Oman Telecom Sector - Shurooq Securities

Transcription

SHUROOQ
RESEARCH
Omantel
Stock Rating
BUY
Target Price: RO 1.753
Industry View
Upside: 16.87%
Attractive
Nawras
Target Price: RO 0.655
Upside: 9.2%
Data growth to continue,
ARPU dilution unlikely
Initiating Coverage
Oman Telecommunication
Sector
Dhruwa Mittal
Head of Research
+968 24726711
April 09, 2014
Oman Telecom Report
Table of Contents
INVESTMENT RATIONALE ............................................................................................................................. 3
Favourable demographics to aid the growth of internet usage both fixed and mobile broad band: ..... 3
ARPUs likely to remain at current levels with an upward bias:................................................................ 3
High dividend yield with a consistent dividend payout history: .............................................................. 3
Strong cash flow generating capabilities and low debt: ............................................................................ 3
Profitability margins and return ratios better than most GCC peers ....................................................... 4
OmanTel’s divestment to bring greater depth in the scrip ....................................................................... 4
Valuation........................................................................................................................................................ 4
OMAN TELECOM SECTOR OVERVIEW ...................................................................................................... 4
Favourable demographics to aid in the growth of broadband subscribers and data usage: .................. 7
ARPUs to support revenue growth .............................................................................................................. 9
Data service to be the main revenue growth driver ................................................................................ 12
Strong cash flows, healthy financials and low multiples ......................................................................... 14
GCC FINANCIAL KEY RATIOS..................................................................................................................... 15
INDUSTRY RISK .............................................................................................................................................. 21
Population growth expected to slow down .............................................................................................. 21
Regulatory risk ............................................................................................................................................ 21
Unexpected events ...................................................................................................................................... 21
COMPANY SPECIFIC RISKS ........................................................................................................................ 22
World call’s poor performance continuing ............................................................................................... 22
Nawras’ capital expenditure to sales to remain high ............................................................................... 22
Nawras rebranding expected in 2014 ....................................................................................................... 22
OMANTEL FINANCIALS................................................................................................................................. 23
NAWRAS FINANCIALS .................................................................................................................................. 26
VALUATION ...................................................................................................................................................... 29
Shurooq Securities Research
Page |2
Oman Telecom Report
INVESTMENT RATIONALE
Omantel Market Data
Bloomberg Code
MSM30 Index Weight (%)
OTEL:OM
10.1%
CMP (April 09, 2014)
1.50
Target Price (RO)
1.75
Favorable demographics to aid the growth of internet usage
both fixed and mobile broad band:
In the past 4 years from 2009-2013 mobile broad band connections in
16.67
Oman have grown from 4% to 29% of total mobile connections growing
750
at a CAGR of 78%. Internet penetration in the Sultanate has grown from
75
~25% in 2009 to ~60% in 2012. Despite the impressive growth in the
Market Cap (RO mn)
1,110
internet users the internet penetration in Oman is still the second lowest
Market Cap (USD mn)
2,864
in the GCC. With the country’s demographics favoring the sector with
EPS FY'14 (RO)
0.172
24% of the population below the age of 15 year old and a median age of
8.63
25 years the sector ought to witness a strong growth in data usage per
Potential Upside (%)
Share outstanding (mn)
Share Capital (RO mn)
P/E FY'14
Book Value Per Share FY '14 RO
0.772
P/BV FY '14
1.92
Dividend Yield (%)
7.8%
subscriber and a significant rise in internet users.
ARPUs likely to remain at current levels with an upward bias:
ARPUs of both companies have stabilized since the last 4 quarters for
Price Performance 52 Weeks
High (RO):
1.720
Low (RO):
1.400
50 Day Average Volume:
353,927
NWRS:OM
MSM30 Index Weight (%)
6.4%
CMP (April 09, 2014)
0.600
Target Price (RO)
0.655
Potential Upside (%)
9.2
Share outstanding (mn)
651
Share Capital (RO mn)
Market Cap (RO mn)
postpaid have maintained almost the same level since the past 4
quarters. Increased data usage and increase in the internet users have
supported the ARPUs which were declining due to the reduction in call
rates in the past few years. According to ITU mobile data traffic globally
Nawras Market Data
Bloomberg Code
both companies. ARPUs for fixed internet, mobile prepaid and mobile
65
is expected to increase 13-fold between 2012 and 2017, growing at a
compound annual growth rate (CAGR) of 66% from 2012 to 2017.
Oman’s data traffic grew 400% from 2009 to 2011 and much of the
explosive growth in mobile telephony has happened post 2011 creating a
greater demand for mobile bandwidth and spectrum resources.
High dividend yield with a consistent dividend payout history:
391
Omani telecom companies have among the highest dividend yields in
Market Cap (USD mn)
1,008
comparison to GCC and Global telecom companies. Omantel and
EPS FY'14 (RO)
0.055
Nawras have a dividend payout ratio of 72% and 75% and paying
P/E FY'14
10.92
consistent dividend of 100bz-115bz and 0.038 baize respectively.
Book Value Per Share FY '14
0.307
Dividend yield for Omantel is around 7.6% and for Nawras 6% which is
P/BV FY '14
1.96
Dividend Yield (%)
6.3%
higher than the GCC telecom company’s average of 5.8%.
Strong cash flow generating capabilities and low debt:
Price Performance 52 Weeks
High (RO):
0.652
Being in an industry which enjoys a negative cash conversion cycle both
Low (RO):
0.475
Companies have a strong cash flow generation at operation levels along
50 Day Average Volume:
352,768
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Oman Telecom Report
with a history of healthy free cash flows. Despite the companies spending heavily on capital expenditures and
maintaining a high dividend payout, Omantel specifically has managed to fund most of its expansion through internal
accruals. The debt to equity for Omantel stands at a low 7.4%. Nawras is on the path of being able to rely on its own
infrastructure. It has had a higher debt to equity ratio historically and through regular debt repayments in the past four
years it has reduced its D/E from 65% to 20% much lower than the GCC average 37.1%. We anticipate the company
may need to raise debt to fund some of its expansions in the coming 3 years. We expect the debt to equity ratio to
rise to 29% by 2016 post which it should decline.
Profitability margins and return ratios better than most GCC peers
Omantel’s and Nawras’s EBITDA margin at 43.6% and 46% are higher than the GCC average of 37.5%. Net Profit
margin for the companies are 26% and 16% respectively while the GCC average is 14.5%. Return on equity (23%
and 16%) and the return on assets (18% and 10%) for the two companies are at higher level than the GCC average
of (15.4% and 8.1%). We expect the margins to continue to remain in the current levels in the future while we may
witness a slight decline in the return ratios for the next 3-4 years owing to the high capital expenditure.
OmanTel’s divestment to bring greater depth in the scrip
Oman Telecommunication Company’s divestment plan of 142,500,000 shares (19% stake) to Omani individuals and
institutional investors will increase the free float by 63.11% from the current level thus bringing greater depth in the
scrip shaping it favorable for the investors.
