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© SICO 2016 All Rights Reserved

Attention is drawn to the disclaimer and other information in the end

July 20, 2016

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UAE Telecom Sector

Trading ahead of fundamentals

Etisalat: reiterate ‘Sell’ rating, revised TP at AED 14.2

o Stock at 18.9x earnings, remains ahead of its fundamentals

o Most international operations face pressure due to

unfavourable currency movements, regulatory headwinds and

increasing competitive intensity; UAE remains stable

o Expect strong YoY 2Q performance on back of absence of loss

from Mobily and lower royalty charge

Du: dividend play, rating at ‘Sell’ with a TP of AED 5.40

o 2Q16 earnings to decline YoY due to higher royalty charge

o Removing restrictions on foreign institutional investors to be

a trigger for the stock

o Progressive dividends, with a yield of c. 5.2% at current levels

UAE telcos trading ahead of fundamentals

UAE telcos are trading at a P/E multiple of 18.6x for FY16, at a significant

premium to their GCC peer group (excl. UAE telcos) average of 13.8x, primarily

due to moderate competition in the UAE market and non-fundamental

factors. Etisalat’s stock price has increased 57% since September 2015, when

foreign investors were allowed to hold up to 20% stake in the company.

In December 2015, Etisalat was included in the MSCI Emerging markets Index

and FTSE Indices in March 2016, further fuelling demand for the company’s

stock. Currently, only individual foreign nationals can invest in Du, but going

forward, there is speculation that ownership restrictions on foreign

institutions will also be lifted.

Although we are not sure about the timeline, allowing foreign investors to

buy shares in Du should lead to similar institutional flows as witnessed in case

of Etisalat, during its MSCI and FTSE inclusion. Although we believe that both

Etisalat and Du are well placed to benefit from strong UAE macros, current

valuations are considerably ahead of the fundamentals, thereby driving our

‘Sell’ rating on both stocks.

Etisalat remains the market leader in UAE; market share stabilises

Etisalat remains the market leader in the UAE, with a c.54% of the total mobile

subscriber base and revenue market share of c.71% in 1Q16, led by its

dominance in the high-value customer segment and also fixed services

segment. According to the UAE TRA, the country’s post-paid subscriber

numbers stood at 2.8mn at end-FY15, with Etisalat having a strong market

share of 63% and 1.77mn post-paid subscribers.

SICO RESEARCH UAE Telecom

2

Exhibit 1: UAE mobile subscribers market share

Source: Du investor presentations, SICO Research

Exhibit 2: UAE telecom- revenue market share


As a result of its leadership in the high-value segment, Etisalat reported c. 25%

higher mobile ARPUs at AED 110, compared to Du’s mobile ARPUs of AED 88.

Due to increasing competition in the UAE telecom market (penetration rate

was as high as 217% by February 2016 end), both telcos reported a YoY decline

in mobile ARPUs in 1Q16, a trend that has been following for some quarters

now, as seen in the Exhibit below.

Exhibit 3: Quarterly mobile ARPUs (AED)

Source: Company Data, SICO Research

Bitstream access to intensify competition; advantage for Du

The bitstream access was launched in July 2015 for double play (fixed and

broadband) with inclusion of TV services and double play for business

customers expected by end-FY16. However, current provision of TV services by

Du is confined to newer areas of Dubai, while Etisalat has a monopoly in the

rest of the UAE. We expect Du to benefit once infrastructure sharing for triple

play services (including TV) is implemented, leading to increased competition.

Du’s fixed line revenues grew 14% YoY in FY15. We believe that fixed line

network sharing partially contributed, since it allowed the company to

operate beyond its existing network. Going forward, the cost incurred to

install new fixed telecom infrastructure would be shared between the two

telcos, which should result in lower capital expenditure for both companies.

GCC roaming rate cut impact to be limited

In April 2016, the UAE TRA directed an average 42% cut in roaming rates for

mobile users travelling within the GCC region, in line with the intra-GCC

agreement to reduce roaming rates.

