May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 Past 3 year CAGR Global Research Investment Update Equity - Qatar Telecommunication Sector 07 May, 2013 (Formerly Qtel) Market Data Bloomberg Code: QTEL QD Reuters Code: QTEL.QA CMP (06 Mar 2013): QAR116.2 O/S (mn) 320.3 Market Cap (QAR mn): 37,221 Market Cap (USD mn): 10,198 P/E 2013e (x): 11.2 P/Bv 2013e (x): 1.3 Price Performance 1-Yr High (QAR): 123.3 Low (QAR): 100.5 Average Volume: ( 000) 74.4 1m 3m 12m Absolute (%) 3.5 3.1-4.6 Relative (%) 1.1 2.4-5.9 Price Volume Performance 600 500 400 300 200 100 0 130 120 110 100 90 80 Gives exposure to high growth markets of Iraq and Algeria Seeking to enter Morocco and Myanmar markets 4G launched in Qatar; Kuwait and Oman operations to follow Offers growing dividend yield; attractive valuations Strong Buy Target Price QAR140.0 differs from other incumbents in GCC due to its substantial exposure to growth markets. Indonesia, Algeria and Iraq accounted for 57.0% and 61.0% of total revenue and EBITDA in 2012, respectively. The competition in its domestic market has also been relatively benign due to initial setbacks faced by Vodafone Qatar and proactive measures taken by. has recently increased its stake in Iraq-based Asiacell and Kuwait-based Wataniya in view of their growth potential and good track record. On the valuation front, the company is currently trading at attractive valuations and offers a growing dividend yield. Revenue 2013-16 CAGR Low/decline (less than 2.0%) Medium (2% to 4%) High (more than 4.0%) Low/decline Tunisia Medium Kuwait, Oman Qatar High Indonesia Algeria, Iraq Source: Company Reports & Global Research Focus turns towards dividend payout In view of the importance shareholders attach to dividends in the region, has substantially increased DPS to QAR5.0 (yield of 4.8%) in 2012 compared to DPS of QAR3.0 (yield of 2.1%) in 2011. The increase in DPS also comes in the backdrop of increase in Wataniya Telecom dividend payout by 150.0% in 2012 after increased its stake to 92.1%. Since any overseas acquisition is likely to be done by directly, we can expect Wataniya telecom to continue with the high dividend payout going forward. We expect to pay DPS of QAR5.5 (yield of 4.7%) in 2013. Heavy investment in Capex to continue We expect Capex/sales to remain high at 18.1% in 2013 and taper off to 12.9% by 2016. We estimate that around 40.0% of the Capex during the forecast period will relate to operations in Indonesia. Indonesia has seen rapid subscriber growth in recent years and the company is investing heavily to expand its infrastructure and improve its network quality. In addition, will look to expand its recently introduced 4G network in Qatar and also plans to introduce 4G network in Kuwait and Oman in 2013. Source: Zawya Volume ('000) Faisal Hasan, CFA Head of Research fhasan@global.com.kw Tel.: (965) 22951270 Umar Faruqui, CFA, ACCA Senior Analyst ufaruqui@global.com.kw Tel : (965) 22951438 Global Investment House www.globalinv.net (QAR) submits binding offer for Maroc Telecom along with UAE s Etisalat are vying to buy a 53.0% stake in Maroc Telecom from France s Vivendi. The motivating factor seems to be Maroc telecom s efficient management, dominant market position and the company s exposure to sub-saharan Africa. In addition, through its subsidiary Wataniya Telecom has experience of operating in the North African region. The risk of overpaying for the acquisition seems to be mitigated by the fact that financial discipline has been imposed by the major shareholders as the overriding concern for acquisitions. In addition, 2012 net debt/ebitda of 1.6x is at the lower end of the target range of 1.5-2.5x. Untapped Myanmar on the radar is one of the 12 announced finalists for two licenses to build, own and operate a mobile network for 15 years. The bid winners are expected to be announced in June 2013. Myanmar offers a good opportunity as it opens up to the rest of the world. Mobile penetration is extremely low at around 9.0% due to high cost of SIM costs.