Valuation
We have chosen to apply the discounted cash flow (DCF) methodology and the relative valuation method to value
the two companies. Omantel trades at an EV/EBITDA of 5.4 and a P/E of 9.8x compared to the industry average of
EV/EBITDA 9x and P/E 11.7x. Nawras trades at an EV/Ebitda is at 4.8x and P/E at 12.5x.
We believe the telecom sector in Oman is geared to grow backed by the increased data usage and growth in fixed
and mobile broadband subscribers. Among the two companies Omantel is well positioned with superior financials
like better margins, profitability ratios, ARPUs and lower multiples while Nawras is expected to witness a higher
sales growth of ~3.8% than Omantel’s 2.5% over the next 5 years. We arrive at a target price of RO 1.75 for
Omantel with an expected upside of 16.67% and a target price of 0.655 for Nawras with an expected upside of
9.2%
OMAN TELECOM SECTOR OVERVIEW
Oman has majorly two telecom companies – Omantel and Nawras. In the past couple of years mobile telephony has
seen a significant transformation. The role of a mobile phone is beginning to play a much larger role, with use
extending far more than just a communication device. It is unlike almost any other technology with an ability to
transform the way people communicate and share information among each other impacting societies and
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Oman Telecom Report
economies positively. This transition mulls in favor for the telecom service providers as data demand is expected to
rise substantially.
The broadband has been recognized as a service of improving the general economic interest and various other
social and economic variables and realizing these significance governments have set ambitious targets for
deployment. Subscribers for mobile and fixed broadband have grown at a quick stride with a CAGR of 78% and 40%
respectively in the past four years. Robust increase in the usage of internet has provided the ARPUs the required
support.
Omantel is the pioneer in providing communications solutions in Oman since 1980 with 70% of the telecom
revenues in the Kingdom. The government of Oman holds 70% ownership as on date with an intention to further
divest 19% by the end of April 2014. Nawras incorporated in 2004 is the Sultanate’s first privately owned
Telecommunications Company owned by the Qtel Group. It has a 41% market share of mobile subscribers and 40%
of the fixed internet subscribers.
While the subscriber growth in the industry being impressive in the past few years and driving mobile penetration
levels to 145%, average revenue per user (ARPUs) have softened. Growth in data subscribers, both fixed line and
mobile has been robust and are going to be the key drivers in the coming years. We expect the sector revenue to
grow at 3% over the forecasted period. We see the sector growth trends to make a gradual shift to new age highspeed data technology like 4G LTE coupled with increasing fixed line internet subscription.
As per the World Bank, internet penetration in the Sultanate has tripled in the past five years with the highest
cumulative average growth rate of 25% in the GCC. Presently the internet penetration is around 60%, among the
lowest in the GCC.
GCC Internet User Penetration rate
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2008
Saudi Arabia
2009
Oman
2010
UAE
Page |5
Qatar
2011
Kuwait
2012
Bahrain
Oman Telecom Report
There are various positive impacts of mobile telephony on the socio economic environment of a country which has
led the government to take various initiatives to increase the reach and penetration of the telephonic services. A
doubling of a data usage leads to an increase of 0.6% percentage points in GDP per capita. In comparison to the
region, data penetration remains low and Oman has articulated a vision to invest and expand its broadband capacity
consequently improving internet penetration. The national broadband strategy which was recently approved by the
Council of Ministers aims at strengthening the capabilities of networks and ensuring broadband for all with basic
speeds of the 4G technology before end of this decade. The new strategy is to improve the telecom infrastructure
and expected to cost 500 million rials over 10 years.
Telecom Revenue Breakup - Oman
67% 70% 69% 70%
75%
60%
45%
Fixedline and Mobile Investments
100%
80%
77%
64%
61%
64%
60%
33% 30% 31% 30%
30%
39%
40%
15%
36%
36%
23%
20%
0%
Fixedline Revenue %
2009
2010
0%
Mobile Boradband
Revenue %
2011
2012
Mobile communications
2009
2010
Fixed telephone and
internet
2011 2012
Capital Expenditure in Oman's Telecom Sector (RO mn)
120
100
80
60
40
20
Omantel
2009
2010
2011
Nawras
2012
2013
2014
Page |6
2015
2016
2017
2018
Oman Telecom Report
Favorable demographics to aid in the growth of broadband subscribers and data usage:
Oman has a well disposed demographic profile and macroeconomic environment with 67% below the age of 25
years and 87% of the population under the age of 44. Moreover this part of the world has one of the largest
population growths backed by the high influx of expatriates. Rising income levels coupled with a growing population
and a robust increase in the number of smart phones supports the sectors’ growth. Internet data usage and the time
spent per person online per day are on the rise. Internet users in the GCC have grown 20 times since 2000 with
Arabic being the fastest growing language online. Time spent on watching online video content is expected to
surpass the time spent on watching TV and support from advanced bandwidths will help in catering to the growing
demand and narrowing the gap further. Smartphone penetration in the GCC is among the highest in the world and
Oman is among the fastest growing markets in the region with a penetration of around 60%. With single users
holding multiple devices there is every reason for usage and internet penetration to move up.
GCC Age Demographic
100%
80%
60%
40%
20%
0%
Saudi Arabia
UAE
Oman
Kuwait
Qatar
Bahrain
Below 15
31%
18%
24%
26%
14%
20%
Below 25
51%
59%
67%
33%
35%
44%
65+
3%
1%
2%
3%
1%
2%
Page |7
Oman Telecom Report
GCC Smartphone, mobile and FBB Penetration
penetration level %
250%
200%
150%
100%
50%
13%
7%
4%
12%
8%
2%
0%
SmartPhone
Oman
UAE
Mobile phone
10%
1
0%
1000
50%
800
40%
600
30%
400
20%
200
10%
Households '000
2
2018
20%
2017
3
2016
30%
2015
4
2014
40%
2013
5
2012
50%
2011
6
2010
60%
% of subscribers using MBB
Oman Fixed broad band penetration
7
2009
Subscribers '000
Kuwait
Fixed Broad band
Oman Mobile broadband penetration
0
0%
Total households
Total Mobile Subscribers
% of households with fixed internet
Mobile broad band penetration
Qatar
Page |8
% of subscribers using FBB
Saudi Arabia
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Bahrain
Oman Telecom Report
Oman mobile prepaid subscriber forecast
6000
Total subscribers
5000
4000
3000
1,714
1,857
1,760
2000
1000
1,658
1,893
2,019
2009
2010
2011
2,332
2,401
2,146
2,265
2,473
2,200
2,413
2,501
2,575
2,652
2,730
2,812
2,268
2012
2013
2014
2015
2016
2017
2018
1,970
0
Omantel Mobile Pre-paid Subscribers
Nawras Mobile Pre-paid Subscribers
Oman mobile postpaid subscriber forecast
700
Total subscribers
600
216
222
187
210
229
204
309
318
327
337
347
357
2013
2014
2015
2016
2017
2018
500
400
300
200
100
147
169
173
179
212
240
259
285
2009
2010
2011
2012
0
Omantel mobile Post-paid Subscribers
Nawras mobile Post-paid Subscribers
ARPUs to support revenue growth
There has been a sharp rise in the mobile subscribers in Oman, however a similar growth has not reflected in its
revenues owing mainly to the falling ARPUs (average revenue per user). ARPUs are expected to continue to trend
at the current levels with an upward bias as data usage is expected to grow substantially helping ARPUs to maintain
the current levels.