51.3% 52.6% 53.3% 54.8% 53.7%

48.7% 47.4% 46.7% 45.2% 46.3%

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015 1Q16Etisalat Du

67.5% 69.7% 69.0% 68.5% 70.5%

32.5% 30.3% 31.0% 31.5% 29.5%

0%

20%

40%

60%

80%

100%

2012 2013 2014 2015 1Q16Etisalat Du

115 115119

115 114116 117

110 110

92

97 9698

9593

9693

88

70

80

90

100

110

120

130

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16

Etisalat Du


3

We believe that the impact on the telcos’ bottom line will not be material

because of increased elasticity of roaming usage and lower interconnection

charges. Our interaction with management of other GCC telecom operators

validates this view.

Competitive pricing; Du offers slightly better value and more flexibility

Etisalat and Du have comparable pricing in major segments, but the latter is

providing marginally extra talk time/data for same cost. The post-paid price

comparison of both telcos suggests that in the low-value segment, Du offers

better value in terms of higher talk time at 300 mins compared to Etisalat’s

200 min for AED 150/ month plan. In the medium- range plans, both telcos

provide similar value at AED 300/month. In the premium segment, Etisalat’s

plans are relatively data heavy with 100GB of data and 1000 mins of flexible

talk time for AED 1,000/ month, which Du compensates with higher talk-time

of 2,500 mins along with 50 GB of data at the same price. As per our analysis,

Du offers better value for money to subscribers in the lower price range.

Additionally, in terms of flexibility, we believe Du offers more flexible plans,

with an option of contract-free plans in both low- and high-value segments,

albeit with lesser benefits. However, Etisalat restricts the plans with 12- and

24- month contracts.

Exhibit 4: Post-paid pricing comparison

Plans (AED) Service Etisalat Du

150- Flexible mins Talk time (mins) 200* 300*

Data (GB) 6 6

Emirati- 300 mins Talk time (mins) 1200 1200

Data (GB) 2 2

Premium- 1000 Talk time (mins) 1000* 2500*

Data (GB) 100 50

*Note- Flexible minutes for local/ international calls or incoming roaming Data as of 15 July 2016


Further increase in royalty rate for FY17 remains a risk to the sector

Du’s royalty fee is set to increase and match Etisalat by FY16 with the latter’s

royalty rate on profit declining in FY16. During this period, both operators

need to pay 15% royalty on revenues and 30% on profits (after excluding

revenue royalty). As a result, we expect Du’s royalty expense at AED 2.2bn, up

12% YoY compared to Etisalat’s decline of 9% YoY to AED 5.5bn. The royalty

rates have not yet been disclosed for FY17 and beyond, but we have assumed

royalty rates to be equal to FY16 rates.

Exhibit 5: Royalty rates for UAE telcos

Etisalat Du

Years

Royalty on revenue

Royalty on

profit

Royalty on revenue

Royalty on

profit

2012 15.0% 35.0% 5.0% 17.5%

2013 15.0% 35.0% 7.5% 20.0%

2014 15.0% 35.0% 10.0% 25.0%

2015 15.0% 35.0% 12.5% 30.0%

2016 15.0% 30.0% 15.0% 30.0% Source: Company Data, SICO Research


4

Reiterate ‘Sell’ recommendation, TP at AED 14.2/sh

We reiterate our ‘Sell’ recommendation for Etisalat with a one-year blended

target price of AED 14.2/sh, a downside of 29% from the current level. The

stock is currently trading at a P/E multiple of 18.9x on our FY16 EPS of AED

1.06, ahead of peer group average of 13.8x, which we believe is mainly due to

price increase after opening up for foreign investors and the stock’s inclusion

in MSCI and FTSE Indices. Etisalat’s stock has rallied 57% since September 2015,

when it was opened up for foreign investors, compared to 0.1% decline in Abu

Dhabi exchange index during the same period. We expect Etisalat to pay a

dividend of 80 fils/sh in FY16, translating to pay-out ratio of 76% - in line with

the past three years’ average - and a dividend yield of 4%.