Valuation & Recommendation SOTP DCF based valuation We have used a discounted cash flow (DCF)-based sum-of-the-parts (SOTP) methodology to arrive at the fair value of. We have used a different WACC for each country operation based on their capital structure and perceived riskiness. The WACC ranges from 18.0% for Palestine operations to 9.1% for Qatar operations. We have also taken a high WACC for Tunisia, Iraq and Algeria operations of 14.0-17.0% to account for political and regulatory risk. Meanwhile, the terminal value of each of the operations is based on target EV/EBITDA. Based on consolidation of the individual country operations, our SOTP valuation fair value of stock is QAR140.0 per share. The stock at its current price of QAR116.2 per share offers a potential upside of 20.4%, thus we recommend a Strong Buy on the stock. SOTP Valuation Summary Country Operations Holding Proportionate EV (QAR mn) % of EV Qatar Operations 100.0% 21,469 31.0% Naw ras Telecom - Oman 55.0% 2,309 3.3% Asiacell- Iraq 64.1% 12,422 18.0% Wataniya Telecom - Group 92.1% 15,411 22.3% Algeria (Direct stake) 9.0% 863 1.2% Tunisia (Direct Stake) 15.0% 870 1.3% PT Inodsat- Indonesia 65.0% 13,937 20.2% Others 1,873 2.7% Total EV 69,154 100.0% Net Debt (24,321) Total Equity Value 44,834 No. of shares outstanding (mn) 320.3 Per share Value (QAR) 140.0 Source: Company Reports & Global Research attractive on EV/EBITDA basis trades close to its GCC peers on a P/E basis but is attractive on an EV/EBITDA basis. s 2013e EV/EBITDA of 4.3x is at a 19.0% discount to the GCC average 2013e EV/EBITDA of 5.3x. Volatility of bottom line and differing capital structures make EV/EBITDA a better metric to use than P/E. Dividend payout has also been jacked up by making its 2013e and 2014e dividend yield close to average GCC dividend yield. When compared to the aggregate of selected emerging market companies and GCC companies, becomes attractive on both P/E and EV/EBITDA basis. Company Country Market Cap USD (bn) 2013e 2014e 2013e 2014e 2013e 2014e Saudi Telecom Company Saudi Arabia 23.1 5.3 5.3 4.6% 4.6% 10.4 10.7 Etihad Etisalat (Mobily) Saudi Arabia 16.4 7.4 6.8 5.8% 6.3% 9.4 8.9 Qatar 10.2 4.3 3.8 4.7% 5.2% 11.2 10.2 Zain Kuw ait 11.5 6.1 5.9 6.7% 6.7% 10.6 9.9 Oman Tel Oman 2.9 5.1 4.8 5.0% 5.0% 8.9 8.8 Etisalat UAE 24.2 4.4 4.3 6.3% 6.5% 11.3 10.9 DU UAE 6.4 4.9 4.5 5.4% 5.6% 12.6 12.8 Batelco Bahrain 1.5 5.3 5.1 6.2% 6.2% 10.4 7.9 Turkcell Turkey 13.9 9.1 9.0 6.1% 5.6% 11.3 10.6 MTN South Africa 36.4 5.5 5.1 5.6% 6.3% 13.3 11.9 Telecom Egypt Egypt 3.1 4.1 4.2 10.7% 10.8% 8.5 8.4 Rostelecom Russia 11.0 4.5 4.4 3.4% 4.5% 10.2 9.3 Telkomsel Indonesia 23.4 5.6 5.3 4.3% 4.8% 15.1 14.0 China Tel China 40.8 3.3 3.0 2.6% 3.0% 13.8 11.4 Telefonica Brasil Brazil 30.1 4.9 4.7 7.3% 7.5% 13.3 12.6 Maxis Malaysia 16.7 12.6 12.2 6.0% 5.9% 23.3 22.1 Idea Cellular India 8.3 7.0 7.7 0.1% 0.2% 25.1 28.0 Average Total 5.8 5.7 5.3% 5.6% 12.9 12.3 Average GCC 5.3 5.1 5.6% 5.8% 10.6 10.0 Average ex-gcc 6.3 6.2 5.1% 5.4% 14.9 14.2 Source: Bloomberg & Global Research Note: Year-end of some companies is 31 March. EV/EBITDA Dividend Yield P/E May - 2013 2
1Q13 results Qatar, Iraq, Indonesia and Algeria drive revenue growth 1Q13 revenues increased by 5.2%YoY to QAR8.4bn. The revenue growth is at the higher end of the 2013 management guidance range. Revenue was driven by revenue growth in Qatar, Iraq, Indonesia and Algeria operations by 5.0%YoY, 6.0%YoY, 9.0%YoY and 16.0%YoY respectively. Meanwhile, revenue from Kuwait operations declined by 11.0%YoY due to intense competition in the market. Increased data usage is leading to lower international and SMS revenue in Kuwait. Revenue in Tunisia also saw a decline of 5.0%YoY due to the difficult economic conditions in the country. EBITDA affected by rebranding costs, regulatory fees and competitive environment in Kuwait 1Q13 EBITDA declined by 4.3%YoY