Page |9
Oman Telecom Report
Fixed Internet ARPU
8.0
50.0
7.0
40.0
RO per month
RO per month
Mobile Prepaid ARPU
6.0
5.0
4.0
30.0
20.0
10.0
0.0
Omantel Mobile Prepaid
Omantel Fixed Internet
Nawras Mobile Prepaid
Nawras Fixed Internet
Mobile Postpaid ARPU
Moble Blended ARPU
RO per month
RO per month
28.0
26.0
24.0
22.0
20.0
11.0
10.0
9.0
8.0
7.0
6.0
5.0
Omantel Mobile Postpaid
Omantel Mobile Blended
Nawras Mobile Postpaid
Nawras Mobile Blended
P a g e | 10
Oman Telecom Report
34
39
36
27
35
34
29
26
23
26
Source: Company annual reports and presentations
Vodafone Qatar
Nawras
Bahrain Telecom
Omantel
National Mobile Company
DU
Zain Kuwait
Etihad Etisalat
Ooredoo
18
Etisalat
45
40
35
30
25
20
15
10
5
0
Saudi Telecom
USD per month
GCC Avg Revenue Per User/month
ARPU
Moderate competition will exist in the market as resellers would push for market share but we don’t expect ARPUs
to be affected by it. ARPUs are expected to stabilize with no major rate correction anticipated in the near future. On
the other hand with the growing role of mobile phones we are witnessing a swift transition from traditional mobile
phones to smart phones resulting in the growing number of mobile broadband subscribers and a surge in data
consumption. This transition will prevent dilution and provide ARPU the required support keeping them at healthy
levels.
In the last 4 quarters the ARPU for both companies in all its segments - fixed internet, mobile prepaid and mobile
post paid has stabilized in contrast to the decline the sector was witnessing since the past few years. Omantel owing
to its high valued customers and strong penetration in Government organizations enjoys higher ARPU than Nawras.
Nawras on the other hand has a strong connect with the youth. They have developed products and services
targeting this segment of the population, with a particular focus on music access and social media through mobile
phones which has supported the ARPUs to a certain extent. Supported by the growth in internet subscribers we
expect the ARPUs to hold on to the current levels with an upward bias though the spread in the ARPU between the
two companies however will remain.
P a g e | 11
Oman Telecom Report
CISCO MOBILE DATA TRAFFIC FORECAST 2013-2018
-
Global mobile data traffic will increase nearly 11-fold between 2013 and 2018.
-
By 2018, 4G will be 15 percent of connections, but 51 percent of total traffic. By 2018, a 4G
connection will generate 6 times more traffic on average than a non-4G connection.
-
Over two-thirds of the world’s mobile data traffic will be video by 2018. Mobile video will
increase 14-fold between 2013 and 2018, accounting for 69 percent of total mobile data
traffic by the end of the forecast period.
-
The average smartphone will generate 2.7 GB of traffic per month by 2018, a 5-fold increase
over the 2013 average of 529 MB per month. By 2018, aggregate smartphone traffic will be
11 times greater than it is today, with a CAGR of 63 percent.
-
By 2018, more than half of all traffic from mobile-connected devices (almost 17 exabytes)
will be offloaded to the fixed network by means of Wi-Fi devices and femtocells each
month.
-
The Middle East and Africa will have the strongest mobile data traffic growth of any region
at 70 percent CAGR. This region will be followed by Central & Eastern Europe at 68 percent
and Asia Pacific at 67 percent.
Data service to be the main revenue growth driver
The smart phone and tablet has changed the way people connect online and interact with content. Omani telecoms
have built strong infrastructure to accommodate greater connectivity and data, both online and over mobile. Fixed
and mobile broad band subscriber base is growing at a robust rate for both companies. In the past 4 years Fixed and
mobile broad band subscribers in Oman have witnessed a 40% and 78% cumulative average growth. We expect
mobile broad band users to grow at a CAGR of 15% in the next 5 years with 72% of the population to be using mobile
brand band services by 2018 from the current 42%. Similarly we expect the fixed broadband subscribers to grow at a
CAGR of 15% with 40% of the households with fixed internet connections by 2018.
In absolute numbers both companies are almost adding equal number of subscribers. Mobile broad band subscribers
grew 48% in the previous year, doubled in the past two years and grown eleven times in 4 years. Even with this
robust growth only 24% of all mobile subscribers of Omantel are subscribed to broadband services. We expect this
figure to rise to 40% by 2018 though according to CISCOs estimates 54% of the mobile
P a g e | 12
Oman Telecom Report
devices by 2018 will be smart devices. As the internet becoming an important part of basic infrastructure in modern
societies and the huge socio economic benefits attached, the government is pushing hard on setting up broadband
networks and improving the current ones. The national broadband strategy has laid out infrastructure plans worth 500
million Omani rial in the next 10 years to improve the network and data speeds across the country.
Oman fixed internet subscriber forecast
400
Total subscribers
350
129
300
250
77
200
111
64
150
100
44
27
50
0
94
71
41
45
52
2009
2010
2011
112
95
2012
2013
Omantel FixedBB subscribers
2014
129
2015
149
147
2016
167
2017
187
2018
Nawras Fixed broadband
Oman mobile broadband subscriber forecast
4000
Total subscribers
3500
1722
1538
3000
1364
2500
2000
1043
894
1199
1500
633
1000
343
500
190
0
201
330
527
2010
2011
2012
2009
1305
1499
780
1120
1704
946
2013
2014
2015
2016
2017
2018
Omantel MBB
Nawras MBB
P a g e | 13
Oman Telecom Report
73%
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
80%
69%
70%
59%
54%
60%
47%
50%
40%
30%
Growth %
Petabytes per month
World Data Traffic
20%
10%
0%
2014
2015
2016
2017
2018
Source: CISCO VNI Mobile 2014
Strong cash flows, healthy financials and low multiples
Among the total mobile subscribers in Oman 90% are prepaid subscribers which results the companies to have a
negative cash collection cycle. Both companies have a history of strong cash flow generation capabilities despite
investing aggressively on infrastructure.
Oman's Total Mobile Subscriber Constituents '000
5,000
4,000
3,000
2,000
1,000
0
2009
Mobile Pre-paid Subscribers
2010
2011
2012
Mobile Post-paid Subscribers
2013
Mobile Resellers
With the need to upgrade technology on a regular basis both companies have invested heavily on infrastructure and
yet managed to keep debt levels low. Omantel’s capital expenditure budget each year is in the range of 18% - 23%
of revenues (RO 80-90 mn) which it meets mostly through its internal accruals. Nawras’ capital expenditure has
varied in the range of RO 30-76 mn (18% - 38% of revenue) with a debt to equity of 20%. Even though it has a
higher debt to equity ratio than Omantel it is still amongst the lowest in the GCC.
P a g e | 14
Oman Telecom Report
Both companies have among the highest margins, return on equity, dividend yields and capex to sales ratios. Their
price multiple ratios are among the lowest which could be attributed to the low ARPUs and the limited size of the
market.
