Grameenphone October 30, 2014 ACAML Research research@acaml.com.bd Grameenphone Q3 14 Earnings Release DSE & CSE Ticker: GP Short term business challenges tarnished top line growth while strong data sub base is building up. Industry: Telecom Market Price (29/10/14): BDT 374.6 52-week Range: BDT 185.1 409 Market Cap: BDT 505.8bn Market Cap: USD 6.5 bn Trailing P/E: 34x Price to Book: 16.2x EV/EBITDA: 10.2x Free Float: 10% Latest Performance Declarations (Q3 14): Source: ACAML Research Analyst s Comment: Grameenphone (GP) declared its third quarter earnings number for the period ended on Sept 30, 2014. The company reported a profit of BDT 5.4bn and an EPS of BDT 5.3 in Q3 14, negative 6.8% growth QoQ but nine months EPS went up to BDT 11.8 from BDT 7.9 (not normalized) in the same period last year. Source: GP Presentation
GP s top line witnessed moderate 6.1% growth on a YoY basis while it witnessed 2.4% growth on a QoQ basis. Revenue growth slowed down a bit compared to previous quarters as GP had to go through some short term challenges. Short term challenges include international call rate cut by 50% and thus drop in revenue sharing, data revenue monetization with 3G etc combined resulted in a drop in Average Revenue Per User (ARPU) from BDT 170 to BDT 165 and Average Minute Per User (AMPU) from 250 to 243. The data ARPU is BDT 50. Currently, there are 10.2mn active internet subs of GP meaning around 26% market share in data. The challenge with data revenue is the customers switching to high volume packs to low volume packs (mini packs). Revenue growth is predominantly driven by data revenue. Data revenue has been growing by double digits and according to GP management it has grown by 72% in Q3 although it accounts for only 5% of the total revenue. Subscribers acquisition through push marketing and internet for all vision continues to be the core strategy of GP. Number of subscribers stood at 50.3mn as of Sept 30 2014 (Subscribers data of other operators for September is not out yet). Source: GP Presentation GP witnessed about 0.8% gain in market share in August 14 compared to January 14 and the market share is now standing at 42.3%. As far as its competitors are concerned, Banglalink and Robi are the biggest losers in terms of market share as they lost market share of 1.3% and 1.4% respectively in the same period. Robi is the closest competitor of GP with 21% market share and 0.2% gain.
GP s ARPU and AMPU declined by 2.8% and 2.9% respectively with contributing to slowdown in top line growth. Increased competition and more rural penetration are the reasons for low minutes usage. The positive thing is we believe that there is not much downside to current ARPU levels and once GP overcomes its short term challenges, ARPU, AMPU and thus the top line growth is likely to pick up. Source: BTRC Even after declined growth in revenue, all of its margins remain intact. EBITDA margin reached at all time high of 54% in Q3 14 driven mainly by data revenue contribution, cost efficiency and forex gain. Opex as a % of sales remains stagnant over the quarters at 38%. Depreciation expenses also increased (17% as a % of sales in Q3 14 vs 15% in Q2 14) for increased 3G capex and maintenance capex. Overall capex of GP stood at 11% to sales revenue in Q3 14 which was 14% in Q2 14. GP paused its 3G investment roll out for a while but since it has recently made progress in introducing low cost smartphones (especially with the introduction of firefox OS based smartphone) in the market, GP management is likely to invest further in 3G rollout. They have been reasonably successful in introducing low priced smartphones that can be bought by only USD 18. There are also 72 3G sites of GP and more 3G sites are on the pipeline. Mobile Financial Services (MFS) through Mobicash had a growth of 134% in transactions volume. There are currently 45,000 agents involved in MFS of GP and Mobicash currently involves six private commercial banks (Islami Bank, One Bank, United Commercial Bank, Dutch Bangla Bank, Mercantile Bank and IFIC Bank) as partners. Popularizing Mobicash service throughout the country seems a strategic focus of GP as subscribers using Mobicash are likely to stay longer with a GP connection. Regulatory issues: 1% surcharge on call rates has not been legislated yet. There is also no progress as far as the sim replacement tax is concerned. GP management expects a dialogue with finance minister to be taken place soon in this connection. Bangladesh Bank (BB) has formed a committee to ascertain MFS tariff. BTRC is considering releasing spectrum in 700 MHz band which will promote rural broadband in 2015 through an auction process, but no mentionable
progress with the mobile operators has been made yet. BTRC issued directive for the reduction in international call termination with $ 0.015 floor price for 6 months on a trial basis with effect from 19 Sep 14. Price Action & Recommendations: Source: ACAML Research Despite lower declared earnings in Q3, the price action of GP seemed very resilient and it is our belief once the short term business challenges are overcome, with increased market share and ARPU, data revenue growth, high dividend yield and with foreign fund manager s growing interest the forward looking context of GP seems quite decent. That being written, it is our recommendation that we wait for GP s share price to dip a bit (about 7-8%) from its current level and then think about building long position. Prepared by: Approved by: Khairul Bashar Senior Investment Analyst Date: Md. Nafeez Al-Tarik Chief Investment Officer Date:
\ Disclaimer: Estimates and projections herein are our own and are based on assumptions that we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any security. This report is intended for distribution in only those jurisdictions in which Alliance Capital Asset Management Ltd. is liable and any distribution outside those jurisdictions is strictly prohibited. ACAML Capital Market Research Department Research In-charge Md. Nafeez-Al-Tarik, FRM Vice President & Chief Investment Officer nafeez@acaml.com.bd Analyst Designation E-mail Mr. Imam Rasul Mohammed Imtiaz Senior Assistant Vice President & Deputy Chief Investment Officer imtiaz@acaml.com.bd Mr. Khairul Bashar Senior Investment Analyst khairul@acaml.com.bd Mr. Benazir Rahman Investment Analyst benazir@acaml.com.bd Mr. S.M. Galibur Rahman Investment Analyst galib@acaml.com.bd