Exhibit 6: Etisalat- Blended Valuation (price in AED, per share) Target Price Weightage

DCF 13.3 50.0%

Price/ Earnings 15.0 50.0%

Du – TP 14.2

Current Price 20.0

% Up (Down) Side -29.2%


Expect robust 2Q16 earnings at AED 1.9bn, led by Mobily’s turnaround and

lower royalty

We expect Etisalat to report higher 2Q16 earnings at AED 1.9bn, up 25.3%

YoY from AED 1.5bn. The telco had a combined negative impact of AED

422mn from a loss by Mobily (AED 215mn) and forex movement in 2Q15 (AED

207mn). Since Mobily’s earnings are included with a one-quarter lag and it has

already reported net profit of SAR 16.3mn in 1Q16, we have factored in a gain

of AED 4.4mn in Etisalat’s 2Q16 estimates. In addition, we do not expect any

major forex loss in 2Q16 unlike 2Q15; in fact, Etisalat should benefit from 2.4%

QoQ depreciation of the Euro versus the US dollar due to the telco’s

transactional gain on Euro-dominated debt. Our estimates suggest that the

company’s royalty expense will decline 11% YoY to AED 1.7bn from AED

1.9bn, led by lower royalty rate on profit. However, revenues are expected to

decrease 2.5% YoY to AED 13bn from AED 13.3bn in 2Q15.

Exhibit 1: 2Q16 estimate (AED bn) 2Q16E 1Q16 2Q15 YoY QoQ

Revenue 13.0 12.9 13.3 -2.5% 0.9%

EBITDA 6.3 6.3 6.8 -7.9% 0.5%

EBITDA Margin 48.6% 48.8% 51.4%

Profit before Royalty 4.3 4.3 4.4 -0.7% 2.0%

PBT Margin 33.5% 33.1% 32.9%

Net Profit 1.9 1.9 1.5 25.3% 3.8%

Net Margin 14.8% 14.4% 11.5%

Source: SICO Research, Company Data

Etisalat sells Canar Telecom as part of its portfolio optimisation strategy

Etisalat sold its 92.7% holding in Sudan-based fixed line operator Canar

Telecom to Sudan’s Bank of Khartoum for AED 349.6mn. The buyer bank had

a 3.7% stake in Canar and exercised its shareholding right to block Etisalat’s

agreement with Zain Sudan for Canar’s buyout. In FY15, Etisalat sold its 85%

stake in Tanzania-based subsidiary Zanzibar Telecom (Zantel) to Sweden-

based Millicom for USD 1.

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Price Data (AED)

Current Price 20.00

Target Price 14.20

52 wk High/Low 20.00/11.40

Ratings

Short-term Neutral

Long-term Sell

Risk Profile Normal

Market Data

Sector Telecom

Market Cap USD 47.4bn

Primary Market Abu Dhabi

Other Exchg

Reuters ETEL.AD

Bloomberg ETISALATUH

Free Float 40%

Valuation Ratio

2016E 2017E

P/E x 18.9 17.1

P/BV x 3.8 3.6

EV/EBIDTA 7.0 6.8

Div Yld % 4.0 4.3

Trading Data

Daily Vol (6M Avg) 2.5

Daily T/o (6M Avg USD) 12.4

Issued Shares 8,696.8

All in millions

Performance (%) 1m 3m 12m

Absolute 6.7 5.5 38.4

Relative 5.4 6.0 43.1

Source: SICO Research, Bloomberg

[email protected]

www.sicobahrain.com

Emirates Telecommunication Corporation

Continues to rally on institutional flows


5

We believe Etisalat is aiming to improve its return on investment by disposing

of its low -performing subsidiaries and optimising its investment portfolio.

UAE still remains the largest operation for Etisalat

Etisalat UAE remained the telco’s key operation, contributing 57% and 61%

of the group’s consolidated revenues and EBITDA, respectively, in 1Q16.

Additionally, Etisalat has strong international operations with 43% share in

group revenues. Among its international operations, Maroc Telecom is a major

operator, contributing 24% to the group’s total revenues and EBITDA.

Exhibit 2: Etisalat- operation wise revenue contribution


Exhibit 3: Etisalat - operation wise EBITDA contribution


In 1Q16, UAE and Egypt remained the major contributors to YoY increase in

Etisalat’s consolidated revenue. Morocco and Pakistan operations reported a

decline in 1Q16 revenues, partially offsetting the growth.

Exhibit 4: Etisalat revenue waterfall chart


UAE operations remained stable; offset the decline registered in international

operations

Etisalat’s UAE revenues remained stable in 1Q16, with a moderate growth of

1.1% YoY to AED 7.5bn. The telco’s total and mobile subscribers grew 6% and

7% YoY, respectively. However, due to increasing competition, mobile ARPUs

declined 3.5% YoY, resulting in subdued top line growth. We expect Etisalat’s

UAE revenues to increase moderately at a CAGR of c.2% during the FY15-18

period, with flattish FY16 revenues of AED 30.1bn.