GCC FINANCIAL KEY RATIOS
Saudi Telecom Co
Net
Mkt
EBITD
Debt CAPE
Rev (
Profit
EV/EB
Div
Cap
A
/Equi X TO ROE ROA
P/E P/FCF P/BV P/S
ARPU YTD %
$Bn)
Margi
ITDA
Yield
($Bn)
Margi
ty Sales
n
n
33.2 12.2 40% 22% 15% 16% 19% 10%
6.4 13.5 11.3
2.4
3.0 4.2%
27 26.2%
Etisalat
26.5
10.2
Ooredoo
13.2
Etihad Etisalat
COMPANY NAME
33% 19% 14% 12% 16%
9%
7.8
13.2
14.0
2.4
2.5 6.0%
34 3.0%
9.4
43%
3%
5.4
16.8
19.4
1.7
1.3 2.9%
36 1.3%
18.9
6.7
36% 27% 45% 15% 30% 16%
8.7
10.7
49.0
3.0
2.8 5.5%
26 10.0%
Zain Kuwait
9.8
4.4
43% 17% 43% 14% 13%
7%
6.2
12.0
10.1
1.8
2.1 7.2%
39 6.5%
Emirates Tel (DU)
7.6
2.9
39% 18% 56% 12% 27% 13%
6.3
14.1
11.1
3.9
2.5 2.9%
29 -8.9%
National Mobile Co
3.3
2.6
36%
9% 21% 19%
9%
5%
3.7
11.6
14.2
1.1
1.1 7.1%
35 6.1%
Bahrain Telecom
1.4
1.0
33% 12% 41% 12%
9%
5%
5.2
12.0
6.8
1.0
1.0 6.7%
26 18.9%
Vodafone Qatar
2.8
0.5
19% -15% 18% 24%
8% 130% 22% 10%
-5%
-4%
39.3
0.0
0.0
1.7
1.7 0.0%
MEAN
36% 13% 42% 16% 14%
7%
9.9
11.5
15.1
2.1
2.0
31.7
MEDIAN
36% 17% 41% 15% 13%
7%
6.3
12.0
11.3
1.8
2.1
33.7
34 13.9%
Omantel
3.1
1.2
43% 26%
7% 19% 23% 16%
5.4
9.4
10.8
2.1
2.1 7.6%
23 4.8%
Nawras
1.1
0.5
46% 16% 20% 38% 18% 10%
4.8
11.8
22.6
2.1
2.1 6.3%
18 7.0%
Source: Bloomberg (USD)
P a g e | 15
-7%
-14%
-21%
0%
Net Profit Margin %
7%
P a g e | 16
Nawras
Omantel
MEDIAN
EBITDA Margin %
Nawras
14%
EBITDA Margin %
49%
42%
35%
28%
21%
14%
7%
0%
Net Profit Margin %
28%
28%
21%
14%
7%
0%
Nawras
Omantel
Vodafone Qatar
Bahrain Telecom
National Mobile…
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
Nawras
Omantel
Vodafone Qatar
Bahrain Telecom
Billions (USD)
14
12
10
8
6
4
2
-
Omantel
21%
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
National…
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom…
Market Cap (USD bn)
MEDIAN
35%
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
49%
42%
35%
28%
21%
14%
7%
0%
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
40
35
30
25
20
15
10
5
-
Saudi Telecom Co
Billions (USD)
Oman Telecom Report
Revenue (USD bn)
-5%
0%
10%
ROA %
14%
5%
7%
0%
P a g e | 17
Nawras
15%
Nawras
21%
Omantel
ROA %
Omantel
ROE %
MEDIAN
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
Nawras
Omantel
MEDIAN
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Debt/Equity %
MEDIAN
20%
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
140%
120%
100%
80%
60%
40%
20%
0%
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
Saudi Telecom Co
Oman Telecom Report
Debt/Equity %
49%
42%
35%
28%
21%
14%
7%
0%
ROE %
28%
21%
14%
7%
0%
18
16
14
12
10
8
6
4
2
0
P/E
14
12
10
8
6
4
2
0
P a g e | 18
Nawras
P/E
Nawras
EV/EBITDA
Nawras
Omantel
35%
Omantel
20%
Omantel
42%
MEDIAN
25%
MEDIAN
CAPEX TO Sales %
MEDIAN
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
5%
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
15%
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
45
40
35
30
25
20
15
10
5
0
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
0%
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
Oman Telecom Report
CAPEX TO Sales %
10%
28%
21%
14%
7%
0%
EV/EBITDA
12
10
8
6
4
2
0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
P/S
P a g e | 19
Nawras
Nawras
2.1
2.1
2.1
2.1
2.0
2.0
2.0
2.0
2.0
1.9
Omantel
P/S
Omantel
P/FCF
MEDIAN
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
Nawras
Omantel
MEDIAN
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
P/BV
MEDIAN
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
60
50
40
30
20
10
0
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
Oman Telecom Report
P/BV
2.2
2.1
2.1
2.0
2.0
1.9
1.9
1.8
1.8
1.7
1.7
1.6
P/FCF
25.0
20.0
15.0
10.0
5.0
-
45
40
35
30
25
20
15
10
5
0
ARPU
P a g e | 20
30.0
25.0
20.0
15.0
10.0
5.0
-
Nawras
35.0
Nawras
40.0
Omantel
ARPU
Omantel
MEDIAN
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
Dividend Yield %
MEDIAN
MEAN
Vodafone Qatar
Bahrain Telecom
National Mobile…
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Emirates…
Zain Kuwait
Etihad Etisalat
Ooredoo
Etisalat
Saudi Telecom Co
Oman Telecom Report
Dividend Yield %
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Oman Telecom Report
INDUSTRY RISK
Population growth expected to slow down
Oman’s population has witnessed a growth of 30% in the past 4 years and industry’s mobile subscriber base has
risen by ~45%. The growth was majorly contributed by the expat population which had been growing in double digits.
With increased government spending we may see a rise in the blue collared jobs but with the government’s initiative
to increase Omanization levels in most industries and a latest move by the Ministry of Manpower of reducing Oman’s
expat workforce number in the private sector by 100,000, going forward we expect the population growth to come
down to 1-2%. This will have an impact on the subscriber growth of the telecommunication companies.
Total Population
5000
4000
3000
2000
1000
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total Population
Source: NCSI and Shurooq forecast
Regulatory risk
Telecommunication is a heavily regulated and closely monitored industry. Investments may need to be made in
regions which may not always be viable. The companies can also be refrained from offering some products and
services for security and other reasons. Due to the industry constantly evolving the companies run a risk of heavy
investments into segments and geographies which may have never been tested before.
Unexpected events
Our sales have been forecasted keeping a fair competitive environment in mind between the two major players and
the resellers however any disordered price war may affect the forecasted sales numbers. Oman is to witness
a healthy economic environment and is a politically stable country however slower or weaker economic environment
or any kind of political risks is likely to impact our financial forecasts.
P a g e | 21
Oman Telecom Report
COMPANY SPECIFIC RISKS
World call’s poor performance continuing
World Telecom Limited is Omantel’s subsidiary with holding of 56.8% which was acquired in 2008 for $193 mn.
