27 September Egyptian Company for Mobile Services - MobiNil Wireless Telecommunications Services EGYPT The leading mobile operator in Egypt

Transcription

1 27 September 2010 Recommendation HOLD Fair Value / share EGP Upside Potential Return 12.8% Reuters Code EMOB.CA Shareholders' Structure 29% Free Float 20% Orascom Telecom 51% Mobinil Telecom 71.25% FT Group 28.75% OTH Current Price 183 EGP 52 weeks High/Low / 156 EGP Market Cap Billion of EGP 2010E EPS 13.5 L.E Justified Leading P/E 15.3x Justified Leading P/B 4.8x o o o Egyptian Company for Mobile Services - MobiNil Wireless Telecommunications Services EGYPT The leading mobile operator in Egypt Mobinil have the highest market share in the Egyptian market, recorded 737.4m net income in H with 7.42EGP EPS decreased from 959.7m in H with 9.63EGP EPS because of significant decrease in EBITDA margin from 48.5% in H to 41.8% in H In July10 Mobinil acquire 100% in LinkDotNet for an enterprise value of 736m EGP (USD 130m). Our recommendation after reduction in H margins Especially EBITDA margin is Hold with Fair value of 206.4EGP increased 12.8% compared to current market price of 183EGP. Million of EGP 2008A 2009A 2010E 2011E 2012E Total Revenue 10,003 10,807 10,356 11,261 11,825 Growth% 8% -4% 9% 5% EBITDA 4,745 5,122 4,374 4,894 5,162 Margin% 47.4% 47.4% 42.2% 43.5% 43.7% Net Income 1,970 2,038 1,350 1,596 1,739 Margin% 20% 19% 13% 14% 15% EPS (EGP) DPS (EGP) Return on Equity (ROE) 99% 69% 34% 34% 32% P/E 9.8x 9.0x 13.6x 11.5x 10.5x P/BV 8.2x 5.0x 4.3x 3.6x 3.1x Total Assets 13,658 14,640 14,593 17,576 15,268 Total Liabilities 11,416 10,961 10,315 12,511 9,421 Shareholders' equity BV per share (EGP) Mohamed Salem Financial Analyst m.salem@premiere-securities.com 2,240 3,680 4,280 5,065 5, Disclaimer: This report is based on the basis of financial analysis, which is designed to provide non-binding consultative advice to investors who were taking their investment decisions themselves, and who bear responsibility for the legal and physical consequences of it without any liability on the Premiere Securities, and the company as to make the effort to be information and data in the report are true However, it disclaims any liability for any error or omission, and we emphasize that this report used data from sources recognized its credibility as well as to the contents of some of the professional assessments.

2 Contents: 1. Company Intro 3 2. SWOT Analysis 3 3. Important events 4 4. Financial statement analysis Profitability Ratios 4.2. Comparative Valuation 4.3. Valuation 4.4. Valuation 5. Assumptions 9 6. Valuation & Fair value Discounted Cash Flow Valuation 6.2. Comparative Valuation 6.3. Fair value per share 7. Appendix 7.1. Balance Sheet 7.2. Income Statement 7.3. Cash Flow Statement

3 1. Company Intro. Egyptian Company for Mobile Services - MobiNil is an Egypt-based mobile telecommunications provider. The Company is engaged in the execution, management, operation, development and maintenance of a digital cellular mobile telecommunications system. It offers a range of Personal and Business Solutions. Its Personal Solutions include prepaid and postpaid scratch cards, third generation (3G) technology mobile phone services, video call services, call baring, call tone services and short message services (SMS). Its Business Solutions offers Closed User Group (CUG) Services and a range of business, Internet and tailored solutions. It also offers roaming services to travelers visiting Egypt, and to locals traveling abroad. 2. SWOT Analysis STRENGTHS: o A substantial and diversified customer base. o Highly qualified employees Risk/WEAKNESSES: o Significant Capex requirements to support the needed capacity expansion OPPORTUNITIES: o Still low overall penetration rates mean that there is significant room for growth. o Strong Government commitment to boosting penetration of telecommunication sector. o Relatively low labor cost THREATS: o Limited market size due to low per capita income. o Shortage of telecommunication trained professional. o Strong competition. o Entry of new competitors. o Competition with fixed lines operator. 3

