Mobily Ratio.pdf

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SEPTEMBER

2012

Etihad Etisalat Company(MOBILY)


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September2012

Etihad Etisalat Company (MOBILY)Result Update 2Q12 | KSA | Telecommunications | September 2012

Strong earnings growth led by higher data and business revenue

Etihad Etisalat (Mobily) posted a net prot of SAR1,421mn (EPS: SAR2.03) in

2Q-2012. The actual 2Q-2012 protability indicates a growth of 17.7% QoQ

and 22.1% YoY. The earnings growth was on account of rise in data usage,

business sector revenue and smartphone sales. The total business sector

revenue (SAR2,039 mn) registered a growth of 15.9% YoY and 12.6% QoQin 2Q-2012.

Mobilys actual 2Q-2012 revenue was 5.3% higher than our estimate of

SAR5.4 bn. However, the protability is viewed to be largely in line with our

expectations, with actual prot just 1% higher vis--vis our estimate for the

quarter under review.

Mobilys earnings surged 21.6% YoY during 1H-2012 led by trickledown

effect of growth in revenue which surged 11.2%. Further, gross margins

expanded 251bps YoY and operating margins expanded 177bps on account

of strong growth in the high-margin data segment. Share of the data segmentin total revenue increased to 24% in 1H-2012 from 22% in 2011.

5,000.0

6,000.0

7,000.0

8,000.0

9,000.0 TASI - LHS Mobily

40.0

50.0

60.0

70.0

80.0

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Source: Bloomberg

Financial performance 2Q-2012

All figures in SAR mn,unless otherwise stated

2Q2011

1Q2012

2Q2012

YoY-Change(2Q12 / 2Q11)

QoQ-Change(2Q12 / 1Q12)

Sales revenue 5,127 5,009 5,678 10.8% 13.4%

COGS (2,649) (2,396) (2,723) 2.8% 13.7%

Gross profit 2,478 2,613 2,956 19.3% 13.1%

Gross margins 48.3% 52.2% 52.1%

Operating profit 1,223 1,254 1,468 20.0% 17.1%

Operating margin 23.9% 25.0% 25.8%

Net profit 1,164 1,207 1,421 22.1% 17.7%

Net margin 22.7% 24.1% 25.0%

EPS (SAR) 1.66 1.72 2.03

Source: Quarterly nancial reports

Financial performance 1H-2012


1H-2011 1H-2012YoY-Change (1H-

2012 / 1H-2011)

Sales revenue 9,611 10,687 11.2%

COGS (4,844) (5,118) 5.7%

Gross profit 4,767 5,569 16.8%

Gross margins 49.6% 52.1%

Operating profit 2,277 2,721 19.5%

Operating margin 23.7% 25.5%

Net profit 2,162 2,629 21.6%

Net margin 22.5% 24.6%

EPS (SAR) 3.09 3.76 21.6%

Source: Quarterly nancial reports

Strong 2Q12 financial performance; broadly in line

Higher data revenue aids margin expansion

Business segment emerging growth driver

Maintain Overweight recommendation

Rating: Overweight

Current Price: SAR69.8

12-month price target: SAR87.3

Upside/(Downside): 25.1%

Key Information

Reuters Code 7020.SE

Bloomberg Code EEC AB

Country: Saudi Arabia

Sector: Telecommunication

Primary Listing: TASI

M-Cap: SAR48.8bn

52 Weeks H/L: SAR70.5/SAR49.9

Price Chart

Key Financials

Key Financials2011

(a)

2012

(e)

2013

(e)

Sales revenue (SAR mn) 20,052 22,365 23,963

Revenue growth (%) 25.2 11.5 7.1Gross profit (SAR mn) 10,324 11,648 12,266

Gross margin (%) 51.5 52.1 51.2

Operating profit (SAR mn) 5,305 5,734 6,314

Operating margin (%) 26.5 25.6 26.3

Net profit (SAR mn) 5,083 5,548 6,177

Net profit growth (%) 20.7 9.1 11.3

EPS (SAR) 7.3 7.9 8.8

Source: Company annual report & Aljazira Capital

Price performance

1 -

month

3 -

month

12 -

month

Absolute 3.3 8.6 29.2

Relative 1.3 3.7 12.8

Source: Zawya & Aljazira Capital

Abdullah Alawi(AGM - Head of Research)

[email protected]+966-2-6618275


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September2012

Business segment rapidly emerging as key growth driver

Business sector has emerged as key growth drivers for Mobily since the last two quarters.

Business sector revenues witnessed a 63% YoY growth in 1H-2012. Growth in thissegments revenue is expected to remain rm in the near to medium term. We believe,

there is a signicant scope for growth in the enterprise segment in the Kingdom, given

the increased need for mobility, seamless integration of communication functionality and

web-based technologies. Moreover, government initiatives are also contributing to the

growing need for advanced telecom services. Recently the company has signed a 3-year

contract with the Ministry of Education to supply Broadband devices to 1,400 schools in

the Eastern Province. The company is also currently working to link 30 government bodies

with ber optic network. According to the management, Mobily aims to connect 250,000

buildings (800,000 housing and commercial units) with ber optic network by the end of

2016. Furthermore, Mobily recently signed a 5-year contract with IBM valued at SAR1bn

for outsourcing the IT Operation Services. This investment is expected to improve Mobilys

technical advantage and delivery capabilities while catering to business clients.