Though 90% of its revenues are contributed by domestic operations, World telecom limited has been performing
poorly year on year. The sales of WorldCall have declined 60% in 2013 and losses have increased by 40% which
bites into the major chunk of the profit growth of the company. The company has incurred an accumulated loss of RO
22mn since its acquisition. Though the company is confident its performance would reverse in the coming years the
performance of WorldCall has made investors uneasy.
Nawras’ capital expenditure to sales to remain high
Capital expenditure for Nawras has been high compared to its revenue in the past and expected to spill to next year
as well. Its investment in building its own infrastructure and towards other network modernization, expansion and
improvement program is expected to continue thus resulting in lower free cash flows in the coming years.
The company is developing its infrastructure in the recently discovered regions rich in oil & gas where substantial
production activities are to commence soon. Any delay or unexpected turnaround of events in these projects could
affect the performance of the company.
Nawras rebranding expected in 2014
Qatar Telecom is changing all its businesses worldwide to a single brand, ‘Ooredoo’. Nawras which is a subsidiary of
Qatar telecom would be also rebranded under the same umbrella. Though the strategy could work well for the parent,
there is a risk on how the customers in Oman welcome the change. Over the past ten years a substantial amount of
effort and resources have been spent in creating a successful ‘Nawras’ brand which has blended and connected well
with the Omani youth and culture. Casting aside a decade year old brand which has grown with the industry poses a
short term risk to the company’s business as it would take a while to build the similar level of affinity the customers
share with the current brand ‘Nawras’.
P a g e | 22
Oman Telecom Report
OMANTEL FINANCIALS
OMANTEL INC STATEMENT
Total Revenue
2009
2010
2011
2012
2013
2014F
2015F
2016F
2017F
2018F
412,297
416,597
452,606
458,881
462,900
473,510
484,646
496,332
508,592
521,452
Growth%
8.6%
1.0%
8.6%
1.4%
0.9%
2.3%
2.4%
2.4%
2.5%
2.5%
Cost of Goods sold
(35,372)
(38,915)
(39,242)
(39,001)
(26,600)
(38,673)
(39,134)
(40,078)
(41,068)
(42,107)
Gross Profit
376,925
377,682
413,364
419,880
436,300
434,837
445,512
456,254
467,524
479,346
Selling Gen & Admn Exp
(77,414)
(80,242)
(84,547)
(99,377) (114,664) (105,050) (106,067) (108,624) (111,307) (114,122)
Other Operating Exp/Inc
(88,442)
(98,936) (123,259) (115,330) (119,945) (115,310) (118,022) (120,868) (123,854) (126,985)
EBITDA
211,069
198,504
205,558
205,173
201,691
214,477
221,423
226,762
232,363
238,238
Deprec. & Amort.
(67,064)
(78,828)
(89,398)
(81,231)
(80,161)
(80,677)
(82,366)
(84,112)
(85,922)
(87,801)
EBIT
144,005
119,676
116,160
123,942
121,530
133,800
139,056
142,649
146,441
150,437
Interest Expense
144,005
119,676
116,160
123,942
121,530
133,800
139,056
142,649
146,441
150,437
Other Income
(4,984)
(5,633)
(3,663)
(5,374)
(2,849)
(2,849)
(2,849)
(2,849)
(2,849)
(2,849)
Income Tax
(17,400)
(11,915)
(14,427)
(11,733)
(12,445)
(13,993)
(14,519)
(14,878)
(15,257)
(15,657)
Net Income
125,154
112,217
111,609
116,222
119,284
128,687
133,048
135,492
137,387
138,229
2016F
2017F
2018F
Source: Company Reports & Shurooq Estimates RO '000
OMANTEL BALANCE SHEET
Cash And Equivalents
Other Current Assets
2009
2010
2011
2012
2013
32,042
28,016
26,817
42,945
71,680
2014F
2015F
108,049 143,511 181,985 223,528 257,038
153,635 148,121 184,673 187,618 180,000 178,332 179,969 181,797 183,716 185,728
Net Property, Plant & Equipment 379,427 394,755 390,422 387,954 396,400 405,362 414,589 424,121 433,994 444,245
Long-term Investments
Other Long-Term Assets
Total Assets
69,749
47,741
37,553
44,417
40,690
40,690
40,690
40,690
40,690
40,690
58,768
67,780
70,115
66,503
67,000
57,857
48,654
39,386
30,051
20,646
693,621 686,413 709,580 729,437 755,770 790,291 827,413 867,980 911,979 948,347
Short-term Borrowings
53,444
31,482
9,726
20,499
7,190
7,190
7,190
7,190
7,190
7,190
Accounts Payable
9,803
13,273
18,483
16,739
22,120
16,952
17,155
17,568
18,002
18,458
Other Current Liabilities
142,690 148,295 127,283 147,125 146,950 146,950 146,950 146,950 146,950 146,950
Long-Term Debt
35,000
9,872
29,129
18,897
29,090
29,090
29,090
29,090
29,090
29,090
Other Non-Current Liabilities
13,924
8,494
16,637
12,998
11,040
11,040
11,040
11,040
11,040
11,040
Total Liabilities
Additional Paid In Capital
Retained Earnings and Others
Minority Interest
Total Common Equity
Total Liabilities And Equity
254,861 211,416 201,258 216,258 216,390 211,222 211,425 211,838 212,272 212,728
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
75,000
345,520 383,959 418,589 427,334 458,260 500,697 539,994 581,737 625,373 658,602
18,240
16,038
14,733
10,845
6,120
3,372
994
-595
-666
2,017
438,760 474,997 508,322 513,179 539,380 579,069 615,988 656,141 699,707 735,619
693,621 686,413 709,580 729,437 755,770 790,291 827,413 867,980 911,979 948,347
P a g e | 23
Oman Telecom Report
OMANTEL CASHFLOW
2009
2010
2011
2012
2013
2014F
2015F
2016F
2017F
2018F
125,153
112,004
111,612
116,222
119,280
125,939
130,669
133,903
137,316
140,912
Depreciation & Amort., Total
68,569
78,675
86,448
77,719
78,050
71,535
73,163
74,845
76,587
78,396
Other Non-Cash Adj
(3,296)
2,015
7,026
(10,890)
(6,056)
3,485
420
Net Income
Changes in Non-Cash Capital
369
9,143
9,204
9,268
9,335
9,405
(3,500)
(1,434)
(1,415)
(1,484)
(1,557)
5,862
9,588
Cash from Ops.