UAE, 57%

Maroc Telecom,

24%

Egypt, 9%

Pakistan, 8%

Others, 2%

UAE, 61%

Maroc Telecom,

24%

Egypt, 6%

Pakistan, 6%

Others, 3%

12,72612,853

9795 33

31 67

11,000

11,400

11,800

12,200

12,600

13,000

1Q15 UAE Morocco Egypt Pakistan Others 1Q16


6

Exhibit 5: UAE mobile revenue and EBITDA ( AED bn)


Maroc Telecom remains an important growth contributor

Maroc Telecom is Etisalat’s largest international operation, contributing 24%

to consolidated revenues and EBITDA. Maroc reported robust revenue growth

of 7% YoY in 1Q16 at AED 3.1bn from AED 2.9bn YoY, led by full consolidation

of Atlantique Telecom (compared to two months of Atlantique’s revenue

included in 1Q15). Maroc’s subscriber base grew 3% YoY to 53.1mn by 1Q16

end, primarily driven by growth in Morocco, Ivory Coast, Burkina Faso, Benin,

Niger and Togo. The company’s Morocco operation contributed 55% to total

revenues in 1Q16, down from 61% YoY, reflecting improvement in Maroc’s

other international operations

Egypt’s robust top line growth partially subdued by devaluation of Egyptian

Pound

Etisalat Misr reported strong 1Q16 top line growth of 16% YoY in local

currency. However, this was partially suppressed by unfavourable currency

movements, and a 12% devaluation of the Egyptian Pound on 14 March 2016,

which led to a revenue increase of 8.9% YoY at AED 1.2bn in 1Q16. The

increase in top line was led by higher data usage and voice revenues, mainly

in post-paid segment, and increased revenues from international incoming

traffic. The telco’s EBITDA margin declined moderately to 35% in 1Q16 from

36% YoY due to a one-off expense related to a dispute in an interconnection

agreement with another mobile operator. The company’s EBITDA grew 8%

YoY to AED 0.4bn (14% YoY in local currency terms). We expect revenues from

Egypt to decline 2% YoY in FY16 due to the weakness of the Egyptian Pound,

despite an expected 13% YoY revenue increase in local currency.

Based on media articles, Kuwait-based Zain group, STC and China telecom are

among other telecom players who have applied for a 4G licence in Egypt,

where the telecom regulator has already offered 4G licences to incumbent

mobile operators Orange Egypt, Vodafone Egypt and Etisalat Egypt, for EGP

3.5bn, EGP 3.5bn and EGP 4.6bn, respectively, in June 2016. The fixed line

operator Telecom Egypt would be the new entrant in the mobile segment with

a 4G licence offered at EGP 7.08bn. The existing carriers have to submit their

applications by the first week of August. If any of the existing operators do

not opt for the 4G licence, the regulator would consider international

operators as well.

28.8 30.1 30.7 31.3

16.7 17.0 17.3 17.5

58.1%

56.5% 56.2% 55.8%

54.0%

55.0%

56.0%

57.0%

58.0%

59.0%

FY15 FY16E FY17E FY18E

0

5

10

15

20

25

30

35

Revenue EBITDA EBITDA Margin


7

Emirates Telecommunication Corporation Financials

Income Statement (Consolidated)

Year ending 31 Dec (AED mn)

2015A 2016E 2017E

Revenue 51,737 52,223 53,463

Cost of Goods Sold (11,113) (11,067) (11,276)

Gross Profit 40,624 41,156 42,188

Selling, General and Admin. Expenses 0 0 0

EBITDA before royalty 26,526 26,486 26,932

Operating Profit 18,945 19,015 19,279

Other Income (316) 61 162

Net Interest Income (296) (52) 298

Tax (7,333) (7,010) (7,168)

Minority Interest 1,248 1,539 1,560

Net Profit 8,263 9,188 10,191

Balance Sheet (Consolidated)


2015A 2016E 2017E

Cash & Short Term Deposits 21,422 27,326 26,672

Other Current Assets 20,258 17,436 19,928

Investments 5,501 5,553 5,707

Net Fixed Assets 46,270 47,589 47,981

Net Intangible Assets 17,193 14,367 13,065

Other Non-Current Assets 16,699 18,310 18,348

Total Assets 128,265 131,153 132,273

Current Liabilities 42,345 41,176 41,716

Total Debt 22,080 21,484 16,237

Other Liabilities (17,881) (17,995) (13,600)

