Equity Valuation Report on Grameenphone Limited

Transcription

1 Equity Valuation Report on Grameenphone Limited [This document has been prepared by the Research Team of EBL Securities Limited (EBLSL) for information only of its clients. No part of this report should be copied or used in any other report or publication or anything of that sort without prior written permission taken from the authorized publisher of this report]

2 140.0% 120.0% 100.0% 80. 0% 60. 0% 40. 0% 20. 0% 0.0 % Grameenphone Ltd. Market Leader 45% Market Share 13% REVENUE COMPOSITION OF GP (2016) 8% 5% 3% 4% 67% Voice Traffic Data Customer Equipment Other Revenue Target Price Current Price Continuous OPEX reduction will enhance the profitability margins further 4G/LTE technology will accelerate the data subscription growth and revenue OPEX* TO SALES RATIO 49.8% 46.9% 46.6% 45.5% 44.2% M *Excluding Depreciation & Amortization Robust growth in data subscription continued Last 3 years CAGR- 63.7% in data subscription Last 3 years CAGR-74.6% in data revenue HISTORY OF SOUND DIVIDEND PAYOUT RATIO 108% 129% 108% 96% 105% 98% Rating: Market Weight Rating Validity: Up to June, (HY1) 15.1% Market Weight BDT 22.2 (Growth 33.0%) Expected EPS (2017) BDT 637 billion Market Capitalization BDT 14 billion Paid Up Capital

3 Grameenphone Ltd. DSE: GP BLOOMBERG: GRAM:BD Re-initiation Report Target Price: BDT 480.0, Current Price: Rating: Market-weight Valuation date: 30 st November 2017 Market Cap (BDT million) 636,531 Market weight (Equity) 15.1% Paid-up Capital (BDT million) 13,503.0 Free-float Shares (Inst.+For.+Public) 10% 52-week price range (BDT) Financial Information (BDT million): 2015 Act Act Exp Exp. Net Sales 104, , , ,732 EBITDA 55,971 62,564 77,420 82,839 EBIT 36,964 41,566 54,118 58,899 Profit After Tax 19,707 22,526 29,959 31,839 Total Assets 132, , , ,202 Long Term Debt 18,964 13,556 8,487 27,231 Total Equity 30,625 33,572 37,373 37,480 Retained Earnings 9,266 12,213 16,013 16,120 Cash 4,153 2,912 6,154 2,705 Dividend (C/B)% 140/0 175/0 230/0 250/0 Margin: EBITDA 53.4% 54.5% 59.2% 58.5% EBIT 35.3% 36.2% 41.4% 41.6% Net Profit 18.8% 19.6% 22.9% 22.5% Growth (YoY): Sales 2.04% 9.65% 13.9% 8.4% EBITDA 2.60% 11.78% 23.8% 7.0% EBIT 0.18% 12.45% 30.2% 8.8% Net Profit -1.35% 14.31% 33.0% 6.3% Profitability: ROA 15.0% 17.1% 23.2% 22.8% ROE 63.6% 70.2% 84.5% 85.1% Payout Ratio 95.9% 104.9% 103.7% 106.0% PEG ratio Leverage: Debt Ratio 21.8% 16.6% 27.7% 37.3% Debt-Equity 94.5% 64.5% 94.9% 150.4% Int. Cov. Ratio Altman Z-Score Valuation: EPS (BDT) NAVPS (BDT) Blended ARPU Voice ARPU Data ARPU AMPU APPM P/E (x) P/NAV (x) EV/EBITDA EV/Sales Price/Sales DPS Analyst: Mohammad Asrarul Haque Sector Telecommunication Rating Validity Up to June 2018 Potential Upside 1.8% Exp. Dividend Yield (for July-Dec 17) 2.7% Grameenphone Ltd. (GP) is the leading telecommunication service provider in Bangladesh. The immediate parent of GP is Telenor Mobile Communications AS and the ultimate parent is Telenor ASA; both the companies were incorporated in Norway. Rolling out of 4G/LTE technology will accelerate the data subscription growth & revenue: After launching 3G, data subscription in telecom industry has increased radically. Last 3 years CAGR of GP s data subscription was robust 74.6% while revenue from data also grew at a 3 year CAGR of 63.7%. GP is poised to launch 4G after obtaining required approval from the regulator by the beginning of Revenue from data segment is expected to witness robust growth afterward. Continued focus on OPEX reduction will enhance the profitability margins further: The operator is undergoing several operating cost minimization strategy by means of increased digitalization, staff cost reduction etc. OPEX (excluding dep. & Amort.) to sales ratio declined from 50% to 44% over the last 5 years. Strong brand image and active subscriber base has positioned the company ahead of its rivals : GP holds strong brand image in the mindset of subscribers and most of the subscribers are loyal and considers GP as the main connection, even if they hold multiple connection. This enabled GP to charge higher prices on data and voice tariff compared to other competitors. GP s handsome dividend payout policy remains a strong catalyst for investors interest: GP disburses handsome dividend for its shareholders. Payout ratio remains almost 100% of its net earnings. The operator is expected to continue almost 100% of dividend pay-out ratio in the years to come. Rigid regulatory environment along with some unresolved regulatory issues and penalties remained key bottleneck for the operator: GP has several contingent liability issues with the regulatory body. As per the Latest 9M, 2017 earnings disclosure of the company, revenue grew by 13.1% on YoY basis while NPAT grew by 25.1% on YoY basis during the period. Meanwhile, OPEX (excluding dep. & Amort.) to sales ratio dropped to 41.8% against that of 45.4% during the same period of GP s total subscriber base stood at 63.9 million and data user stood at 30 million as on September During the Q3, 2017 GP s AMPU, ARPU and AMBPU was 257, 170 and 754, according to the company estimates. We initiated a valuation on Grameenphone Ltd. based on Discounted Cash Flow and various other methods while assuming next 5-Years CAGR of revenue will be 8.1%. Currently, GP is traded at BDT (as on 30 th November 2017). In our valuation, the December target price of GP is determined at BDT per share and GP is now fairly valued based on current market price. We therefore recommend Market-weight rating for the operator. Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report