4 3. Important Events Mobinil signed a Share Purchase Agreement with InTouch Communications, a wholly owned subsidiary of Orascom Telecom Holding for the acquisition of 100% of LINKdotNET and Link Egypt (LINK) for an enterprise value of 736m EGP (USD 130 million). About LINKdotNET: The 2 nd largest ISP ( 30% ADSL & 41% dialup market share) A reliable and reputable company. An experienced team of 1,200 employees. Providing full range of ISP products & services: A well developed ADSL & Dialup infrastructure. Corporate VPN & data solutions. Global connectivity. The largest WiFi access network. A large base of valuable corporate and customer subscribers. 4

5 4. Financial Statement Analysis Financial Ratios & Analysis: Egyptian Company for Mobile Services - MobiNil Fiscal Period: 2006A 2007A 2008A 2009A 2010H1 Profitability Ratios Gross Profit Margin 81% 80% 79% 81% 78% EBITDA Profit Margin 51% 45% 47% 47% 41.8% EBIT Profit Margin 33% 29% 31% 30% 23% Net Profit Margin 24% 22% 20% 19% 15% Return on Asset (ROA) 21% 21% 17% 14% 5% Return on Equity (ROE) 94% 108% 99% 69% 20% Activity Ratios Total-Asset Turnover Fixed-Asset Turnover Receivable Turnover Inventory Turnover Payable Turnover Days of sales outstanding Days of Inventory on hand Number of days of payable Cash conversion cycle (288.0) (226.2) (263.4) (377.1) (326.2) Liquidity Ratios Current Ratio Quick Ratio Acid-Ratio Cash Ratio EBITDA Coverage Ratio EBIT Coverage Ratio Solvency Ratios Total-debt/Equity Long-term-debt/Equity Total-asset/Equity Equity/Total Capital 42% 30% 28% 41% 36% 5

6 Profitability Ratios: Egyptian Company for Mobile Services - MobiNil In general there is stability in profitability ratios from 2006 to 2009; the gross profit margin decreased 81% in 2009 to 78% in 2010H1. Also there is major decrease in EBITDA margin in 2010H1 from 47% in 2009 to 41.8% in 2010H1, and the EBIT margin decreased from 30% in 2009 to 23% in 2010H1. The net profit margin recoded 15% in 2010H1 compared to 19% in 2009 annual report. The ROA and ROE also decreased from 14%, 69% in 2009 to 10%, and 41%, respectively. 100% 80% 60% 40% 20% Gross Profit Margin EBITDA Profit Margin Net Profit Margin 0% 2006A 2007A 2008A 2009A 2010H1 Source: Company Disclosures. 2006A 2007A 2008A 2009A 2010E Gross Profit (m) 5, , , , , Margin% 81% 80% 79% 81% 78% EBITDA (m) 3, , , , , Margin% 51% 45% 47% 47% 41.8% EBIT (m) 2, , , , , Margin% 33% 29% 31% 30% 23% Net Income (m) 1, , , , Margin% 24% 22% 20% 19% 15% Return on Asset (ROA) 21% 21% 17% 14% 10% Return on Equity (ROE) 94% 108% 99% 69% 41% 6

7 Activity Ratios: The total asset turnover decreased from 0.9x in 2007 to 0.8x in 2008 and stay in this level in 2009, there is improvement in Receivable turnover throw the last 4 years which is a good sign that the relation management with the customers was improved. The inventory turnover decreased in the last 4 years which is not a good sign but in 2009 the inventory turnover stable compared to The payable turnover increased in 2007 but decreased in the last 2 years which is a good sign that the relation management with the suppliers was improved A 2007A 2008A 2009A Receivable Turnover Inventory Turnover Payable Turnover Source: Company Disclosures. 2006A 2007A 2008A 2009A Total-Asset Turnover Receivable Turnover Inventory Turnover Payable Turnover Days of sales outstanding Days of Inventory on hand Number of days of payable Cash conversion cycle (288.0) (226.2) (263.4) (377.1) 7

8 Liquidity Ratios: In general there are increases in liquidity ratios from 2006 to 2010H1, which is a sign that the firm will be able to pay its short-term bills when they are due. The EBITDA coverage ratio decrease significantly in 2008 compared to 2007 related to increase in debt financing and consequently increase in the interest expense, and since 2008 gains stability A 2007A 2008A 2009A 2010H1 Current Ratio Quick Ratio Acid-Ratio Cash Ratio Source: Company Disclosures. 2006A 2007A 2008A 2009A 2010H1 Current Ratio Quick Ratio Acid-Ratio Cash Ratio EBITDA Coverage Ratio EBIT Coverage Ratio Solvency Ratios: The solvency ratios decreases throw time especially since 2007 but increase again by the beginning of 2010 because of increase in debts and the bond that the company issued in March 2010 by amount of 1.5b A 2007A 2008A 2009A 2010H1 Total-debt/Equity Long-term-debt/Equity Total-asset/Equity Source: Company Disclosures. 2006A 2007A 2008A 2009A 2010H1 Total-debt/Equity Long-term-debt/Equity Total-asset/Equity