196,288
200,636
194,019
204,452
186,860
203,116
211,601
216,601
221,754
227,157
Capital Expenditure
(96,161)
(89,735)
(84,932)
(77,491)
(85,630)
(80,497)
(82,390)
(84,376)
(86,461)
(88,647)
14,818
(19,315)
(4,444)
18,480
(74,917) (104,247)
(81,935)
(67,150)
Other Investing Activities
Cash from Investing
(57,125)
(153,286)
Debt Issued
5,805
Debt Repaid
(20,790)
Total Dividends Paid
Other Financing Activities
910
18,656
4,584
(48,669)
(21,067)
(2,299)
(9,680)
(75,632)
(75,588)
(75,613) (105,000)
(86,250)
(5,185)
(6,979)
Cash from Financing
(95,802) (130,326)
NET CHANGE IN CASH
(52,800)
(4,607)
(12,878)
(3,674)
(90,902) (106,389)
(1,130)
16,128
0
5,710
0
(82,390)
0
(84,376)
0
(88,647)
0
0
0
0
0
0
0
0
0
(86,250)
0
(93,750)
0
(93,750)
0
(86,250)
(93,750)
(93,750)
29,490
36,369
35,462
38,474
P a g e | 24
0
(86,461)
0
(90,220)
0
(80,497)
(93,750) (105,000)
0
0
(93,750) (105,000)
41,543
33,510
Oman Telecom Report
OMANTEL KEY FINANCIAL RATIOS
2009
2010
2011
2012
2013
2014F
2015F
2016F
2017F
2018F
Gross margin %
91.4%
90.7%
91.3%
91.5%
94.3%
91.8%
91.9%
91.9%
91.9%
91.9%
EBITDA margin %
51.2%
47.6%
45.4%
44.7%
43.6%
45.3%
45.7%
45.7%
45.7%
45.7%
EBIT margin %
34.9%
28.7%
25.7%
27.0%
26.3%
28.3%
28.7%
28.7%
28.8%
28.8%
Net margin %
30.4%
26.9%
24.7%
25.3%
25.8%
27.2%
27.5%
27.3%
27.0%
26.5%
RoA %
18.0%
16.3%
15.7%
15.9%
15.8%
16.3%
16.1%
15.6%
15.1%
14.6%
RoE %
28.5%
23.6%
22.0%
22.6%
22.1%
22.2%
21.6%
20.6%
19.6%
18.8%
Debt-to-Equity %
11.2%
3.9%
9.0%
6.2%
7.4%
6.9%
6.5%
6.1%
5.7%
5.5%
Dividend yield %
7.7%
7.8%
7.6%
7.8%
7.8%
7.8%
60
40
88
88
149
88
88
88
88
88
Profitability ratios
Inventory days
Days receivable
50
50
49
49
51
50
50
50
50
50
(101)
(124)
(172)
(157)
(304)
(160)
(160)
(160)
(160)
(160)
(35)
(35)
(19)
(104)
(22)
(22)
(22)
(22)
(22)
30.4%
26.9%
24.7%
25.3%
25.8%
27.2%
27.5%
27.3%
27.0%
26.5%
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.5
158.1%
144.5%
139.6%
142.1%
140.1%
28.5%
23.6%
22.0%
22.6%
22.1%
22.2%
21.6%
20.6%
19.6%
18.8%
EPS
0.167
0.150
0.149
0.155
0.159
0.172
0.177
0.181
0.183
0.184
Sales per share
0.550
0.555
0.603
0.612
0.617
0.631
0.646
0.662
0.678
0.695
DPS
0.100
0.100
0.100
0.115
0.115
0.115
0.125
0.125
0.125
0.140
BVPS
0.585
0.633
0.678
0.684
0.719
0.772
0.821
0.875
0.933
0.981
Days payable
Cash conversion cycle
8
Dupont Analysis
Net margin
Asset Turnover
Financial leverage
RoE
136.5% 134.3% 132.3% 130.3% 128.9%
Per share Ratios
Valuation Ratios
Market Price (as on 31/12/YY)
Fwd
Fwd
Fwd
Fwd
Fwd
1.297
1.28
1.309
1.471
1.48
1.48
1.48
1.48
1.48
1.48
EV/EBITDA
4.9
4.9
4.8
5.4
5.3
4.8
4.5
4.3
4.0
3.7
P/E x
7.8
8.6
8.8
9.5
9.3
8.6
8.3
8.2
8.1
8.0
P/S x
2.4
2.3
2.2
2.4
2.4
2.3
2.3
2.2
2.2
2.1
P/BV x
2.2
2.0
1.9
2.1
2.1
1.9
1.8
1.7
1.6
1.5
P/FCFF x
9.4
9.0
9.7
9.2
10.4
9.5
9.0
8.8
8.6
8.3
P a g e | 25
Oman Telecom Report
NAWRAS FINANCIALS
NAWRAS INC STATEMENT
Total Revenue
2009
2010
2011
2012
2013
2014F
2015F
2016F
2017F
2018F
171,623 188,856 196,865 193,500 201,956 209,295 217,378 225,864 234,771 244,118
Growth %
10.0%
4.2%
-1.7%
4.4%
3.6%
3.9%
3.9%
3.9%
4.0%
Cost of Goods sold
(40,310) (27,667) (29,784) (33,699) (30,251) (31,394) (32,607) (33,880) (35,216) (36,618)
Gross Profit
131,313 161,189 167,081 159,801 171,705 177,900 184,771 191,985 199,555 207,500
Operating Expense
(48,932) (64,619) (69,533) (70,691) (78,879) (81,625) (84,777) (88,087) (91,561) (95,206)
EBITDA
Depreciation & Amort.
82,381
96,570
97,548
89,110
92,826
96,275
99,994 103,897 107,995 112,294
(20,549) (24,247) (28,040) (32,769) (39,510) (46,946) (50,417) (52,212) (52,462) (51,953)
EBIT
61,832
72,323
69,508
56,341
53,316
49,329
49,577
51,685
55,532
60,341
Interest Expense
(5,104)
(3,977)
(3,278)
(1,554)
(2,160)
(2,746)
(3,326)
(3,906)
(3,906)
(3,906)
Other Non-Operating Inc (Exp)
(9,798) (11,443) (12,241) (12,648) (13,646) (14,651) (15,216) (15,810) (16,434) (17,088)
Earning before tax (EBT)
46,930
56,903
53,989
42,139
37,510
31,933
31,035
31,969
35,193
39,347
Income Tax Expense
(5,399)
(6,923)
(6,477)
(5,163)
(4,380)
3,832
3,724
3,836
4,223
4,722
41,531
49,980
47,512
36,976
33,140
35,765
34,759
35,805
39,416
44,069
Net Income
Source: ( Company Reports & Shurooq Estimates) RO '000
NAWRAS BALANCE SHEET
2009
2010
2011
2012
2013
2014F
2015F
Cash And Equivalents
20,520
49,343
44,462
24,738
15,320
4,128
2,288
11,756
24,301
46,134
Accounts & Notes Receivable
17,669
23,180
21,477
20,251
23,880
24,083
25,013
25,990
27,015
28,090
593
382
670
1,025
470
774
804
835
868
903
6,751
6,468
8,225
9,804
8,820
8,820
8,820
8,820
8,820
8,820
Inventories
Other Current Assets
2016F
2017F
2018F
Net Property, Plant & Equipment112,171 165,621 182,138 214,136 255,800 288,385 309,703 320,733 322,268 319,139
Other Long-Term Assets
TOTAL ASSETS
49,874
46,119
42,425
39,087
35,580
35,590
35,590
35,590
35,590
35,590
207,578 291,113 299,397 309,041 339,870 361,780 382,219 403,724 418,862 438,675
Short-term Borrowings
11,264
15,885
33,215
6,701
9,940
9,940
9,940
9,940
9,940
9,940
Accounts Payable
13,538
9,147
13,431
26,457
9,880
10,751
11,167
11,603
12,060
12,540
Other Current Liabilities
38,439
61,768
58,250
70,489
97,710
97,710
97,710
97,710
97,710
97,710
Long-Term Debt
48,551
55,050
21,940
20,939
27,400
37,400
47,400
57,400
57,400
57,400
4,066
5,955
5,042
4,406
6,400
6,400
6,400
6,400
6,400
6,400
Other Non-Current Liabilities
TOTAL LIABILITIES
115,858 147,805 131,878 128,992 151,320 162,201 172,617 183,053 183,510 183,990
Paid In Capital
65,094
65,094
Retained Earnings & Other
26,626
78,214 102,425 114,955 123,460 134,489 144,512 155,582 170,262 189,595
Total Equity
91,720 143,308 167,519 180,049 188,550 199,579 209,602 220,672 235,352 254,685
Total Liabilities And Equity
65,094
65,094
65,090
65,090
65,090
65,090
65,090
65,090
207,578 291,113 299,397 309,041 339,870 361,780 382,219 403,724 418,862 438,675
P a g e | 26
Oman Telecom Report
NAWRAS CASHFLOW
2009
2010
2011
2012
Net Income
41,531
49,980
47,512
36,976
33,140
35,765
34,759
35,805
39,416
44,069
Depreciation & Amort., Total
20,549
24,247
28,040
32,769
39,510
46,946
50,417
52,212
52,462
51,953
6,002
4,613
38
(1,991)
2,250
0
0
0
0
0
(17,275)
12,194
616
(879)
7,460
364
50,807
91,034
76,206
82,360
83,075
Other Non-Cash Adj
Changes in Non-Cash Capital
Cash from Ops.