Total Liabilities 68,598 67,717 64,044

Minority Interest 15,886 17,425 18,985

Share Capital 8,697 8,697 8,697

Reserves & Surplus 0 0 0

Shareholders Funds 43,489 45,720 48,953

Total Equity & Liabilities 128,265 131,153 132,273

Cash Flow Statement (Consolidated)


2015A 2016E 2017E

Operating profit after royalty 11,087 12,782 13,095

Depreciation 5,838 5,717 5,837

Other Adjustments (85) 0 0

Working Capital Changes 0 0 0

Cashflow from Operations 20,425 20,628 17,927

Capital Expenditure (8,779) (7,037) (6,229)

Other Investing Activities (570) 916 782

Cashflow from Investing (12,807) (6,121) (5,447)

Debt Raised/Repaid 1,508 (596) (5,247)

Dividend (8,164) (6,957) (6,957)

Other Financing Activities (209) 0 0

Cashflow from Financing (8,108) (8,604) (13,133)

Net Chg in Cash (490) 5,903 (653)

Note: The above statements may not match the published cash flow

statements due to adjustments made by us.

Key Ratios (Consolidated)


2015A 2016E 2017E

EPS 0.95 1.06 1.17

EPS Growth (%) (3.9) 11.2 10.9

Gross Margin (%) 78.5 78.8 78.9

EBITDA Margin (%) 51.3 50.7 50.4

EBITDA Growth (%) 14.3 (0.2) 1.7

Net Margin (%) 18.8 20.6 22.0

ROAE (%) 19.3 20.6 21.5

ROAA (%) 7.6 8.3 9.0

Debt/Equity (%) 37.2 34.0 23.9

Valuation Ratios

PER (x) 21.1 18.9 17.1

PBV (x) 4.0 3.8 3.6

Dividend Yield (%) 4.0 4.0 4.3

EV/EBITDA (x) 5.9 7.0 6.8

Source: Company, SICO Research, Bloomberg


8

Play on dividends but rich on valuations

Reiterate ‘Sell’ recommendation, target price at AED 5.40/sh

We reiterate our ‘Sell’ rating on Du with a one-year blended target price of

AED 5.40/sh, 19% lower than current levels. The stock is currently trading at

P/E multiple of 16.8x on our FY16 EPS of 40 fils, a premium of 22% to the peer

group average of 13.8x. The company remains a better dividend play over

Etisalat with our estimated DPS at 35 fils/sh, implying a dividend yield of 5.2%

at current levels. With a strong cash and bank balance of AED 1.3bn by 1Q16

end, we expect the telco to continue with its progressive dividend policy. In

addition, the possibility of opening up to foreign investors remains a key

positive risk for the stock, although we believe the current valuations has

already factored in the same.

Exhibit 6: DU- Blended Valuation (price in AED, per share) Target Price Weightage

DCF 5.2 50.0%

Price/ Earnings 5.7 50.0%

Du - TP 5.4

Current Price 6.7

% Up (Down) Side -19.3%


Stable dividend income with 5% yield in FY16

We expect Du to pay a dividend of 35 fils/sh in FY16, slightly ahead of recurring

dividend of 33 fils/sh in FY15, translating to a pay-out ratio of 88% with a

dividend yield of 5.2%. The company also paid a special dividend of 10 fils/sh

in 1H15, leading to total dividend of 43 fils/sh in FY15. We believe that Du can

comfortably maintain its progressive dividend policy, with cash and short-term

investments of AED 7.2bn at end-1Q16.

Exhibit 7: FCF vs DPS


Opening up to foreign investors will be a trigger for the stock

Etisalat opened up to foreign investors in September 2015, and the stock has

rallied 57% since 05 September 2015 compared to 0.1% decline in the

benchmark Abu Dhabi Index during the same period. Allowing foreign

institutional ownership should be a strong trigger for Du’s stock, along with

inclusion in MSCI Emerging Market Index and FTSE Emerging Market Index, as

was the case with Etisalat. Fundamentally, however, it is difficult to justify such

premium multiples (2016 Du PE 16.8x, Etisalat 18.9x, GCC peers 13.8x).