9 5. Assumptions Average monthly Revenue Per User, ARPU 2009 Q2 to 2010 Q2 trend Q2 2009Q3 2009Q4 2010Q1 2010Q2 ARPU trend is starting to gain stability in 2010 Q2 (Source: Company disclosure) We expect the ARPU to remain in the level of 30.2 EGP as the company said that level reached in Q and starting to gain stability Revenue expectations: New activation procedures: we expect revenue to affect negatively by this new procedures which necessitates users to provide personal details through an IVR system after purchase of new line and the line will activated after 48 hours, management said. But prior to this new rule the activation immediate after purchase the new line Shortage in the dials: Mobinil announced that there was a shortage in dials, and the regulator had only allocated 1 m dials to Mobinil, which affected the company growth of subscribers in Q negatively because Mobinil has the highest market share We expect the market share for Mobinil to remain unchanged and the number of subscribers to increase by the same percentage of total subscribers increase, we expect Mobinil subscribers to reach 27.8 m by the end of E 2011E 2012E 2013E 2014E Total subscribers (m) Growth of subscribers 31% 15% 10% 5% 5% 5% Mobinil subscribers Capex: We expect Capex to reach 2.6b in 2010 and 2.3b in 2011 and gross fixed asset to increase by 10% annually in the next 3 years. 9

10 6. Valuation & Value per share 6.1. Discounted cash flow valuation: Egyptian Company for Mobile Services - MobiNil o We use Free Cash Flow to Firm approach - FCFF with 10.6% Weighted Average Cost of Capital "WACC" as shown in the table below: Risk-free rate 8.4% Beta Cost of Equity 11.7% Perpetual growth 3% WACC 10.6% FCFF Statement: FCFF Statement - millions of EGP 2010E 2011E 2012E 2013E 2014E Cash flow from operations, CFO 2, , , , ,280.3 Interest expense after tax Capex (2, ) (2,307.63) (2,153.79) (2,369.17) (2,606.09) FCFF , , , , Terminal value 24, FCFF + Terminal Value , , , , Discount factor Discounted cash flow, DCF , , , , Debt 6, non-operating asset Company Value 19, Common shares Fair Value per share (EGP)

11 6.2. Comparative Valuation: Egyptian Company for Mobile Services - MobiNil o We compared Mobinil with telecom companies in Middle East and Africa EV/EBITDA EV/EBITDA for Telecom companies in ME & Africa, 6.3 Egyptian Company for Mobile Services - MobiNil, EV/EBITDA Valuation EV/EBITDA 6.3x EBITDA 4,374.2 Enterprise value, EV 27,755.9 Total Debt 6,291.0 Minority Interest (1.0) Cash and short term INV Total Value of common shares 22,075.9 Number of shares Fair Value per share Fair value per share: DCF Valuation Comparative Valuation 192 EGP EGP 50% 50% Fair Value per share EGP 00

12 7. Appendix Balance Sheet: Millions of EGP E 2011E 2012E 2013E 2014E Inventory Accounts receivable Other debit balances Prepaid expenses Total cash , , , , Total Current Assets 1, , , , , , , Fixed asset, net 7, , , , , , , Fixed asset under construction 1, Licenses fees, net 3, , , , , , , Investments Rent deposits Total Non-Current Assets 12, , , , , , , Total Assets 13, , , , , , , Provision for contingent liabilities , , , Bank facilities Current port. of LT Debt , , Creditors 2, , , , , , , Other credit balances , , , , , Dividends payable Accrued expanses , , Total Current Liabilities 5, , , , , , , Creditors - Long term Long term creditorslicense fees Long term loans 4, , , , Bonds - - 1, , , , , Deferred tax liabilities , Total Non-Current Liabilities 5, , , , , , , Total Liabilities 11, , , , , , , Paid up capital 1, , , , , , , Treasury shares (11.355) (3.454) (3.454) (3.454) (3.454) (3.454) (3.454) Reserve (gains from treasury shares) legal reserve Equity settled share based payments (6.683) (6.683) (6.683) (6.683) (6.683) (6.683) retained Earnings , , , , , Net Income for the year 1, , , , , , , Dividends (1, ) ( ) ( ) ( ) ( ) (1, ) (1, ) Shareholders' equity 2, , , , , , , Minority Interest (1.036) (0.754) (0.420) (0.056) Total shareholders' equity 2, , , , , , , Total Liabilities & Shareholders' Equity 13, , , , , , ,