4 8.0 0% 7.0 0% 6.0 0% 5.0 0% 4.0 0% 3.0 0% 2.0 0% 1.0 0% 0.0 0% % % % % % % % % 5.0 0% 0.0 0% 6.60% 6.40% 6.20% 5.70% 5.60% 6.46% 6.52% 6.01% 6.06% 6.55% 7.11% 7.28% 7.40% Grameenphone Ltd. Date: 30 November, 2017 Economy & Industry Review Stable macro-economic scenario driving the growth in Bangladesh Telecommunication Sector Growing GDP is also driving the country towards its digital growth. The economy of Bangladesh has been witnessing average 6% plus growth rate over the last decade and has run above 7% over the past two years while the economy is growing at an increasing rate over the last 5 years. Bangladesh aspires to be middle income country by 2021, which will require increasing GDP growth to 7-8% per year. Continuous efforts of the government to further develop the power, energy and transport sector, may result in a better investment environment in the near future. Post and telecommunication sector grew by 6.63% in FY (provisional) with 2.61% contribution to GDP (at Constant Prices) during the year, according to BBS data. According to industry insiders, a 1% increase in mobile penetration could lead to an increase in the GDP growth rate by 0.28%, while a 1% increase in internet penetration can lead to an increase of up to 0.077% in the GDP growth rate. Communication services, FY 2006 particularly the mobile phone based services (MPS) market continued to drive the telecommunications industry which led to the high growth of Post and Telecommunication sub-sector. Favorable macro-economic indicators kept the country ahead of its other regional economies. Domestic interest rate is declining and single-digit lending rate is helping corporations to finance for capital investment at a low cost. Private sector credit is also experiencing growth. In the last 8 years, CAGR in foreign exchange reserve was 20.6%, reflecting the country's strength from the economic and financial point of view. Bangladesh usually needs a reserve of about 10 billion U.S. dollars to meet its import bills for three months in light of an internationally accepted standard. Growing population along with large number of young and middle aged group population are accelerating the pace of growth in telecommunication industry: The country has a population of 168 million and is expected to grow by 1.04%. 35.8% of them reside in urban areas and the annual rate of change in urbanization is 3.19%. Age Distribution Structure Increased urbanization is transforming the traditional 39.73% structure of communication and with increased 27.76% digitalization, the country is progressing towards more 19.36% connectivity. Widespread access to internet is increasing and mobile phones have become part and parcel of everyday life. Young and middle-aged people are the 6.93% 6.23% major users of mobile communication devices and 0-14 years: years: years: years: >65 years: around 60% of the entire country belongs to these two Source: CIA (US Central Intelligence Agency) World fact book groups. FY 2007 FY 2008 FY 2009 Source: BBS & EBLSL Research Bangladesh Telecommunication Industry: A success story of 24 years GDP Growth Rate FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018E 2018 Rolling out 4G/LTE Source: Grameenphone Ltd. 2 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

5 52% 51% 50% 49% 48% 47% 46% 45% 44% 43% Grameenphone Ltd. Date: 30 November, 2017 Bangladesh first put its footprint into the world of cellular device-based telecommunication in 1993 when the only operator, Citycell, started its journey with CDMA technology. Back in 1997, when Bangladesh has the 9th Grameenphone started its operation as a village phone programme with GSM technology, highest number of mobile subscribers in the world having a mobile phone was a luxury in Bangladesh. But in the last two decades it has not only grown keeping pace with the economy but also has become an integral part of everyday life for all classes of people. Bangladesh has the 9th highest number of mobile subscribers in the world according to the World Bank data but the country s mobile subscriber base for both voice traffic and internet is still far below than that of other developing economies in the world that sinifies significant growth prospect for the industry. Indonesia Brazil Egypt Nepal Iran (I.R.) China Turkey Myanmar Bhutan India Iraq Bangladesh Mobile Subscriber Panetration(%) Brazil Turkey Iran China Bhutan Egypt India Indonesia Myanmar Iraq Nepal Bangladesh Internet Panetration (%) Source: International Telecommunication Union (ITU) & EBLSL Research; **Internet Subscription in Bangladesh was 40% as on December 2016 according to BTRC data A multi-sim market with growing subscriber addition: Presently the penetration of telephone users, driven by increased number of subscription, is Number of Mobile Subscription (mn) increasing gradually and total number of subscription crossed 140 million threshold at the end of September 2017, according to the Bangladesh Telecommunication Regulatory Commission (BTRC). Meanwhile, due to biometric reregistration of SIMs in 2016, total number of active subscription dropped during the year as a number of subscribers GP Robi Banglalink Airtel / Warid Citycell Teletalk Total * did not complete the bio-metric Industry Net Addition *Up to September; Data Source: Bangladesh Telecommunication Regulatory Commission (BTRC) reregistration within stipulated timeframe. In 2016, SIM re-registration through the biometric process has been a major development in telecom sector. In terms of performance, Grameenphone was ahead of other operators and 97% of its subscriber base re-registered through the bio-metric process. The Bangladesh telecom market is mainly dominated by pre-paid customers and 99% of total subscriptions are prepaid, according to Grameenphone. Though industry penetration based on number of subscription is huge, a large portion of customer holds more than one subscription as one primary and others as secondary SIMs. However, about half of the entire population has yet to be connected with the mobile telecommunication network, also indicating that there is enormous room to grow. The real market penetration remained steady in the last three years as mandatory bio-metric SIM reregistration has slowed down the pace of new customer acquisition. If mobile network portability (MNP) is successfully introduced in the country, the total number of subscriptions may decline but real industry penetration is expected to continue its steady growth. Market Penetration of Telecom Operators in Bangladesh * GP 25.70% 29.90% 32.31% 35.16% 35.71% 38.64% Robi 13.51% 16.11% 15.86% 17.57% 15.97% 24.93% Banglalink 16.62% 18.30% 19.38% 20.39% 19.08% 19.59% Airtel / Warid 4.53% 5.25% 4.71% 6.64% 4.88% 0.00% Citycell 0.99% 0.87% 0.81% 0.62% 0.00% 0.00% Teletalk 1.06% 1.79% 2.42% 2.57% 2.24% 1.96% Industry Penetration 62.40% 72.21% 75.50% 82.95% 77.88% 85.12% *Up to September; Data Source: World Bank Data, BTRC and EBLSL Calculation 44% Real Telecom Market Panetration 46% 51% 51% 51% Aug-17 Source: Grameenphone yearly presentation 3 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

