Omantel ‐ Conference call updates
November 14, 2010
The Management of Omantel had a conference call last Thursday to discuss on the Q3FY10 results; the key discussion points are, Mobile Subscriber base continue to grow… Mobile subscribers of the company (along with resellers) have increased by 3.4% on a QoQ basis to 2.489 million subscribers. The subscriber market share of the company stood at 55%. The resellers continue to concentrate on the low income segment, which is a volume play. Of the total subscriber base, the subscribers of resellers are about 365K, forming about 14.7% of the total mobile subscriber base of the company. While in revenue terms, the mobile revenue market share of Omantel stood at 59% (end of Sep 10). The mobile revenues for the quarter was down by 7.8% as the company has done a revenue reversal of RO 1.140 related to Roaming charges and an additional RO 644K call revenue moving from fixed to Mobile. Graph 1: Mobile Subscriber Growth ‐ Quarterly Trend Source: Company Reports, GBCM Research Wholesale revenues declined on back of lower international gateway revenues… Fixed line revenue growth of the company declined marginally by 0.4% sequentially. This is in line with our estimates. During Q3FY10, the Wholesale revenues of the company have declined sharply by 23.8% on a QoQ basis. This is mainly on back of Nawras started routing its international traffic through its own gateway. As per the management, the international gateway revenue could have an additional impact of about RO 2 million during Q4FY10. The overall revenue growth of the company got impacted mainly due to the opening up of competition in fixed line services especially the international gateway services.
Broadband continue to show growth…
Mobile broadband segment continue to report stronger growth rate during the quarter. The company has about 156K unique subscriber base in this segment. Omantel continues to see huge opportunities in Oman telecom market especially in the broadband internet segment with the evolving technologies and increased usage of Smart phones in the coming years. In the same period, 2.0% 4.7% 2.0% 3.1% 7.4% 5.5% 5.6% 7.3% 6.4% 3.4% ‐ 500 1,000 1,500 2,000 2,500 3,000 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
Q2FY08 Q3FY08 Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10
segment continues to report a consistent growth over the last six quarters.
Capacity expansion to continue albeit at lower pace…
Omantel continued to invest its major capex towards the enhancement of 3.5G network services along with the development of next generation technology investments. The company has completed its installation of about 763 sites to provide wider coverage of 3.5G services in Oman. The total capital expansion plan for this fiscal year is expected to be about RO 75 million. However the company expects to maintain its capex to sales ratio of about 16 to 18% over the medium term. Graph 2: Capex Addition ‐ Quarterly Trend Source: Company Reports, GBCM Research Competition to continue… As far as the entry of third Operator in Oman telecom sector, the company feels that there would be opportunities emerging with the concept of carrier of carriers. The company also expects the competition to remain healthy moving ahead. As measure of tackling the loss of international revenue to illegal VOIP calls, the company has planned to launch new products in this segment to cater to the international calling customer base.
Presence of higher Operating Expenses…
The company has incurred higher operating expenses on back of enhanced investment activities done towards its 3.5G network along with the implementation of new technologies. Overall group 9MFY10 operating expenses increased by 18% YoY to RO 224 million. The previous Voluntary end of services scheme which was announced during previous year included about 130 employees (about 30 Senior Executives) opting for the scheme. This acted as a constructive move taken by the company towards cost rationalization measures. Q3FY10 PAT – Below our estimates Omantel has reported Q3FY10 PAT (excluding minority interest) of RO 23 million, a decline of 19.6% on a QoQ basis, which is below our estimates. The decline in revenues on back of competition along 25.1 53.5 64.4 18.2 50 68.1 109.7 10.9 28 43.5 0 20 40 60 80 100 120