13 7.2. Income Statement: Egyptian Company for Mobile Services - MobiNil Millions of EGP 2008A 2009A 2010E 2011E 2012E 2013E 2014E Total Revenue 10, , , , , , , Cost of Revenue, Total (2, ) (2, ) (2, ) (2, ) (2, ) (2, ) (2, ) Gross Profit 7, , , , , , , Selling/General/Administrative Expense (1, ) (1, ) (1, ) (1, ) (1, ) (1, ) (1, ) Remuneration, allowances and salaries of board members (4.964) (9.396) (7.111) (7.733) (8.120) (8.526) (8.952) Impairment losses of accounts receivable (50.315) (35.149) (51.825) (34.443) (63.113) (34.711) (73.404) Provisions ( ) ( ) ( ) ( ) ( ) ( ) ( ) Provisions no longer required Other operating expense (1, ) (1, ) (1, ) (2, ) (2, ) (2, ) (2, ) EBITDA 4, , , , , , , Depreciation & Amortization (1, ) (1, ) (2, ) (2, ) (2, ) (2, ) (3, ) EBIT 3, , , , , , , Interest Income Interest Expense ( ) ( ) ( ) ( ) ( ) ( ) ( ) Capital gain (loss) (20.796) (5.952) Net foreign currencies exchange differences (54.599) Other income Decrease in value of Investment - (0.900) Net Income Before Taxes & minority interest 2, , , , , , , Current tax ( ) ( ) ( ) ( ) ( ) ( ) ( ) Deferred tax ( ) ( ) (84.434) (99.813) ( ) ( ) ( ) Net Income After Taxes 1, , , , , , , Minority Interest (0.282) (0.334) (0.364) (0.408) (0.431) Net Income 1, , , , , , , Number of shares outstanding EPS (EGP)

14 7.3. Cash Flow Statement: Egyptian Company for Mobile Services - MobiNil Millions of EGP 2010E 2011E 2012E 2013E 2014E Net Income After Taxes 1, , , , , Provisions Depreciation & Amortization 2, , , , , Deferred tax NCC 2, , , , , Change in Inventory (5.075) (4.317) Change in Account Receivable ( ) ( ) ( ) Change in Other debit balances (89.785) ( ) ( ) Change in Prepaid expenses (29.776) (40.558) (39.626) Change in Creditors ( ) 1, (1, ) 1, (1, ) Change in Other credit balances ( ) ( ) ( ) Change in Accrued expanses ( ) ( ) ( ) WCInv 1, (1, ) 1, (1, ) 1, Cash flow from operations, CFO 2, , , , , Capex (2, ) (2, ) (2, ) (2, ) (2, ) Cash flow from investing, CFI (2, ) (2, ) (2, ) (2, ) (2, ) Change in Debt ( ) (1, ) ( ) (1, ) Dividends paid ( ) ( ) ( ) (1, ) (1, ) Change in Minority Interest Cash flow from financing, CFF ( ) ( ) (2, ) (1, ) (2, ) Net change in cash and cash equivalents ( ) 2, (1, ) 2, ( ) Beginning Cash Balance , , , Ending Cash Balance , , , ,

15 Recommendation Table Upside Potential Less Than 10% From 10% to 25% From 25% to 40% More Than 40% Recommendation Hold Buy in short term Buy and Hold in medium term Strong Buy and Hold in long term Research Team Walid Khalil, CFTe, MFTA Chief Technical Strategist Mohamed Salem Financial Analyst Ramy Salah Technical Analyst Ahmed Ismael Financial Analyst Hala Shawky Technical Analyst Premiere Securities Branches Head Office 22 Syria street, Al-Mohandseen Tel: + (202) / Fax: + (202) Nasr City Branch 16 Samir Abel Raaof street, extension of Makram Ebid street Tel: + (202) Fax: + (202) Maadi Branch 18 Al-Nasr street Tel: + (202) Fax: + (202) Fundamental & Technical analysis reports are available on 05