50

35

43

48

43

35 37 38

0

10

20

30

40

50

60

FY15 FY16E FY17E FY18E

FCF per share Dividend per share

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Price Data (AED)

Current Price 6.69

Target Price 5.40

52 wk High/Low 6.84/4.56

Ratings

Short-term Neutral

Long-term Sell

Risk Profile Normal

Market Data

Sector Telecom

Market Cap USD 8.3bn

Primary Market DFM

Other Exchg

Reuters DU.DU

Bloomberg DUUH

Free Float 41%

Valuation Ratio

2016E 2017E

P/E x 16.8 16.0

P/BV x 3.8 3.7

EV/EBIDTA 5.1 4.9

Div Yld % 5.2 5.5

Trading Data

Daily Vol (6M Avg) 0.9

Daily T/o (6M Avg USD) 1.5

Issued Shares 4,571.4

All in millions

Performance (%) 1m 3m 12m

Absolute 6.0 6.9 26.3

Relative -0.9 7.9 40.3

Source: SICO Research, Bloomberg

[email protected]

www.sicobahrain.com

Emirates Integrated Telecom


9

Our analysis of Index movements for both telcos reflects Etisalat’s Index

divergence from Du’s Index in September 2015 led by foreign investments,

until Du’s share price grew aggressively from 31 January 2016 increasing

16.5% in five days. We believe the strong increase in Du’s price could be

attributed to media reports on 31 January 2016, hinting at the potential

opening up to foreign ownership in the telco and possibility of inclusion in

MSCI.

Exhibit 8: Index movement Du vs Etisalat

*Note: Share prices rebased to 100 on 1st August 2015


Modest top line growth led by market saturation, improving margins

Du reported flattish YoY top line growth in FY15 at AED 12.4bn, with a single-

digit growth in each quarter of the year. The telco’s revenues also grew

moderately at 1.8% YoY in 1Q16. Despite a strong increase of 8% YoY in

mobile subscribers, the company’s mobile revenues fell by 1% YoY in 1Q16.

The decline was attributed to 7.4% YoY lower mobile ARPUs led by price-

based competition in the UAE telecom sector. We estimate Du’s FY16 revenues

at AED 12.6bn, up 2.4% YoY, attributed to higher mobile subscribers on the

back of a lower impact from subscriber cancellations due to “My Number, My

Identity” campaign, which resulted in QoQ decline in subscriber numbers in

2Q15. The increased subscriber numbers should offset the lower mobile

ARPUs.

Exhibit 9: Revenue (AED bn) and EBITDA margin


80

90

100

110

120

130

140

150

Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16

Du Index* Etisalat Index*

12.2 12.3 12.6

13.3

13.7

41.1%

43.9% 44.2% 43.8% 43.8%

30%

40%

50%

11

12

12

13

13

14

14

FY14 FY15 FY16E FY17E FY18E

Revenue EBITDA margin


10

Expect YoY growth in top line in 2Q16, but lower earnings led by increased

royalty charges

We expect Du’s 2Q16 earnings to decline 3% YoY to AED 487.1mn from AED

502mn led by higher royalty charges. The telco’s 2Q16 revenues are expected

at AED 3.2bn, up 2.8% YoY, primarily led by growth in the mobile and fixed

line segments. Despite a 6.4% YoY increase in profit before tax to AED 1bn

during 2Q16, net earnings will likely decline due to higher royalty charges, as

mentioned previously. We estimate the royalty expense to increase to AED

554mn from AED 476mn in 2Q15.

Exhibit 10: 2Q16 estimate (AED mn) 2Q16E 1Q16 2Q15 YoY QoQ

Revenue 3,177 3,090 3,091 2.8% 2.8%

EBITDA 1,399 1,389 1,339 4.5% 0.7%

EBITDA Margin 44.0% 45.0% 43.3%

Profit before Royalty 1,042 1,021 978 6.4% 2.0%

PBT Margin 32.8% 33.1% 31.7%

Net Profit 487 480 502 -3.0% 1.5%

Net Margin 15.3% 15.5% 16.2%

Source: SICO Research, Company Data


11

Emirates Integrated Telecom Financials

Income Statement (Consolidated)


2015A 2016E 2017E

Revenue 12,337 12,637 13,252

Cost of Goods Sold (3,683) (3,917) (4,134)