6 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun-17 45% 40% 35% 30% 25% 20% 15% Grameenphone Ltd. Date: 30 November, 2017 Along with stable voice traffic growth, market for mobile internet is keeping pace with high subscriber addition and increased penetration: Bangladesh has advanced significantly in internet connectivity and effectively led major SAARC nations, with around 48% of the total population Internet penetration now stands at 48% in Bangladesh using internet for various purposes. As of September, 2017 there are around million active mobile subscriber in Bangladesh and million mobile internet users in Bangladesh i.e., 52.5% of mobile users are now using internet. The number of internet subscribers increased to around million at the end of September Of the total connections, 93.2% are through the mobile network, 6.7% through the internet service providers and only 0.1% through WiMAX that is available in cities. Grameenphone's per customer data usage in a month, as of March 2017 stood at 621 MB while that of Banglalink's 523 MB and Robi's 465 MB during the same period. 3G services getting momentum but yet below expectation: The regulator provided 3G license to 4 operators on 8 th September 2013 under the 3G auction. Although, state owned operator Teletalk has been providing 3G services in Bangladesh since October By this time, operators have invested a big chunk of money (BDT 320 million) for providing 3G services in Bangladesh. As of June 2017, total 3G subscriber of the country stood at million. Grameenphone dominates the oligopoly market: With two mobile phone operators having merged and another shutting down, a six-player market has turned out to be a four-player one, dominated by Grameenphone, Robi and Banglalink who together control 97% of the market. The telecommunication industry of Bangladesh is highly competitive in nature. Top three players are in a battle to acquire new subscribers with aggressive marketing strategy. GP dominates the telecom industry with 45% of the total market share in terms of active Top three players hold 97% of mobile user as on August Banglalink was in the the market share with leading second leading position before the merger of Robi with position seized by GP Airtel. However, 8.2 million subscribers from Airtel have been added to Robi s subscriber base as a result of the merger that placed the operator into the second-leading position. Service quality depends highly on allocated spectrum & frequency to operators: Currently, the spectrum of 900 MHz & 1800 MHz bands are allocated for second generation (2G) mobile service and the 2100 MHz band is allocated for 3G mobile services. In 2013, BTRC held a 3G auction where each MHz of paired spectrum in 2100 band was sold at USD 21 million against the base price of USD 20 million. Grameenphone (GP) bagged a 3G license for 10Megahertz (MHz) spectrum at USD 210 million, while Banglalink, Robi and Airtel each acquired 5MHz of spectrum at a price of USD 105 million. Stateowned Teletalk also collected 10MHz of spectrum. GP Banglalink Robi* Airtel* Citycell Teletalk G S M : G S M : G S M : G S M : G S M : Standard 900/1800/ /1800/ /1800/ /1800/2100 CDMA /1800/2100 Frequency 2G 22.0 MHz 15.0 MHz 14.8 MHz 15.0 MHz 8.82 MHz 15.2 MHz Frequency 3G 10.0 MHz 5.0 MHz 5.0 MHz 5.0 MHz n/a 10.0 MHz Launching Date: 2G / Launching Date: 3G *As on pre-merger period; Source: EBLSL Research Spectrum Distribution at Different Band Internet Subscription (mn) as on May GP Banglalink Robi & Airtel Teletalk Source: BTRC, cited in The Daily Star & EBLSL Research 3G Users in Bangladesh (in MN) 22% 23% 24% 25% 23% 25% 26% 26% 26% 26% 27% 27% 3G subscriber 3G as % of total subscriber Source: Posts & Telecommunications Division, GoB GP 45% 0.4 Teletalk 3% Banglalink 23% Robi+ Airtel 29% Source: BTRC & EBLSL Research 37% GP Banglalink Robi+Airtel Teletalk GP Banglalink Robi+Airtel Teletalk GP Banglalink Robi+Airtel Teletalk 900 MHz 1800MHz 2100MHz Source: EBLSL Research 4 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