to QAR3.7bn. EBITDA was adversely affected by rebranding costs, regulatory fees in Tunisia and competitive pressure in Kuwait. Consequently, EBITDA margins were also adversely affected and declined to 44.0% in 1Q13 compared to 48.0% in 1Q12. Qtel unveiled its new brand in February 2013 and launched it in Qatar in March 2013. The company expects the cost of group-wide rebranding to stretch till 2014. QAR (mn) 1Q12 4Q12 1Q13 YoY QoQ Consolidated Revenue 8,026 8,078 8,442 5.2% 4.5% EBITDA 3,833 3,881 3,716-3.1% -4.3% EBITDA Margin (%) 48.0% 48.0% 44.0% - - Net Profit Attributable to Shareholders 711 523 808 13.6% 54.6% Consolidated Customers (mn) 84.4 92.9 91.0 7.70% -2.1% Source: Ooreedo investor presentation, Company reports and Global Research 2013 Guidance Growth Revenue 2-6% EBITDA 1-5% Capex QAR 8-9bn Source: Ooreedo presentation Key Risks to Valuation Change in regulations Favorable and adverse impact of regulatory changes in countries where Oreedoo Group companies operate. Possibility of regulatory changes or interventions remains high in markets such as Iraq, Algeria and Tunisia. Political risk remains elevated Political risk remains high in the North African region as it moves into the post-revolution phase. Political risks remain high in Iraq as well. Stake increase or new acquisitions Possible acquisitions of Maroc Telecom or license in Myammar can have a positive/ adverse impact on our forecasts. Any further stake increase in existing operations or new acquisitions can have significant impact on our financial forecasts. Any possible entry into other markets through management contracts and MNVO s can also affect our valuations. Uncertainty of 3G licenses in Iraq and Algeria; Possible entry of 4 th mobile operator in Iraq Issuance of 3G licenses in Iraq and Algeria have been delayed since the past many years. Licenses in both countries are expected to be issued in 2013. Any further delay can have an adverse impact on our valuations. Assumed reasonable levels of competition We have assumed reasonable levels of competition among operators where Oreedoo group companies operate, however, less or unreasonable competition or entry of new operator could impact our financial forecasts. Implementation of Mobile Number Portability (MNP) Qatar launched MNP in February 2013 while Kuwait is expected to launch MNP in June 2013. We believe that the impact won t be significant considering the impact of MNP in other GCC countries. However, any significant loss/increase of customers due to the MNP service can have a positive/adverse impact on our valuations. Currency movements Being a multi-country operator, fluctuations of foreign currencies can have material impact on our financial forecasts. May - 2013 3
Major Operations Overview Qatar Last to open its door in GCC; has dealt effectively with competition hitherto Qatar was the last country in GCC to open its door to more competition when Vodafone Qatar made its entry in the Qatari market in Q1-2009. The competition in the domestic market has been relatively benign due to initial setbacks faced by Vodafone Qatar and proactive measures taken by in terms of competitive positioning. In addition, the pace of decline in s market share has slowed down significantly. Meanwhile, subscriber base increased by 6.4% to 2.53mn in 2012 after remaining more or less flat in the previous three years. 4G services launched; expecting modest growth in revenues Revenue and EBITDA growth had been strong in the past two years. Going forward, we expect revenue from Qatar operations to grow at 4-year CAGR of 3.1%. Revenues will be driven by data services which in turn will be supported by the recent launch of 4G services in Qatar. The take-up off 4G is likely to be quick in Qatar due to the following factors. 