Capital Expenditure
Cash from Investing
3
(21,218)
(229)
Long-Term Debt Issued
0
Cash from Financing
NET CHANGE IN CASH
(545)
84,631
2017F
(572)
87,446
2018F
(600)
91,278
(630)
95,392
67
8
0
50
0
0
0
0
0
32
77
(24)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
23,106
0
56,514
43,040
10,000
10,000
10,000
0
0
0
0
0
0
0
(10,117) (11,986) (15,780) (84,029) (33,340)
Total Dividends Paid
Other Financing Activities
2016F
(51,887) (73,331) (40,571) (34,348) (76,740) (79,532) (71,735) (63,242) (53,997) (48,824)
Net Short Term Debt Issued/Repaid
Long-Term Debt Repaid
2015F
(30,672) (73,430) (40,656) (34,324) (76,790) (79,532) (71,735) (63,242) (53,997) (48,824)
Sale of Property, Plant, and Equipment
Other Investing Activities
66,875
2013 2014F
0
0
11,553
0
1,207
11,120
127
28,823
(24,736) (24,736) (24,740) (24,736) (24,736) (24,736) (24,736) (24,736)
0
0
0
0
0
0
0
(40,516) (52,251) (15,040) (14,736) (14,736) (14,736) (24,736) (24,736)
(4,881) (19,724)
(9,420) (11,192)
0
P a g e | 27
(1,839)
9,468
12,545
21,833
Oman Telecom Report
NAWRAS KEY RATIOS 2009
2010
2011
2012
2013
2014 F
2015 F
2016 F
2017 F
2018 F
Profitability ratios
Gross margin %
76.5%
85.4%
84.9%
82.6%
85.0%
85.0%
85.0%
85.0%
85.0%
85.0%
EBITDA margin %
48.0%
51.1%
49.6%
46.1%
46.0%
46.0%
46.0%
46.0%
46.0%
46.0%
EBIT margin %
36.0%
38.3%
35.3%
29.1%
26.4%
23.6%
22.8%
22.9%
23.7%
24.7%
Net margin %
24.2%
26.5%
24.1%
19.1%
16.4%
17.1%
16.0%
15.9%
16.8%
18.1%
RoA %
20.0%
17.2%
15.9%
12.0%
9.8%
9.9%
9.1%
8.9%
9.4%
10.0%
RoE %
45.3%
34.9%
28.4%
20.5%
17.6%
17.9%
16.6%
16.2%
16.7%
17.3%
Total Debt-to-Equity %
65.2%
49.5%
32.9%
15.4%
19.8%
23.7%
27.4%
30.5%
28.6%
26.4%
4.8%
5.8%
8.2%
6.3%
6.3%
5.0
8.2
11.1
5.7
9.0
9.0
9.0
9.0
9.0
Dividend yield %
Inventory days
5.4
Days receivable
Days payable
Cash conversion cycle
37.6
44.8
39.8
38.2
43.2
42.0
42.0
42.0
42.0
42.0
(122.6)
(120.7)
(164.6)
(286.6)
(119.2)
(125.0)
(125.0)
(125.0)
(125.0)
(125.0)
(79.6)
(70.8)
(116.6)
(237.3)
(70.4)
(74.0)
(74.0)
(74.0)
(74.0)
(74.0)
24.2%
26.5%
24.1%
19.1%
16.4%
17.1%
16.0%
15.9%
16.8%
18.1%
0.8
0.6
0.7
0.6
0.6
0.6
0.6
0.6
0.6
0.6
Dupont Analysis
Net margin
Asset Turnover
Financial leverage
RoE
226.3% 203.1% 178.7% 171.6% 180.3% 181.3% 182.4% 183.0% 178.0% 172.2%
45.3%
34.9%
28.4%
20.5%
17.6%
17.9%
16.6%
16.2%
16.7%
17.3%
EPS
0.077
0.073
0.057
0.051
0.055
0.053
0.055
0.061
0.068
Sales per share
0.290
0.302
0.297
0.310
0.322
0.334
0.347
0.361
0.375
DPS
0.038
0.038
0.038
0.038
0.038
0.038
0.038
0.038
0.038
BVPS
0.220
0.257
0.277
0.290
0.307
0.322
0.339
0.362
0.391
Per share Ratios
Valuation Ratios (Price as on)
CMP
CMP
CMP
CMP
CMP
Market Price as on
0.795
0.650
0.461
0.600
0.600
0.600
0.600
0.600
0.600
P/E x
10.4
8.9
8.1
11.8
10.9
11.2
10.9
9.9
8.9
P/S x
2.7
2.1
1.6
1.9
1.9
1.8
1.7
1.7
1.6
P/BV x
3.6
2.5
1.7
2.1
2.0
1.9
1.8
1.7
1.5
P/FCFF x
19.5
22.6
34.9
17.9
11.5
8.6
6.4
P a g e | 28
8.4
7.0
Oman Telecom Report
VALUATION
To derive our target price for the two telecommunication companies we have followed the discounted free cash flow
methodology and the relative valuation approach in the level of importance of 80:20.
To value Omantel using the DCF approach we arrived at a risk adjusted weighted average cost of capital (WACC) of
10.9% and a terminal growth rate of 1.5% for Omantel. In the calculation of required rate of return of equity we have
considered a beta of 1.0, a country risk premium of 1.05%, expected market return of 10.09% and a risk free rate of
3.61%.
With the DCF method of calculating the intrinsic value of the share we arrive at a price of RO 1.753 for Omantel.