7 After completion of the merger, Robi Axiata Bangladesh with its two operating brands robi and airtel conjointly holds the highest spectrum allocation from all three bands. However, as a condition for the merger Robi-Airtel had to surrender 5MHz spectrum in the EGSM or 900 band that were previously allocated to Airtel. Big operators are eying to forthcoming spectrum auction: The posts and telecommunications division (PTD) has Regulator is preparing for approved the guidelines for selling the spectrum of 2100MHz band and set USD 25 million as fresh auction of spectrum at base various spectrum bands price for each MHz of airwave, according to a local daily. However, telecom regulator, BTRC wants to add premium over the base price for allowing technology neutrality on prevailing 2G frequency bands. The BTRC has also decided to slap on an additional USD3.2 million for per MHz of technology neutrality on the existing spectrum on the 1,800 and 900 bands. If technology neutrality is awarded in all existing 2G bands (i.e. 900 MHz & 1800 MHz), the operators will be able to offer 4G services at any band. Launching of Technology Neutrality will allow operators to provide better quality service at lower cost: According to mobile operators, technology neutrality would allow mobile operators to use the 900 MHz and 1800 MHz bands for 3G & 4G/ LTE services. As the 900 MHz and 1800 MHz bands provide better coverage than 2100 MHz, mobile internet services could be provided more efficiently in rural areas. The benefits of technology neutrality are manifold: more Technology neutrality would allow mobile operators to use the 900 MHz and 1800 MHz bands for 3G & 4G/ LTE services efficient use of spectrum, better quality, speed and lower prices. Most EU governments, USA, Canada, Thailand, Pakistan, Malaysia and many other markets are experiencing tech neutrality. According to the draft 4G guideline published on 04 th July 2017, existing Cellular Mobile Phone Operator(s) in Bangladesh, who will obtain a 4G License shall be able to convert their other remaining spectrum in other bands into technology neutral spectrum by paying conversion fees and/or charges with applicable VAT, Taxes and by following the terms, conditions, fees, charges and time frame provided by the Commission. Forthcoming 4G license distribution will boost the growth of the industry further: 4G is the fourth generation of wireless mobile telecommunication technology, succeeding 3G, as defined by the Regulator is set to issue 4G International Telecommunication Union (ITU). Since its first commercial launch in 2009, 4G licenses to existing as well as has become the fastest developing system in the history of mobile communication in the any new operator world. The posts and telecommunications division (PTD) has published the draft guidelines for rolling-out 4G services in Bangladesh. The below mentioned fees and charges are applicable for 4G services in Bangladesh: The proposed BDT 1500 million Proposed Fees & Charges* for 4G License bank performance guarantee has Application Fee/Processing Fee BDT 0.5 million to be paid in two separate License acquisition fee (for 15 years) BDT 100 million segments: BDT 750 million as rollout obligation and another BDT 750 million to clear future dues, if any. Under the rollout obligation, Annual License Fee Bank Guarantee Gross Revenue Sharing (for 15 years) Social Obligation Fund BDT 50 million Total BDT 1,500 million 5.5% of annual audited gross revenue 1% (one percent) of annual audited gross revenue the operators will have to take 4G *Excluding fees, charges, VAT and taxes.; Source: Newspaper reports network to all divisional headquarters within the first nine months of getting the license and to district headquarters within 18 months, according to the guideline. They will get a total of three years to complete their rollout of 4G service across the country. If the operators comply with the obligations, they will get a refund of BDT 250 million in each segment. According to the management of a leading telecom brand of the country, 1800 MHz is the most suitable for providing 4G services. The sector experiences rigid regulatory environment and high taxation: The telecom industry is highly regulated and highly taxable sector in Bangladesh. Publicly traded/ listed corporations are imposed with a 40% income tax while unlisted telecom operators are exposed to Available spectrum and recommended price by BTRC for auction Spectrum band Spectrum available for auction Recommended Floor price per MHz 2100 MHz 15 MHz USD 27 mn 1800 MHz 10.6 MHz USD 30 mn 900 MHz 5 MHz USD 30 mn Source: Leading Local Newspaper Reports VAT, TAX and other Regulatory Charges for Telecom Industry Gross Revenue Sharing 5.5% of annual audited gross revenue Social Obligation Fund 1% of annual audited gross revenue SD on sale of new and replacement SIM 35% VAT 15% Supplementary duty (SD) & Surcharge 5% & 1% on sales Income Tax 40% (For publicly traded companies) 45% (For non-listed companies) Source: EBLSL Research 5 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

8 14, , ,0 00 8,00 0 6,00 0 4,00 0 2, % 25% 20% 15% 10% 5% 0% Grameenphone Ltd. Date: 30 November, 2017 a 45% income tax, a much higher rate compared to any other industry. Meanwhile, SIM tax has been changed to 35% in the amended budget declaration, which was earlier BDT100 for each new or replacement SIM. Besides, 5.5% of the revenue sharing will remain unchanged for the next 15 years as per the decision taken in a telecom operators meeting with Prime Minister's ICT Affairs Adviser. Regulator fixes the voice traffic and data pricing limit: For regular voice calls, there is currently a BDT 2 ceiling and a floor price of BDT 0.25 for each minute, which the regulator fixed in 2008 after a cost modelling analysis supported by The regulator is also planning to fix the upper and lower price limit for mobile operators' data packages as like voice and SMS tariff the International Telecommunication Union (ITU). After a few years, the BTRC set the ceiling at BDT 0.50 for each local SMS and BDT 2 for international SMS. There is no lower price limit in this segment. At present, the data service prices are set by the operators, with the regulator having no benchmark to check the rationality of the pricing. Meanwhile, the regulator is also planning to fix the upper and lower price limit for mobile operators' data packages. The telecom regulator is formulating a pricing guideline for internet services. Key Industry Insights: Rapid growth in industry penetration: The telecommunication sector of Bangladesh has been witnessing tremendous growth in customer acquisition, resulting in increased market penetration over the year. As the country is progressing towards increased digitalization, with growth in per capita income and change in the life style of its citizens, mobile subscription has become a part and parcel of everyday life of its population irrespective of the income level. Most people now hold more than one mobile phone set and more than one subscription, which is also resulting in significant growth in market penetration. Socio-economic and cultural transformation driven by increased globalization driving the growth of telecom sector: As the country is undergoing a transformation journey in terms of its socio economic factors, rapid changes have been observed in the life-style of its population. Heading towards globalization is also reshaping the prevailing culture as well as trade and commerce. Connectivity has been an integral part of modern-day life, thus accelerating the growth in mobile communication and internet uses. Meanwhile, use of social media platforms like Facebook, WhatsApp, Viber etc. and video streaming sites like YouTube now became part of everyday life for all classes of people mostly among the young and middle-age group. And the use of such media is growing everyday, ultimately resulting in more and more use of internet data. Unprecedented growth in data service revenue reshaping revenue pie of telecom industry players: With increased smartphone market penetration and afterwards the launching of 3G services in the country mobile internet subscription witnessed tremendous growth in the country along with growth in overall internet penetration. Last 5 years CAGR in total number of Internet Subscribers in Bangladesh was 20.05% and that of Mobile internet was 19.83%. Contribution of data revenue to total revenue of the country s leading mobile operator GP increased to 16.11% as on 2017 (up to 9 months) compared to meagre 2.95% in the year 2017, reflecting the overall industry scenerio. Currently, there are 90 million mobile phone devices in the country, according to industry experts. Use of smartphone in Bangladesh is growing in line with reduction in smart phone prices and increase in purchase power of people. According to Grameenphone Ltd., total smartphone penetration of the country stood at 28% as on August Along with branded smartphones, low cost Chinese phone are driving the growth. Besides, local manufacturers are also set to manufacture smartphones locally, which will bring affordability. Besides, prevailing 2G devices in the market are to be replaced with 3G & 4G enabled devices in the market which will bring more uses in Data. Heading towards Digital Bangladesh vision by the government driving the growth in telecommunication industry: The government of Bangladesh is working towards accelerated use of information and digital communication systems to materialize its Digital Bangladesh vision by 2021, which is directly driving the growth in internet uses in the country. Realization of this vision remains a political priority and is supposed to enable significant growth in local telecom industry. Nearly all of the government services are now online-based, and they are also implementing aggressive campaigns to educate the masses about internet use alongside offering IT-based training programs and increased access to information technology. These efforts are culminating into Aug-17 Smartphone price (BDT) Penetration Source: GP Investor Relation Department; Note (Currency converted from USD to BDT at USD 1= BDT 80. Broadband Master Plan % internet penetration % internet penetration Source: Internet Service Providers Association Bangladesh huge growth in internet uses. Meanwhile, 93% of the total internet subscription accounts for mobile internet and the market is growing due to increased smart-phone penetration in the country, which is directly helping mobile operators. 12,000 7% Avg. Smartphone Price (BDT) and Penetration 17% 4,800 22% 25% 28% 3,200 2,640 2,640 6 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