1) Increase in smart phone penetration 2) high-per capita income 3) Increased popularity of social and professional networking sites and gaming 4) use of Over the Top services 5) Favorable demographics. In addition, Qatar is experiencing a higher population growth than GCC average due to the requirement of foreign workforce in the backdrop of preparations for the 2022 soccer World Cup. No Update yet on QNBN network There has been no update yet on Qatar National Broadband network (QNBN). Meanwhile, Oreedoo s fibre-to-home network has grown to 75,000 connections and has passed 185,000 houses at the end of 1Q13. Oreedoo Subscribers and Market Share Qatar Population and Mobile Penetration 2.6 1 1.9 1 2.5 2.4 2.3 2.2 2.1 2.0 1.9 1.8 86% 75% 72% 69% 1.8 1.7 1.6 143.0% 159% 166% 162% 159% 1 1 1 1.7 1.5 Source: Investor presentations & Global Research Kuwait Focus turns to data revenues as voice revenues decline In Kuwait, the story is typical of other GCC countries. With a high penetration rate of above 140.0%, the focus has turned towards provision of data services to offset the decline in voice revenues. Telco operators are set to benefit from increase in smart phone penetration as it will lead to increased usage of data services. Subscribers and Market Share Kuwait Population and Mobile Penetration 2.5 2.0 1.5 1.0 39% 38% 41% 42% 41% 39% 38% 37% 36% 36% 3.8 3.7 3.7 3.6 3.6 3.5 3.5 90% 112% 125% 136% 148% 1 1 1 0.5 35% 34% 3.4 3.4 0.0 33% 3.3 Source: Investor presentations & Global Research May - 2013 4
Stiff competition taking its toll on market share and profitability Wataniya is set to enter the 4G domain in 2013 to tap this fast-growing data segment. However, it faces stiff competition from Zain and Viva which have already started their 4G operations. The entry of Viva has intensified the competitive landscape in Kuwait with the new entrant capturing 20.8% market share in a span of 4 years. Consequently, Wataniya telecom has seen its market share dip to 36.0% in 2012 from 40.0% in 2011. 1Q13 results also revealed a tough situation in the Kuwait market with revenue, EBITDA and net profit from Kuwait operations declining by 9.0%YoY, 31.1%YoY and 38.7%YoY respectively. Indonesia Increase in smart-phone penetration and data usage offers huge opportunity Indonesia is a huge country in terms of population (approx 241.0mn in 2012). Indonesian economy, backed by a strong resource base, has grown at an average of 6.0% in the past five years. Favorable demographics, growing per-capita income and smart-phone penetration indicates further growth in usage of telecom services and in particular data services. Robust Industry revenue growth; Data revenues to drive future growth Total industry revenue growth increased by 11.0%YoY in 9M12 driven by data services. Total industry data revenue increased by 28.0% in 2011 and 38.0%YoY in 9M12. Data revenues are likely to drive further revenue growth. Meanwhile, total wireless subscriber base reached more than 268mn. Indonesian market has five major telecom operators with five other smaller ones. The top three operators Telkomsel, Indosat and XL account for around 80.0% of total telecom subscriber base. Indosat faring well in the Indonesian market Indonesian operations contributed 26.1% to total revenue of group in 2012. Indosat s subscriber base has grown at a 2008-12 CAGR of 12.2% to 58.6mn at the end of 2012. Indosat has also managed to increase its subscriber market share to 26.0% in 2011 from 20.0% in 2010. The company managed to maintain its market share in 2012. Revenue from Indosat has grown at a 2008-12 CAGR of 20.6%. Strong performance continued in 1Q13 with revenue and EBITDA increasing by 9.0%YoY and 5.0%YoY. Subscribers and Market Share Indonesia Population and Mobile Penetration 63.0 53.0 43.0 33.0 29% 26% 26% 30% 25% 245.0 240.0 235.0 230.0 58% 70% 87% 97% 127% 1 1 23.0 13.0 15% 225.0 3.0 10% 220.0 0% Source: Investor presentations & Global Research Tunisia group s Tunisian subscriber growth