Gross Profit 8,654 8,719 9,117

Selling, General and Admin. Expenses (3,238) (3,184) (3,313)

EBITDA before royalty 5,419 5,584 5,807

Operating Profit 3,862 3,952 4,157

Other Income 3 49 3

Net Interest Income (116) (111) (100)

Tax (1,921) (2,157) (2,266)

Minority Interest 0 0 0

Net Profit 1,941 1,816 1,915

Balance Sheet (Consolidated)


2015A 2016E 2017E

Cash & Short Term Deposits 163 5,978 5,887

Other Current Assets 8,129 2,402 2,519

Investments 0 0 0

Net Fixed Assets 8,333 8,466 8,547

Net Intangible Assets 652 610 554

Other Non-Current Assets 663 663 663

Total Assets 17,940 18,119 18,170

Current Liabilities 5,489 7,312 7,299

Total Debt 4,491 4,042 3,638

Other Liabilities (4,358) (2,425) (2,183)

Total Liabilities 10,122 10,039 9,821

Minority Interest 0 0 0

Share Capital 4,571 4,571 4,571

Reserves & Surplus 2,333 2,549 2,772

Shareholders Funds 7,819 8,080 8,349

Total Equity & Liabilities 17,940 18,119 18,170

Cash Flow Statement (Consolidated)


2015A 2016E 2017E

Net profit before minority 1,941 1,816 1,915

Depreciation 1,307 1,406 1,418

Other Adjustments 550 114 184

Working Capital Changes 284 (50) 55

Cashflow from Operations 4,081 3,286 3,573

Capital Expenditure (1,770) (1,684) (1,633)

Other Investing Activities (350) 6,327 120

Cashflow from Investing (2,120) 4,643 (1,514)

Debt Raised/Repaid 100 (449) (404)

Dividend (1,966) (1,554) (1,646)

Other Financing Activities (121) (111) (100)

Cashflow from Financing (1,987) (2,114) (2,150)

Net Chg in Cash (26) 5,815 (91)

Note: The above statements may not match the published cash flow statements

due to adjustments made by us.

Key Ratios (Consolidated)


2015A 2016E 2017E

EPS-Fils 42.47 39.72 41.89

EPS Growth (%) (8.0) (6.5) 5.5

Gross Margin (%) 70.1 69.0 68.8

EBITDA Margin (%) 43.9 44.2 43.8

EBITDA Growth (%) 7.7 3.0 4.0

Net Margin (%) 15.7 14.4 14.5

ROAE (%) 24.8 22.5 22.9

ROAA (%) 10.8 10.0 10.5

Debt/Equity (%) 57.4 50.0 43.6

Valuation Ratios

PER (x) 15.8 16.8 16.0

PBV (x) 3.0 3.8 3.7

Dividend Yield (%) 6.4 5.2 5.5

EV/EBITDA (x) 5.1 5.1 4.9

Source: Company, SICO Research, Bloomberg


12

Price, Target Price and Rating Change History Chart of (ETISALAT UH)

Date Closing

Price

Target

Price Rating Initiation

7-Dec-11 8.7 10.2 A

1-Apr-12 8.1 9.5 A

28-May-12 8.0 9.5 A

24-Jul-12 8.3 9.6 A

12-Sep-12 8.7 9.6 A

24-Dec-12 8.2 10.4 B

24-Mar-13 9.4 10.4 A

2-May-13 9.9 10.4 N

26-Aug-13 10.7 11.4 N

21-May-15 11.8 13.2 A

3-Aug-15 14.2 13.3 N

21-Feb-16 16.3 13.4 S

19-Jul-16 20.0 14.2 S

Price, Target Price and Rating Change History Chart of (DU UH)