Q2FY08 Q3FY08 Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10
Capex Additions (RO million
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Graph 3: Operating Expenses ‐ Quarterly Trend Source: Company Reports, GBCM Research Strategy towards Worldcall Telecom…
The company’s strategy towards Worldcall Telecom remains long term and expects improved performance over the next two to three years time frame. Omantel has planned to revamp the business division through effective cost rationalization measures. The company plans to call an EGM to approve giving third party guarantee to the funding requirement of the subsidiary company. As far the operating expenses of Worldcall Telecom is concerned, the company has seen a sharp increase in depreciation expenses (20% YoY) and other operating expenses (3% YoY) during the period. The company expects similar levels of expenses moving ahead. Outlook: Dividend policy to continue… Provides dividend yield of 8.3% at the current levels… At the current levels, the stock trades at 8.3X of P/E (FY10E EPS of RO 0.144). The company expects to follow the similar dividend policy for the current fiscal year. We expect the company to remain as a Dividend Play for the investors. Assuming a payout of RO 0.100 for the current fiscal year, the dividend yield of the company works out to be about 8.3% levels. We would be revisiting our Valuation Model and update a detailed note soon. 7.7% 20.4% ‐17.2% ‐1.8% ‐0.5% 17.6% 11.0% ‐3.6% ‐0.5% ‐0.9% 0 10 20 30 40 50 60 70 80 90 ‐20.0% ‐15.0% ‐10.0% ‐5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Q2FY08 Q3FY08 Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10
Omantel ‐ Revenue By segment Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10
Mobile Subscribers Post Paid 215.0 211.0 211.0 212.0 213.0 228.0 232.0 QoQ (%) 0.0% ‐1.9% 0.0% 0.5% 0.5% 7.0% 1.8% Pre Paid 1,547.0 1,582.0 1,628.0 1,658.0 1,762.0 1,849.0 1,892.0 QoQ (%) 3.5% 2.3% 2.9% 1.8% 6.3% 4.9% 2.3% Total 1,762 1,793 1,839 1,870 1,975 2,077 2,124 QoQ (%) 3.1% 1.8% 2.6% 1.7% 5.6% 5.2% 2.3% Resellers ‐ 100 159 240 288 331 365 QoQ (%) 59.0% 50.9% 20.0% 14.9% 10.3% Total Mob. Subscribers With Resellers 1,762 1,893 1,998 2,110 2,263 2,408 2,489 QoQ (%) 3.1% 7.4% 5.5% 5.6% 7.3% 6.4% 3.4% Fixed Line Subscribers 286 281 279 276 258 257 252 QoQ (%) 1.1% ‐1.7% ‐0.7% ‐1.1% ‐6.5% ‐0.4% ‐1.9% Fixed Broad Band Subscribers 35 37 39 41 42 44 45 QoQ (%) 9.4% 5.7% 5.4% 5.1% 2.4% 4.8% 2.3% Fixed line 21.2 23.3 25.5 26.0 28.1 24.3 24.2 QoQ (%) 2.4% 9.9% 9.4% 2.0% 8.1% ‐13.5% ‐0.4% Mobile 56.4 56.2 55.2 58.3 57.6 60.6 55.9 QoQ (%) ‐9.0% ‐0.4% ‐1.8% 5.6% ‐1.2% 5.2% ‐7.8% Wholesale 21.2 20.3 24.6 24.2 25.0 22.7 17.3 QoQ (%) 23.3% ‐4.2% 21.2% ‐1.6% 3.3% ‐9.2% ‐23.8% Total Revenue 98.8 99.8 105.3 108.5 110.7 107.6 97.4 QoQ (%) ‐1.1% 1.0% 5.5% 3.0% 2.0% ‐2.8% ‐9.5% Operating Expenses (Inc. Depreciation) 60.1 59.8 70.3 78 75.2 74.8 74.1 QoQ (%) ‐1.8% ‐0.5% 17.6% 11.0% ‐3.6% ‐0.5% ‐0.9% EBITDA 53.9 55.2 52.8 50.8 53.8 51.8 42.3 QoQ (%) 3.7% 2.4% ‐4.3% ‐3.8% 5.9% ‐3.7% ‐18.3% Net Profit 37.9 35.1 32.8 19.4 32.4 28.6 23.0 QoQ (%) 159.6% ‐7.4% ‐6.6% ‐40.9% 67.0% ‐11.7% ‐19.6% Capex Additions (RO million) 18.2 50 68.1 109.7 10.9 28 43.5 QoQ (%) ‐71.7% 174.7% 36.2% 61.1% ‐90.1% 156.9% 55.4% Opex to Sales (%) 60.8% 59.9% 66.8% 71.9% 67.9% 69.5% 76.1% EBITDA Margin (%) 54.6% 55.3% 50.1% 46.8% 48.6% 48.1% 43.4% Net Profit Margin (%) 38.4% 35.2% 31.1% 17.9% 29.3% 26.6% 23.6% Source: Company Reports, GBCM Research
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