9 The government is also working to take the rate of internet penetration in the country to 100% from present 47.9% by 2021, ensuring high speed broadband internet at cheaper rate to all the government offices, educational institutions, health centers and union parishads, expanding 3G network to all across the country and launching 4G. More market players are poised to become enlisted with the capital market: Robi the second leading market player in the industry with the highest spectrum holding to date, is expected to be listed with the capital market very soon. Interest from investors in this sector is likely to grow further with more operators in the capital market. Fresh development in regulatory landscape might bring changes in existing business operations of telecom operators: The government of Bangladesh and telecom regulatory body, BTRC is working to bring various new regulatory developments. Guidelines for 4G and Spectrum auction is yet to finalize, Tower sharing guidelines are under discussion where mobile operators are likely to lose the authority to set up towers under a new licensing regime where tower companies will own all the towers and provide services to the telecom operators, Telecom VAS guideline has been initiated where telecom operators are now entitled to offer Value Added Services (VAS), Mobile network operators are in discussion with regulator to finalize the process and technical readiness of MNP (Mobile Network Portability), and industry consultation is ongoing regarding cost modelling of data and revised voice tariffs. The Telecom Sector Outlook of the Country: The mobile telecommunication industry in Bangladesh will continue to experience hefty growth amidst increased market penetration. The country has a large population base with steadily increasing disposable income, consistent GDP growth, and low penetration of internet connectivity. The country is now undergoing a transformation period towards going more digital, that will have a major contribution from telecommunication industry and the industry will also enjoy a robust growth along with this transformation journey. As more and more subscriber are joining the network and smartphone penetration is also increasing, growth in telecommunication sector will remain. Steady population growth and increase in purchase power will continue to drive the telecom sector growth. Voice ARPU may remain steady in next few years and may decline in the long run but data ARPU is expected to grow further in the years to come due to increased data consumption and new data subscriber addition. Introduction of 4G will further amplify data service growth as service quality will increase and result in additional data subscribers from rural areas within the shortest period of time. According to Grameenphone, 3G smartphone users have 34% and 4G smartphone users have 116% higher ARPU than feature phone users due to higher uses of data volume. So, with the launch of 4G, ARPU of the market operators are likely to increase significantly. Data Uses Potential Based on Technology Feature phone 150 MB data usage/month Source: Grameenphone Ltd. & EBLSL Research 3G Smartphone 950 MB data usage/month 4G/LTE Smartphone 2000 MB data usage/month Rigid and uncertain regulatory environment remains a key concern for the operators as strict regulation, high taxation and several pending disputes with NBR need to be resolved. 7 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