outstrips industry subscriber growth Tunisia has seen significant growth in its telecom sector in the past few years despite the political upheaval faced by the country. Total telecom subscriber base has increased at a 5-year CAGR of 13.0%. group s Tunisian subscribers have grown at a 5-year CAGR of 14.0% during the same period explaining the rise in market share to 55.0% at the end of 2012 compared to a market share of 51.0% in 2008. We believe, this has been due to effective marketing and attractive product suites offered by the company. Political turbulence restraining growth; devaluation of Tunisian Dinar affecting returns Political instability is having an impact on the economy and exchange rate. The country is still facing political turbulence as it goes ahead with political transition. Since Tunisia does most of its trade with Europe and significant numbers of Tunisian expats work in Europe, the sovereign debt crisis in Europe is also putting pressure on the Tunisian currency. In addition, reduction in tourism is also having an adverse effect on the exchange rate. Tunisia has seen its currency decline against the USD in the aftermath of the uprising which took place in December 2010. Tunisian dinar has declined by 4.0% in 2011, 3.4% in 2012 and 2.9% in 1Q13. The devaluation of Tunisian currency has reduced the returns for the company in KWD terms despite a modest growth from the Tunisian operations in local currency terms. 1Q13 revenue and EBITDA declined by 5.0%YoY and 19.0%YoY in KWD terms compared to 1.0%YoY and 15.0%YoY decline in local currency terms. May - 2013 5
3G services launched; in the process of launching fixed line services The company launched its 3G services in July 2012 to tap the fast-growing data services segment. Tunicell, which is the cellular arm of the incumbent operator, and Orange have already launched their 3G operations. We expect the company to experience stiff competition in this segment. Meanwhile, the company is also in the process of launching its fixed line services. Subscribers and Market Share Tunisia Population and Mobile Penetration 7.5 7.0 6.5 6.0 5.5 53% 54% 58% 56% 55% 56% 54% 10.9 10.7 10.5 10.3 82% 93% 106% 111% 122% 1 1 5.0 4.5 4.0 3.5 51% 52% 50% 10.1 9.9 9.7 3.0 48% 9.5 Source: Investor presentations & Global Research Algeria Continues to provide solid growth Algeria has a large population of around 36.0mn and a GDP per capita of USD5,660. The penetration rate is relatively low at 68.0% indicating the room for further growth. Algerian economy is expected to grow by 3.4% in 2013 driven by high oil prices according to IMF. The economic growth will have a trickledown effect on usage of telecom services. Thus for Group, the continuation of healthy subscriber growth and expected increase in ARPU will drive growth for the company. 1Q13 results confirm our view with revenue, EBITDA and net profit increasing by 18.2%YoY, 19.1%YoY and 13.8%YoY respectively. The Algerian telecom landscape has two other Mobile service providers, Djezzy and Mobilis. Wataniya telecom, with its brand name Nedjma, managed to increase its market share to 32.0% in 2012 as Djezzy has been engrossed in a dispute over government holding in the company. 3G license facing uncertainty The issuance of 3G license in Algeria has been delayed since 2008. The licenses are now expected to be issued in 2013. The issuance of 3G license will be a big boost for the telecom sector as a whole as it will allow the companies to tap the underpenetrated data segment more effectively. However, the exact timing of the issue is still uncertain. Subscribers and Market Share Algeria Population and Mobile Penetration 10.0 9.0 8.0 7.0 6.0 5.0 4.0 21% 29% 31% 31% 32% 35% 30% 25% 38.0 36.0 34.0 32.0 67% 78% 74% 76% 68% 75% 70% 65% 55% 3.0 15% 30.0 50% Source: Investor presentations & Global Research May - 2013 6