Date Closing

Price

Target

Price Rating Initiation

1-Apr-12 3.02 3.60 A

10-May-12 3.13 3.70 A

28-Aug-12 3.44 3.70 N

22-Oct-12 3.74 3.90 N

12-Dec-12 3.51 3.40 N

24-Feb-13 4.20 3.80 N

31-Jul-13 6.71 4.00 S

21-May-15 5.08 5.10 N

11-Jan-16 5.10 5.10 N

21-Feb-16 5.77 4.90 S

19-Jul-16 6.69 5.40 S

BA A AAA

A

NN N

S

S

6.5

8.5

10.5

12.5

14.5

16.5

18.5

20.5

22.5

Dec-

11

Mar-

12

Jun

-12

Sep

-12

Dec-

12

Mar-

13

Jun

-13

Sep

-13

Dec-

13

Mar-

14

Jun

-14

Sep

-14

Dec-

14

Mar-

15

Jun

-15

Sep

-15

Dec-

15

Mar-

16

Jun

-16

B=Buy, A=Add, N=Neutral, R=Reduce, S=Sell, U/R =

Under Review

Closing Price Target Price

Rating

AN

NN

N

N N

S

S

S

1.5

2.5

3.5

4.5

5.5

6.5

7.5

Ap

r-12

Jul-

12

Oct

-12

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

B=Buy, A=Add, N=Neutral, R=Reduce, S=Sell, U/R =

Under Review

Closing Price Target Price

Rating


13

Securities & Investment Company BSC * Note:- Under old methodology, up until 20th Feb 2016, we had 5 categories of LT rating. Sell (<-25%), Reduce (-10 to -25%), Neutral (-10% to

+10%), Add (+10% to +25%), Buy (>+25%). The LT rating was independent of Risk Profile. Analyst Stock Rating Definitions

Time horizon

Short term SICO Research issues a Short term outlook if the analyst feels that there are factors which might affect the

short-term performance of the stock during the immediate six months after issuing a rating.

This might be due to both quantitative and qualitative factors which the analyst think can affect the stock price.

Long term SICO Research’s Long-term rating is based on the Target Price calculated by the analyst.

The Target Price is arrived at using both fundamental and/or comparative valuation methods based on the

detailed Financial models developed by analysts incorporating current expectations and analyst's assumptions.

Target price for a stock is calculated one year forward from the valuation date

Recommendation (Short term)

Positive Analyst expect positive triggers in the short term which might affect current price positively (> 10%)

Neutral Analyst does not expect any short term triggers/events (+/- 10%)

Negative Analyst expect negative triggers in the short term which might affect current price adversely (< 10%)

Recommendation (Long term)*

Buy If Risk profile is “High” Target price estimate offers 20%+ return from the current share price.

If Risk profile is “Normal” Target price estimate offers 15%+ return from the current share price.

Neutral If Risk profile is “High” Target Price estimate offers 0% to 20% return from the current share price.

If Risk profile is “Normal” Target Price estimate offers 5% to 15% return from the current share price

Sell If Risk profile is “High” Target price estimate offers less than 0% return from the current share price.

If Risk profile is “Normal” Target price estimate offers less than 5% return from the current share price.

Risk

High Stock volatility (360 days standard deviation) exceeds 2x of S&P GCC market volatility

Normal Stock volatility (360 days standard deviation) lower than 2x of S&P GCC market volatility


14

NOTES

Contact Details

BMB Centre, 1st Floor

P.O Box 1331,

Diplomatic Area Manama

Kingdom of Bahrain

Investment Research

[email protected]

Head of Research

Nishit Lakhotia, CFA, CAIA Tel: (Direct) +973 – 17515021

Brokerage

Fadhel Makhlooq Tel: (Direct): +973 – 17515202

Visit us at

www.sicobahrain.com

Disclaimer

This report does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to

buy or subscribe for any securities. The information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness

and are subject to change without notice. Investors must make their own investment decisions. Past performance is not necessarily a guide to future performance. Nothing in this report should be construed as investment or financial advice or as an advice to buy or sell the securities of the company referred to in this report. SICO and/or its clients may have positions in or options on the securities mentioned in this report or any

related investments, may affect transactions or may buy, sell or offer to buy or sell such securities or any related investments. The analyst(s) who is (are) responsible for producing the report certifies(y) that he (she) or any of their close relative have no beneficial ownership in the company’s

stock at the time of publishing the report. Any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Additional information on the contents of this report is available on request. Among stocks under our coverage, Ahli United Bank and National

Bank of Bahrain owns 11.9% and 12.5% respectively in SICO. SICO does market making in Aluminum Bahrain (ALBA) and Zain Bahrain’s shares.

Copyright Notice

© Securities and Investment Company 2016. This report is being supplied to the recipient for information and not for circulation and may not be reproduced, redistributed or passed on to any other person or published, in whole or in part.

mailto:[email protected]

http://www.sicobahrain.com/

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