10 Company Fundamental Review & Analysis Grameenphone Ltd., a successful venture by Telenor Group, leading the local market for two decades Grameenphone Ltd. (GP) is the leading telecommunication service provider in Bangladesh. It is the largest in terms of revenue, coverage and subscriber base. GP is a public limited company incorporated in Bangladesh in 1996 and commenced Leading telecommunication service providers in Bangladesh commercial operation in The immediate parent of GP is Telenor Mobile Communications AS and the ultimate parent is Telenor ASA; both companies were incorporated in Norway. GP mainly provides telecommunication services (voice, data and other related services) in Bangladesh. The company also provides international roaming services through international roaming agreements with various operators of different countries across the world. Key Personnel: Petter Borre Furberg (Chairman), Michael Foley (CEO), Yasir Azman (Deputy CEO) and Karl Erik Broten (CFO) Shareholding Pattern: GP offloaded 10% of its shares in the capital market by listing with DSE and CSE in Currently, 55.8% of the shares of the company are held by Telenor Mobile Communications AS, 34.2% of the shares are held by Grameen Telecom and rest 10% shares are held by various institutional and foreign investors as well as general public. Detail Breakdown of Shareholding Structure as on 31 st December 2016 Name of the Shareholders # of Shares %of Total Telenor Mobile Communications AS 753,407, % Grameen Telecom 461,766, % Investment Corporation of Bangladesh 14,444, % Grameen Bank Borrower's Investment Trust 11,037, % A.K. Khan & Co. Limited 5,508, % ICB Unit Fund 4,307, % AB Investment Limited- Investors Discretionary Account: ,790, % Government of Norway 2,461, % Bangladesh Fund 2,373, % United Commercial Bank Ltd. 2,049, % JPMCB NA for JPM Lux A/C Schroder International Selection Fund 2,023, % NTC A/C Harding Loevner Frontier Markets Equity Fund 1,921, % Mellon Bank N.A. A/C Acadien Frontier Markets Equity Fund 1,566, % NTC A/C The Caravel Fund (International) Ltd. 1,420, % Grameen One: Scheme Two 1,400, % The Bank of New York Mellon AF UPS Group Trust 1,314, % ABERDEEN GLBL FRNTR MRKTS EQTY Fund 1,297, % Rupali Bank Limited 1,283, % SSBT A/C Aberdeen Frontier Markets Equity Fund 1,243, % BNSANV A/C Blackrock Froientire Investment Trust PLC 1,186, % Other 75,497, % As on December 2016 total 1,350,300, % Sponsor s profile: Sponsor/Director Govt. Institute Foreign Public As on Oct 31, % 0.00% 4.45% 3.47% 2.08% As on Jun 31, % 0.00% 4.82% 3.14% 2.04% As on Dec 31, % 0.00% 5.19% 2.40% 2.41% Source: DSE Website, Company Annual Report and EBLSL Research Telenor Mobile Communications AS (TMC): TMC is an indirectly wholly-owned subsidiary of Telenor ASA. Telenor ASA is the leading Telecommunications Company of Norway listed on the Oslo Stock Exchange. TMC owns 55.8% shares of Grameenphone Ltd. In addition to Norway and Bangladesh, Telenor owns mobile telephony companies in Sweden, Denmark, Hungary, Serbia, Montenegro, Bulgaria, Thailand, Malaysia, Pakistan, India and Myanmar. Telenor has 214 million consolidated mobile subscriptions worldwide as of December 31, Grameen Telecom (GTC): Grameen Telecom, which owns 34.2% of the shares of Grameenphone Ltd., is a not-for-profit company in Bangladesh established by Professor Muhammad Yunus, winner of the Nobel Peace Prize in Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

11 Business Overview The company operates a digital mobile telecommunications network based on the GSM standard in the 900 MHz, 1800 MHz and 2100 Mhz frequency bands, under the license granted by the Bangladesh Telecommunication Regulatory Commission (BTRC). Mobile spectrum licenses held by Grameenphone Ltd. Spectrum Bandwidth (MHz) Expiry 900 MHz MHz MHz As of December 2016, the company s network covers more than 99% of Bangladesh s population with 2G services and more than 92% population with high speed 3G network. GP has 11,841 3G sites, whereas its closest competitor Robi has 8,575 3G sites as on September % of the company s sites are now 3G-enabled. GP has currently 63.9 million subscribers, nearly half of the total mobile subscriber base in the country. It generates million calls daily. Close to 30 million people use internet on its network. In the last two decades, Grameenphone has added 8,124 users per day on average. Now, 30,000 to 35,000 new customers are joining the network every day. Grameenphone LTD: Key Data* No of Subscribers (As on 22 October 2017) 64.0 mn Mobile data Users (As on 30 Sep 2017) 30.0 mn Nationwide Fibre Network (Including Leased from others) 5,881.0 Point of Sales (December 2016) 357,744.0 Product & Services Offering: Grameenphone is continuously diversifying its product offerings to retain its growing momentum in the digital marketplace. However, until now 64% of the company s revenue are generated for voice traffic service, though data service revenue is continuously increasing its share of pie while contribution from voice traffic service is declining due to robust growth in data revenue. GP has been focusing on simplification of its voice call offerings and in line with this, several of the Voice Call packages has recently been discontinued. More than 98.5% of subscribers are prepaid package subscribers. Currently, in pre-paid segments only 3 packages are available. GP has increased call rates for each of the prevailing voice packages in this year that resulted into 10.3% YoY voice revenue growth in its latest quarter. Pre-paid Packages As on Oct-17 As on Oct-16 As on Oct-15 Nishchinto (Attractive Flat Rate for All) FnF : N/A GP to Any : 21 poisha/10 second 21 poisha/10 second Pulse : 10 second SMS : 50 poisha / SMS FnF : N/A GP to Any : 17 poisha/10 second Pulse : 10 second SMS : 50 poisha / SMS FnF : N/A GP to Any : poisha/10 second Pulse : 10 second SMS : 50 poisha / SMS Source: Grameenphone website & EBLSL Research Bondhu (Highest F&F Numbers) FnF : 1 Super FnF (5.5 poisha/10 second) & 17 FnF (11.5 poisha/10 second) GP to Any : 27.5 poisha/10 second Pulse : 10 second SMS : 50 poisha / SMS FnF : 1 Super FnF (5.5 poisha/10 second) & 17 FnF (11.5 poisha/10 second) GP to Any : 27 poisha/10 second Pulse : 10 second SMS : 50 poisha / SMS FnF : 1 Super FnF (5.5 poisha/10 second) & 17 FnF (11.5 poisha/10 second) GP to Any : 27 poisha/10 second Pulse : 10 second SMS : 50 poisha / SMS Djuice (Exclusive Community Rate) FnF : 10 FnF (11.5 poisha/ 10 second) GP to Any: 27.5 poisha/ 10 second Pulse : 10 second SMS : 50 poisha/sms FnF : 10 FnF (11 poisha/ 10 second) GP to Any : 26.5 poisha/ 10 second, Pulse : 10 second SMS : 50 poisha/sms FnF : 10 FnF (11 poisha/ 10 second) GP to GP : 26.5 poisha/ 10 second, Pulse : 10 second SMS : 50 poisha/sms Along with those voice packages customized bundle packs and flexi plans (where customers can make their chosen voice and data bundle with chosen duration of validity) to offer customers with more simplified & user-friendly services. GP has multiple data offerings ranging from 1 day to 30 days of validity and very small to large volume packs. Data price has been reduced over time in line with market competition. Despite the reduction in data prices, the company has been able to achieve robust data service revenue growth due to large addition to data subscriber base and increased data ARPU. Besides voice traffic and data service offerings, the operator has also diversified its business in different VAS, GP online shop for selling mobile communication devices to end customers, financial services like GPAY and Mobicash along with several cloud based services including MyGp, WowBox and GP Music etc. app based digital services. Innovation in these digital services will reshape the business model of the operator in future. 9 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