Iraq Strong subscriber growth; Strong presence in Kurdistan group mobile customers in Iraq have grown at a 2008-12 CAGR of 13.2% to 10.03mn subscribers. Economic recovery, improvement in security situation, high oil prices, and low mobile penetration along with deregulation of the sector has lead to a strong increase in mobile subscribers. Asiacell, the Iraqi subsidiary of also has a strong presence in the Iraqi autonomous region of Kurdistan. This area is the most peaceful and prosperous region in the post-invasion Iraq. The ARPU in this region is also estimated to be double compared to the rest of Iraq. Revenue growth likely to slow down as Zain Iraq makes foray into Kurdistan Revenue from Iraq operations have grown strongly at a 2009-12 CAGR of 19.8% driven by increase in subscribers and increase in ARPU. Going forward, we expect revenue growth to slow down significantly to 2013-16 CAGR of 4.0% as competition intensifies and Zain Iraq makes its foray into the Kurdistan region. However, the revenue growth rate will still remain higher than other country operations with the exception of Algerian operations. Subscribers and Market Share Iraq Population and Mobile Penetration 11.0 10.0 9.0 8.0 37% 39% 36% 35% 34% 45% 35% 36.0 34.0 85% 78% 72% 90% 7.0 30% 32.0 66% 70% 6.0 5.0 4.0 25% 30.0 54% 3.0 15% 28.0 50% Source: Investor presentations & Global Research Successful completion of IPO increased its stake to 64.1% from 53.9% in the IPO which took place in January 2013. Asiacell sold 67.5bn shares at a price of 22 Iraqi dinars (0.02USD) in its IPO. This came as part of the licensing terms in which telecom operators in Iraq had to list 20.0% of their shares on the stock exchange after four years of issuance of the license. All the telecom operators saw a delay in the IPO process due to lengthy bureaucratic process in the country. License for Asiacell was issued in August 2007 and thus it was expected to undertake IPO by September 2011. Iraq offers good potential as the country rebuilds; Development of post-paid services linked to banking services Prepaid customers account for 99.35% of the total subscribers in Iraq. This shows the potential for growth in the post-paid segment. The introduction of post-paid services will be reliant on the development of banking services. Unlike other countries, where ARPU has been on a steady decline, we believe ARPU in Iraq, at worst is likely to be stable as the country carries on with its reconstruction. Oil production in Iraq touched 3.0mn barrels in 2012 for the first time in around three decades. The rise in revenue from oil production will feed into other sectors of the economy and ultimately lead to more spending on telecom services by the telecom subscribers. 3G licenses expected to be issued in 2013; Entry of 4 th operator doubtful 3G license is expected to be issued this year after facing delays. The granting of 3G licenses will be a positive development for all the mobile operators, if additional spectrum is given at a reasonable cost, as they can gain from providing higher speed data services to the subscribers. Meanwhile, there is still no clarification on whether a 4 th mobile license will be issued. Telecom operators in Iraq seem to believe that the auction of the 4 th license is unlikely since the three operators are making the desired investment in infrastructure and there is a reasonable level of competition in the market. There is also a possibility that the government might allow MNVOs to enter the market instead. May - 2013 7