OMANTEL VALUATION
Period
EBITDA x (1-Tax rate)
Add: Depreciation x Tax rate
Add: Change in WC
Add: Net Capex
Free cash flow to the firm
Discount factor
Terminal Value
Present Value
Firm Value
Market Value of debt
Equity Value = Firm Value - MV of
Debt
Fair Value per share
2013
182,029
7,814
420
(85,390)
104,874
1,432,371
875,357
1,351,386
(36,280)
2014 F
0.75
193,029
8,068
(3,500)
(80,497)
117,100
0.9252
2015 F
1.75
199,280
8,237
(1,434)
(82,390)
123,693
0.8341
2016 F
2.75
204,086
8,411
(1,415)
(84,376)
126,706
0.7519
2017 F
3.75
209,127
8,592
(1,484)
(86,461)
129,774
0.6779
2018 F
4.75
214,415
8,780
(1,557)
(88,647)
132,991
0.6111
108,340
103,169
95,274
87,972
81,274
1,315,106
1.753
Assuming various scenarios with a terminal growth rate in the range of 0.5% and 2.5% and WACC of 8.9% and
12.9% the price of the stock would deduce as given in the table
WACC
8.9%
9.9%
10.9%
11.9%
12.9%
0.5%
2.03
1.81
1.63
1.49
1.36
OMANTEL SCENARIO ANALYSIS
Terminal Growth Rate
1.0%
1.5%
2.0%
2.12
2.23
2.36
1.88
1.96
2.06
1.69
1.75
1.82
1.53
1.58
1.64
1.40
1.44
1.49
P a g e | 29
2.5%
2.50
2.16
1.90
1.70
1.54
Oman Telecom Report
To value Nawras using the DCF approach we arrived at a risk adjusted weighted average cost of capital of 11.7%
and a terminal growth rate of 1.5%. In the calculation of required rate of return of equity we have considered a beta
of 1.03, a country risk premium of 1.05%, business risk premium of 1.5%, expected market return of 10.0% and a risk
free rate of 3.61%.
With the DCF method of calculating the intrinsic value of the share we arrive at a price of RO 0.66 for Nawras.
NAWRAS VALUATION
Period
2013
EBITDA x (1-Tax)
Add: Depreciation x Tax
Add: Change in Working Capital
Add: Net Capex
81,987
4,614
7,460
(76,790)
17,270
Free cash flow to the firm
Discount factor
Terminal Value
Present Value of FCFF
Firm Value
Market Value of debt
Equity Value
No. of shares ('000)
2014 F
553,224
327,063
444,018
(17,460)
426,558
650,940
0.66
Fair Value of Equity Share
2015 F
2016 F
2017 F
2018 F
0.75
84,722
5,634
364
(79,532)
11,188
0.9204
1.75
87,995
6,050
(545)
(71,735)
21,765
0.8240
2.75
91,430
6,265
(572)
(63,242)
33,881
0.7376
3.75
95,035
6,295
(600)
(53,997)
46,733
0.6604
4.75
98,819
6,234
(630)
(48,824)
55,600
0.5912
10,297
17,933
24,992
30,861
32,870
Assuming various scenarios with a terminal growth rate in the range of 0.5% and 2.5% and WACC of 9.7% and
13.7% the price of the stock would deduce as given in the table below
NAWRAS SCENARIO ANALYSIS
Terminal Growth Rate
WACC
0.5%
1.0%
1.5%
2.0%
2.5%
0.84
0.89
0.95
9.7%
0.76
0.80
10.7%
0.68
0.71
0.74
0.78
0.82
11.7%
0.61
0.63
0.66
0.68
0.72
12.7%
0.55
0.57
0.59
0.61
0.63
13.7%
0.50
0.51
0.53
0.55
0.57
P a g e | 30
Oman Telecom Report
To derive our value through the relative valuation approach we have mainly taken the following three multiples:
(EV/EBITDA), price to free cash flow to the firm (P/FCFF) and price to sales (P/SALES). Each has been matched with
the median ratios of the GCC telecom companies. A final multiple price has been arrived by applying a weighted
average of 3:2:1 on the fair price arrived by each of the multiples.
The fair price arrived by the relative valuation method for the Omantel and Nawras are RO 1.739 and RO 0.645.
RELATIVE VALUATION
PARTICULARS
EV/EBITDA
Median Multiple
COMPANY
P/FCFF
6.3
P/SALES
11.3
FV USING
EV/EBITDA
WTD. MEAN
2.1
FV USING
P/FCFF
FV USING
P/SALES
WTD. MEAN
FV
Omantel
1.860
1.760
1.332
1.739
Nawras
0.934
0.194
0.678
0.645
We arrive at our target price for the two telecommunication companies following the discounted free cash flow
methodology and the relative valuation approach in the level of importance of 80:20. The target price for Omantel is
RO 1.753 with an expected upside of 16.87% and the target price for Nawras is RO 0.655 with an expected upside of
9.2%.
Weight
FV
Omantel
OMANTEL
NAWRAS
DCF Method
80%
1.753
0.655
1.403
0.524
RV Method
20%
1.751
0.65
0.350
0.131
1.753
0.655
Valuation Method
FV
Nawras
TARGET PRICE
P a g e | 31
Oman Telecom Report
CONTACT DETAILS:
Shurooq Securities Co. LLC
Building # 1287; Way # 3516; Block # 135; Office # 61 & 62
MBD Area (Near Ministry of Manpower/Next to Bait al Ahlam Khimji)
P.O. BOX: 982; PC: 112; Ruwi, Sultanate of Oman
Tel: (+968) 24726700
Brokers Contact: (+968) 24726703 / 24726704 / 24726705
Fax: (+968) 24726722
BROKERAGE TEAM
Marwan Naser
Adil Al Raisi
Adil Al Saidi
DESIGNATION
Brokerage Manager
Broker
Broker
EMAIL
[email protected]
[email protected]
[email protected]
TELEPHONE
+968 24726709/99848212
+968 24726704/96011044
+968 24726703/95501234
RESEARCH
Dhruwa Mittal
Head of Research
[email protected]
+968 24726711/ 99646510
Stock rating methodology
Strong
Buy
Implied upside > 20%
Buy
Implied upside between 10% and 20%
Hold
Implied upside/downside of up to 10%
Sell
Implied downside > 10%
Disclaimer: This report is not directed to, or intended to or use by any person or entity who is a citizen of or located in any
locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or
regulation or which subject Shurooq Securities Co LLC to any registration or licensing requirements within such jurisdiction.
This report is provided for information purpose only. This report is based on information generally available and is deemed
reliable but no assurance is given as to its accuracy or completeness. Shurooq Securities Co LLC is not accountable for any
decision based on the content of this report. The investor will not indemnify Shurooq Securities Co LLC and its officers,
employees and staff against any loss or damage or other liabilities (including Cost), which may suffer as a result of reliance on
such reports. Neither the information nor the opinions contained are to be construed as an offer to buy and sell securities
mentioned above. This report is not to be relied upon in substitution for the exercise of independent judgment. Investor should
judge the suitability of the securities to their need.
P a g e | 32

Oman Telecom Sector - Shurooq Securities

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