3% during 2008 to JD million, compared to JD million recorded in EBITDA went down by 1.4% during 2009 to JD 66.6 million, with the increase in OPEX putting more pressure on EBITDA. Consequently, EBITDA margin dropped to 35.1% from 36.1 recorded in

22 SHARE PRICE PERFORMANCE Q, 2010 Closing Change % 7.26% 5.03% High Low Average Closing Value Traded 317,227,066 37,600,029 7,677,284 Daily Average Value Traded 1,310, , ,958 Shares Traded 50,209,593 7,405,791 1,414,015 Daily Average Shares Traded 207,478 29,862 22,094 Transaction 48,246 13,761 2,701 Daily Average Transaction Correlation with the ASE JTEL share price gained 7.26% during 2009 settling at JD 5.17 at the end December 2009 as opposed to drop of 14.23% registered in Compared to the ASE performance, JTEL share performance outperformed that of the ASE with the ASE plunging by 8.15% during 2009 and by 24.94% in JTEL 30 Dec Dec Dec 09 During 2009, JTEL share price reached its highest closing of JD 5.50 on April 5 th, while its lowest closing of JD 4.70 was registered on April 28 th. Value traded on JTEL share shrank by notable 88.15% during 2009 landing at JD million as opposed to JD million registered in 2008, while total shares traded declined by 85.25% to stand at 7.41 million shares. As for the first quarter of 2010, Jordan Telecom share price added 5.03% to close at JD 5.43, with total value traded reaching JD 7.68 million on 1.41 million shares through 2,701 transactions. After registering high correlation with the ASE on 2008 of 0.73, the correlation dropped in 2009 to 0.44, and a further decline was registered during the first quarter of 2010 at

23 VALUATION We used DCF valuation method to derive the fair price for JTEL share. Our valuation was based on a five-year projection with a terminal growth of 3%. The cost of equity used is 9.56% derived from a US risk free rate of 2.5%, equity premium of 7.5%. The weighted average cost of debt was calculated at 3.77%. Based on the above, the weighted average cost of capital WACC used is 9.49%. We arrived at a fair value for JTEL share of JD 6.03, which represented an upside potential of 11.46% from the market price of JD 5.41 as of April 22 nd, with a Hold recommendation. 22

24 Research Team Riham N. Al-Masri Head of Research Loay Abu Baker Research Associate Hala Kaddoura Heba Al Talatini Hadi Haddadin Junior Analyst Junior Analyst Junior Analyst Disclaimer This report was prepared by Amwal Invest. It is provided for information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities. The information contained herein is based upon sources we believe to be reliable, but no representation, expressed or implied, is made with respect to the accuracy, completeness or reliability of the information or the opinions in the report. Amwal Invest accepts no liability for any loss arising from the use of this document. Opinions and estimates constitute our judgment and are subject to change without prior notice. Amwal Invest has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein changes or subsequently becomes inaccurate. This report may not be reproduced or redistributed without the authorization from Amwal Invest.