Key Forecasts (QAR mn) Qatar 2009 2010 2011 2012 2013e 2014e 2015e 2016e Revenue 5,686 5,400 5,707 6,220 6,491 6,716 6,860 7,016 Growth 4.4% -5.0% 5.7% 9.0% 4.4% 3.5% 2.2% 2.3% EBITDA 3,296 2,878 2,948 3,249 3,129 3,391 3,410 3,431 Growth -3.0% -12.7% 2.4% 10.2% -3.7% 8.4% 0.5% 0.6% EBITDA margin 58.0% 53.3% 51.7% 52.2% 48.2% 50.5% 49.7% 48.9% ARPU (USD) 42.5 38.8 41.2 41.7 42.9 43.7 43.3 42.8 Kuwait 2009 2010 2011 2012 2013e 2014e 2015e 2016e Revenue 2,580 2,827 3,223 2,880 2,622 2,673 2,676 2,658 Growth -11.0% 9.6% 14.0% -10.6% -9.0% 1.9% 0.1% -0.7% EBITDA 1188 1262 1469 1101 891 906 896 890 Growth -22.9% 6.2% 16.4% -25.1% -19.0% 1.6% -1.1% -0.7% EBITDA margin 46.0% 44.6% 45.6% 38.2% 34.0% 33.9% 33.5% 33.5% ARPU (USD) 42.2 39.5 38.6 29.8 30.2 30.2 29.8 29.5 Indonesia 2009 2010 2011 2012 2013e 2014e 2015e 2016e Revenue 6,579 7,942 8,550 8,804 9,463 9,838 10,140 10,271 Growth 58.0% 20.7% 7.7% 3.0% 7.5% 4.0% 3.1% 1.3% EBITDA 3,207 4,034 4,159 4,414 4,665 4,791 4,867 4,899 Growth 54.2% 25.8% 3.1% 6.1% 5.7% 2.7% 1.6% 0.7% EBITDA margin 48.7% 50.8% 48.6% 50.1% 49.3% 48.7% 48.0% 47.7% ARPU (USD) 3.4 3.3 3.1 2.8 2.8 2.8 2.7 2.7 Iraq 2009 2010 2011 2012 2013e 2014e 2015e 2016e Revenue 3,998 5,054 5,934 6,878 7,270 7,612 7,874 8,052 Growth 40.4% 26.4% 17.4% 15.9% 5.7% 4.7% 3.4% 2.3% EBITDA 2,162 2,621 3,233 3,689 3,599 3,730 3,842 3,913 Growth 43.9% 21.2% 23.4% 14.1% -2.5% 3.7% 3.0% 1.8% EBITDA margin 54.1% 51.9% 54.5% 53.6% 49.5% 49.0% 48.8% 48.6% ARPU (USD) 12.4 14.2 15.1 15.7 14.9 14.8 14.7 14.6 Algeria 2009 2010 2011 2012 2013e 2014e 2015e 2016e Revenue 1,795 2,228 2,961 3,479 3,977 4,355 4,670 4,957 Growth 7.5% 24.1% 32.9% 17.5% 14.3% 9.5% 7.2% 6.1% EBITDA 590 841 1,101 1,374 1,551 1,707 1,835 1,943 Growth 22.7% 42.5% 30.9% 24.8% 12.9% 10.0% 7.5% 5.9% EBITDA margin 32.9% 37.7% 37.2% 39.5% 39.0% 39.2% 39.3% 39.2% ARPU (USD) 6.4 6.3 7.9 9.0 9.6 9.8 9.9 10.0 Tunisia 2009 2010 2011 2012 2013e 2014e 2015e 2016e Revenue 2,616 2,583 2,685 2,673 2,605 2,673 2,759 2,826 Growth 3.1% -1.3% 3.9% -0.5% -2.5% 2.6% 3.2% 2.5% EBITDA 1,413 1,421 1,520 1,515 1,277 1,302 1,338 1,365 Growth 6.5% 0.6% 7.0% -0.3% -15.8% 2.0% 2.8% 2.0% EBITDA margin 54.0% 55.0% 56.6% 56.7% 49.0% 48.7% 48.5% 48.3% ARPU (USD) 46.1 38.6 35.7 32.6 30.1 29.4 29.2 28.9 Source: Ooreedo investor presentations, company reports and Global Research Note: ARPU is the blended ARPU for mobile services May - 2013 8
Ratio Analysis Cash Flow Balance Sheet Income Statement Global Research - Qatar Financial Statements (QAR mn) 2010 2011 2012 2013e 2014e 2015e 2016e Revenue 27,377 31,745 33,714 35,447 37,034 38,258 39,087 Revenue Growth 13.9% 16.0% 6.2% 5.1% 4.5% 3.3% 2.2% EBITDA 12,465 14,796 15,546 16,139 16,923 17,337 17,606 EBITDA growth 11.0% 18.7% 5.1% 3.8% 4.9% 2.4% 1.5% Depreciation and amortization (6,317) (6,989) (7,702) (8,423) (8,842) (9,304) (9,670) EBIT 6,147 7,806 7,844 7,716 8,081 8,034 7,936 Financial Charges (1,804) (1,901) (1,921) (1,861) (1,826) (1,511) (1,295) Other revenues 611 1,293 98 150 137 169 196 Profit Before Taxation 4,954 7,198 6,021 6,005 6,392 6,692 6,836 Taxation/Royalties (866) (1,223) (1,303) (1,298) (1,373) (1,377) (1,372) Discontinued operation (32) (68) - - - - Net Profit for the year 4,088 5,943 4,650 4,708 5,019 5,315 5,464 Non-controlling interest (1,200) (3,338) (1,706) (1,372) (1,372) (1,346) (1,352) Profit attributable to equity holders 2,888 2,606 2,944 3,336 3,647 3,970 4,113 Net profit growth 2.2% -9.8% 13.0% 13.3% 9.3% 8.9% 3.6% Cash and Bank Balance 25,576 21,250 15,006 16,092 19,448 21,498 24,645 Receivables and Prepayments 4,740 5,817 6,102 6,558 6,851 7,078 7,231 Inventories 317 343 359 408 426 440 449 Total Current Assets 30,632 27,409 21,467 23,057 26,726 29,016 32,326 Net property, plant and equipment 32,173 33,065 32,503 32,259 31,222 29,191 26,108 Intangible assets 33,279 36,741 34,746 32,966 31,267 29,645 28,095 Investments in associates & ava. for sale 3,988 3,922 4,507 4,905 5,282 5,689 6,130 Other non-current assets 1,326 1,197 1,006 1,665 1,771 1,884 2,004 Total Fixed Assets 70,766 74,925 72,762 71,795 69,542 66,409 62,338 Total Assets 101,399 102,334 94,229 94,852 96,268 95,426 94,664 Accounts payable & accruals 10,476 11,218 11,009 11,108 11,518 11,852 12,143 Short term borrowings 2,519 13,851 7,308 6,577 