12 46. 5% 45. 5% 44. 5% 43. 5% 42. 5% 41. 5% 40. 5% % 30. 0% 25. 0% 20. 0% 15. 0% 10. 0% 5.0 % 0.0 % Grameenphone Ltd. Date: 30 November, 2017 MyGP App: mobile application for digital self-care channel for customers to access all GP services, offers, bonus and rewards. Presently, GP has 1.6 million monthly active users for this app. Flexi Plan: Subscriber can make chosen service bundles for talk time, Internet, SMS etc. based on own requirement. Currently, GP has 1.5 million monthly active users for this service. WowBox: Lifestyle app providing easy access to internet, intuitive interface and a variety of local contents. Currently, the operator has 3.1 million monthly active users for this application. GP Music: Application based music library along with the latest international releases. Currently, 227,000 active users uses this application. Bioscope: One-stop shop for live TV and video on demand having 1.9 million monthly active users. GP Online Shop: An online platform for ordering latest smartphones, gadgets with authentic manufacturer s warranty having 1.7 million monthly active users. Tonic: A digital healthcare service platform to drive convenience and access with the help of telecommunications and technology. Presently, the operator has 4.2 million monthly active users for this application. Business Performance of GP: Steady business growth driven by the increased subscriber base: GP managed to record steady revenue growth over the years that was driven by an increase in number of GP Subsrciber subscribers, despite intense market competition among the six telecom service providers operating in the country. Currently GP % is the largest telecom operator with a subscriber base of % 9.3% 10.0% million as of September 2017, which was 58.0 million in December 2.2% 2.2% Among the subscribers, 98.6% are pre-paid subscribers and 47.0% of the total subscribers are mobile data users, as of Year 2012 Year 2013 Year 2014 Year 2015 Year 2016 Sep-17 Total Subscriber (mn) Growth in GP subscriber September Growing market share placed the operator in the leadership position: GP has been maintaining leadership position in the telecom industry of Bangladesh since the last two decades. It has the highest 2G and 3G coverage in the market, backed by large volume spectrum capacity. The market share of the operator experienced declining trend up to 2012 due to increased competition from other operators in the market. However, inauguration of 3G enabled the operator to further strengthen its position with growing market share. The market share of the operator increased to 45.4% in September 2017 from 41.2% in GP s subscription base as well as market share increased despite the early inertia regarding the compulsory bio-metric reregistration. Market Share of GP Source: BTRC & EBLSL Research 45.9% 45.4% 44.0% 44.0% 42.7% 42.8% 42.4% 41.2% 41.4% 2,009 2,010 2, Sep-17 Source: BTRC Data & EBLSL Research Innovation & diversification of products & services driving the growth: GP is a pioneer in introducing new products and services in the local telecom market. The operator was the first to introduce GSM technology in Bangladesh and mobile to mobile telephony and became the first company to cover 99% of the population. It introduced first 24-hour call centre, value-added services such as SMS, fax and data transmission services, international roaming service, SMS-based push-pull services, and personal ring-back-tone. The company is now working on e-commerce services and segments such as entertainment and plans to roll out more digital services. 10 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