5,919 5,327 4,795 Other current liabilities 4,704 2,036 2,163 2,239 2,326 2,427 2,542 Long-term debt 43,743 32,073 32,019 31,249 29,483 25,913 22,299 Other non-current liabilities 5,731 3,764 4,841 3,683 3,767 3,261 2,776 Non-controlling interests 15,197 18,337 9,000 10,371 11,744 13,089 14,441 Share capital 1,467 1,760 3,203 3,203 3,203 3,203 3,203 Retained Earnings 8,834 9,837 9,586 11,320 13,205 15,253 17,364 Other reserves 8,729 9,459 15,101 15,101 15,101 15,101 15,101 Total Shareholders Equity 19,030 21,056 27,890 29,624 31,509 33,557 35,668 Total Equity & Liability 101,399 102,334 94,229 94,852 96,268 95,426 94,664 Cash Flow from Operating Activities 9,633 7,910 11,817 13,678 16,101 15,948 16,316 Cash Flow from Investing Activities (5,514) (8,182) (6,954) (7,495) (6,639) (6,232) (5,673) Cash Flow from Financing Activities 9,383 (4,010) (11,326) (5,097) (6,105) (7,666) (7,496) Change in Cash 13,502 (4,282) (6,463) 1,086 3,356 2,050 3,147 Net Cash at End 25,576 21,250 15,006 16,092 19,448 21,498 24,645 EBITDA Margin 45.5% 46.6% 46.1% 45.5% 45.7% 45.3% 45.0% Net Profit Margin 10.5% 8.2% 8.7% 9.4% 9.8% 10.4% 10.5% Return on Average Assets 4.4% 5.9% 4.8% 5.0% 5.3% 5.5% 5.7% Return on Average Equity 16.7% 13.0% 12.0% 11.6% 11.9% 12.2% 11.9% Net debt / EBITDA (x) 1.7 1.7 1.6 1.3 0.9 0.6 0.1 Interest coverage (x) 6.9 7.8 8.1 8.7 9.3 11.5 13.6 Debt / Equity (x) 1.4 1.2 1.1 0.9 0.8 0.7 0.5 Capex as % of sales 25.4% 20.7% 21.7% 18.1% 16.5% 14.8% 12.9% EV/EBITDA (x) 4.4 4.6 4.3 4.3 3.8 3.5 3.1 EV/Revenues (x) 2.1 2.2 2.0 2.0 1.8 1.6 1.4 Adj. EPS (QAR) 11.0 9.9 9.2 10.4 11.4 12.4 12.8 Adj. Book Value Per Share (QAR) 72.4 80.1 87.1 92.5 98.4 104.8 111.4 Adj. Market Price (QAR) * 99.7 94.3 104.0 116.2 116.2 116.2 116.2 Market Capitalization (QAR mn) 21,841 25,450 33,313 37,221 37,221 37,221 37,221 Dividend Yield 2.8% 2.1% 4.8% 4.7% 5.2% 5.4% 5.6% P/E Ratio (x) 9.1 9.5 11.3 11.2 10.2 9.4 9.1 P/BV Ratio (x) 1.4 1.2 1.2 1.3 1.2 1.1 1.0 Source: Company Reports & Global Research * Market price for 2013 and subsequent years as per closing prices on May 06, 2013 May - 2013 9
Disclosure The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure. Disclosure Checklist Company Recommendation Bloomberg Ticker Reuters Ticker Price Disclosure Strong Buy QTEL QD QTEL.QA QAR116.2 1,10 1. Global Investment House did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in Global Investment House. 3. Global Investment House makes a market in securities issued by this company. 4. Global Investment House acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of Global Investment House serves on the board of directors of this company. 7. Within the past year, Global Investment House has managed or co-managed a public offering for this company, for which it received fees. 8. Global Investment House has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. Global Investment House expects to receive or intends to seek compensation for investment banking services from this company in the next three month. 10. Please see special footnote below for other relevant disclosures. Global Research: Equity Ratings Definitions Global Rating Definition STRONG BUY BUY HOLD SELL Fair value of the stock is > from the current market price Fair value of the stock is between +10% and + from the current market price Fair value of the stock is between +10% and -10% from the current market price Fair value of the stock is < -10% from the current market price Disclaimer This material was produced by Global Investment House KSCC ( Global ),a firm regulated by the Central Bank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities ( securities ), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgment. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice. Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations. May - 2013 10
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