13 18. 0% 16. 0% 14. 0% 12. 0% 10. 0% 8.0 % 6.0 % 4.0 % 2.0 % 0.0 % % % % 6.0 0% 4.0 0% 2.0 0% 0.0 0% -2.00% -4.00% -6.00% % 45. 0% 40. 0% 35. 0% 30. 0% 25. 0% 20. 0% 15. 0% 10. 0% 5.0 % 0.0 % % 70. 0% 60. 0% 50. 0% 40. 0% 30. 0% 20. 0% 10. 0% 0.0 % Grameenphone Ltd. Date: 30 November, 2017 Spectrum Auction & 4G license Issue: GP has expressed its interest to participate in the auction for new spectrum in 1800MHz and 2100MHz bandwidth. To roll-out 4G and to participate in the forthcoming spectrum auction, the operator will have to spend around USD 400 million (BDT33,000.0 million) for spectrum charges, 4G license fees and other related fees and charges, according to newspaper reports, draft guideline for 4G roll-out and company management estimate. We expect that to meet its ongoing spectrum requirement for catering to the need of large number of subscribers, the operator will bid for purchasing around 10MHz of spectrum from various bands. Core strengths & Business Outlook of Grameenphone Revenue contribution from voice segment is declining but still offers attractive growth potentials: The market still offers growth potential in voice traffic segment as half of its entire population are yet to get connected with mobile network. In line with increased purchase power and affordability by the population, more subscribers are joining the network with increased minutes per user. GP has the widest network coverage in the country - 99% of the country s population is under the network coverage of the operator. Besides, the operator is emphasizing on simplifying its voice call service offers and price perception among the customers is also increasing, all of those factors contributing to the healthy growth in voice segment. The voice segment witnessed negative growth in 2015 due to intense price competition and voice bundle offers despite 10% growth in subscription and stable uses per subscription during the year. However, the company successfully revived the situation as it managed to retain its subscriber base and enjoy higher growth in later years. Thanks to the mandatory bio-metric reregistration of SIMs during the year 2016 and price hike of voice tariff. 1.37% 2.11% 2.16% Growth in Voice Traffic To widen the market share, all the mobile operators including GP had to penetrate in the lower ARPU (Average revenue per user) generating segment. ARPU continued to decline over the years as the operator had to make downward price adjustment to support increased market competition. ARPU increased slightly in 2016 compared to that of 2015 as the operator has increased its voice call rates during the year with simplified product offerings. Robust Growth in data segment is expected to continue and data will be tomorrow s key contributor to the company s revenue: Since the implementation of 3G in the country, use of mobile internet increased significantly. GP s data users increased from meager 4.6 million at the end of 2013 to 30.0 million by the end of September Countrywide 3G network expansion has been driving the high growth in Data Segment. 9.8% Data Users and Contribution to GP's total Subscriber Base 21.0% % % % 5.08% 9.50% (9M-YoY) Growth in Voice Traffic Linear (Growth in Voice Traffic) Source: GP annual reports, quarterly disclosures and EBLSL research ARPU, AMPU & APPM Year 2013 Year 2014 Year 2015 Year M 2017 ARPU (BDT) AMPU (Minutes) APPM Source: GP annual reports, quarterly disclosures and EBLSL research 47.0% Average Data Usage (MB Per Month) (Sep) Mobile data Users (mn) Data subscriber as % of Total Users (9M-YoY) 3.0% 3.3% Data Revenue Contribution 12.5% 8.1% 5.0% 16.1% 34.9% 16.9% Data Revenue Growth 61.2% 66.0% 69.7% 54.0% (9M-YoY) (9M) Data revenue growth Linear (Data revenue growth) Source: GP annual reports, quarterly disclosures and EBLSL research 11 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

14 14. 00% % % 8.0 0% 6.0 0% 4.0 0% 2.0 0% 0.0 0% 51. 0% 50. 0% 49. 0% 48. 0% 47. 0% 46. 0% 45. 0% 44. 0% 43. 0% 42. 0% 41. 0% Grameenphone Ltd. Date: 30 November, 2017 GP s revenue from data segment grew by 54% on YoY basis in the 9M of 2017 and data revenue accounted for 49% of the incremental revenue during the period. Last 5 Years CAGR in revenue from data segment was robust 48.3% and last 3 Year CAGR of data revenue was 63.7%, which depicts phenomenal performance in data service business by the operator. In 2016 revenue from data sales stood at BDT 14.4 billion which is 69% more than the preceding year. Increased internet penetration, cheaper smartphone devices and the government s motive towards digitalization of the country will continue to generate huge growth in the data consumption. The growth in data revenue is expected to witness further momentum once the operator successfully roll-out 4G services in Bangladesh. Growing focus on operating cost minimization with innovation and business model restructuring: Grameenphone has been successfully controlling its operating expenditures despite implementing countrywide network expansion. GP s OPEX (excluding depreciation and OPEX* to Sales Ratio 49.8% amortization) to sales ratio declined from 49.77% in 2013 to 44.22% in 2017 (9M). Efficient market spending, reduction 46.9% 46.6% in operation and maintenance expenditures, lower 45.5% 44.2% subscriber acquisition cost, IT cost reduction through application optimization and virtualization and cost savings by workforce reduction etc. enabled the operator to control M its operating expenditures. The operator has been eventually reducing its work force by offering voluntary retirement schemes to control staff cost in the long run. The company has incurred BDT 1,011.2 million for voluntary retirement of 265 employees (10% of total employees) during the current year (2017) and BDT million for voluntary retirement of 348 employees (11.6% of total employees) during the year Replacing technology against staff cost will help the company to reduce salaries & personnel expenditures for the coming years. To control OPEX further, GP optimizing its shifting to digital media for market spending, digitalizing sales process, increased recharge through digital channels. Recharge through digital channels has increased to 11.6% from meagre 0.1% in GP has been working to make digital recharge more convenient and tools and processes have been redesigned to ensure efficiency of digital channels. The operator is also working towards simplification of products and services that will result in reduced cost and digitalizing customer services. Customer hits in online-based self-service platform are increasing while calls in the call center are declining which will ultimately result in better customer service at reduced cost. GP's Recharge through digital channels (% of sales) 8.20% 10.40% 11.60% *OPEX excluding depreciation & amortization Call Center and Customers' Self Service Use % 0.50% M Source: Grameenphone Ltd. & EBLSL Research Q3,16 Q4,16 Q1,17 Q2,17 Q3,17 Call center daily calls (mn) Self service daily hits (mn) Meanwhile, GP has made fresh agreement with IT service provider Wipro and looking into simplification of IT infrastructure systems, achieving efficiency in power solutions and site maintenance cost and having synergy from Telenor Group initiated projects. Expanding 3G network Coverage strengthening the market position: GP has already made available high-speed internet for more than 95% population of Bangladesh by extending its 3G service tower. Currently, there are more than 30,000 towers, of which GP owns 12,517 as on September Around 95% of the towers of GP are 3G enabled. Fresh investment will improve service quality: GP continues to invest in network and technology to improve capability and capacity. During January to September of 2017, the company invested BDT 9.9 billion to rollout more 3G sites, expand 2G coverage and enhance capacity to cater higher data and voice volumes as well as enhancement of IT infrastructure for better product and service offerings. More pricing power generated by Robi-Airtel merger: Even though Robi has become the second-largest market player in the industry with highest spectrum holding, it is not likely to pose any significant threat to GP. Rather, the threat of a price war by Airtel has become eroded due to reduced market competition, on which GP has already started capitalizing the opportunity with increase in the prices of its voice calls. 12 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report