Data segment to remain prime forte

Saudi Arabias mobile data segment has emerged as a fast growing market over the last

couple of years. We expect Mobily to remain market leader in this segment primarily due to

its mobile broadband-focused strategy. Mobily dominated the mobile broadband market

with a staggering 75.7% share in 2011. We believe its investment in direct ber optic

connections would help in offering a diverse range of data services at higher speeds.

Investment considerationConsidering the 2Q-2012 performance and our current outlook and estimate, we arrived at

an updated 12-month price target of SAR87.3/share, indicating a potential upside of 25.1%

over the market price of SAR69.8 (as of September 17, 2012. Therefore, we maintain our

Overweight recommendation on the stock.

Mobily has started paying quarterly dividends 2012 onwards, and announced the

distribution of initial dividends of SAR1.0 per share for 2Q-2012 amounting to SAR700

mn. We expect the company to pay a total dividend of SAR3.25 per share in 2012; this

translates into a dividend yield of 4.7% at the current price.

Marginal downward revisions to

2012 proftability estimate

We have marginally revised ourearnings estimates downwards for

2012 to factor in higher operating

expenses as per companys 1H-

2012 operating costs.

Key nancial updates 2012


Earlier estimates

2012New estimates 2012

Upward/(Downward)

revision

Sales Revenue 22,077 22,365 1.3%COGS (10,602) (10,717) 1.1%

Gross Profit 11,475 11,648 1.5%

Gross Margin 52.0% 52.1%

Operating Profit 5,929 5,734 -3.3%

Operating Margin 26.9% 25.6%

Net Profit 5,755 5,548 -3.6%

Net Margin 26.1% 24.8%

EPS (SAR) 8.22 7.93

Source: Aljazira capital


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September2012


2010 2011 2012E 2013E 2014E 2015E

Income statement

Sales revenue 16,013 20,052 22,365 23,963 24,451 24,923

Growth YoY (%) 22.6% 25.2% 11.5% 7.1% 2.0% 1.9%

Cost of sales (7,230) (9,728) (10,717) (11,697) (11,752) (11,917)

Gross Profit 8,783 10,324 11,648 12,266 12,699 13,006

Growth YoY (%) 16.4% 17.5% 12.8% 5.3% 3.5% 2.4%

Selling & marketing (1,059) (1,086) (1,289) (1,246) (1,247) (1,271)

General & administrative (1,559) (1,784) (2,231) (2,085) (2,115) (2,168)

EBITDA 6,165 7,454 8,127 8,935 9,337 9,567

Growth YoY (%) 27.5% 20.9% 9.0% 9.9% 4.5% 2.5%

Depreciation and amortization (1,810) (2,149) (2,393) (2,621) (2,749) (2,906)

Operating Profit 4,355 5,305 5,734 6,314 6,588 6,661

Growth YoY (%) 35.8% 21.8% 8.1% 10.1% 4.3% 1.1%

Other Income and Expenses 70 46 67 72 73 75

Financing costs (146) (213) (194) (143) (112) (76)

Profit before zakat & minority interest 4,279 5,138 5,607 6,243 6,549 6,660

Provision for Zakat (67) (54) (59) (66) (69) (70)

Net profit 4,211 5,083 5,548 6,177 6,480 6,589

Growth YoY (%) 39.7% 20.7% 9.1% 11.3% 4.9% 1.7%

Balance sheet

Assets

Cash and cash equivalents 1,661 1,690 778 1,761 3,954 5,876

Short term investments 450 - - - - -

Accounts receivable, net 5,748 6,323 7,027 7,529 7,683 7,831

Due from related parties 23 11 12 13 14 14

Prepaid expenses and other assets 1,237 1,399 1,938 2,106 2,124 2,156

Inventories 297 470 440 385 386 392

Property, plant and equipment, net 12,457 16,412 17,908 18,937 19,779 20,647

License Acquisition fees (net) 10,028 9,665 9,131 8,596 8,062 7,527

Good will 1,530 1,530 1,530 1,530 1,530 1,530

Investment in unconsolidated subsidiary - - - - - -

Total assets 33,430 37,501 38,765 40,857 43,531 45,973

Liabilities & owners' equity

Short term debt 599 1,201 1,201 1,201 1,201 1,201

Accounts payable 6,225 7,808 6,799 5,499 5,231 4,885

Current portion of long term 1,843 4,895 1,083 1,068 1,399 1,034

Due to related parties 281 193 315 344 345 350

Accrued expenses and other liabilities 3,307 3,949 4,351 4,748 4,771 4,837

Long term debt 5,529 977 3,249 2,492 1,399 689

Provisions for end of service benefits 66 89 107 117 118 119

Founder shareholders loan - - - - - -

Share Capital 7,000 7,000 7,000 7,000 7,000 7,000

Statutory reserve 1,070 1,578 2,133 2,751 3,399 3,500

Retained earnings 7,510 9,810 12,528 15,638 18,670 22,358

Total owners' equity 15,580 18,388 21,661 25,388 29,069 32,858

Total equity & liabilities 33,430 37,501 38,764 40,857 43,531 45,973

Cashflows Statement

Cash flow from operating activities 5,357 6,673 6,259 7,320 8,812 9,036

Cash flow from investing activities (3,113) (3,408) (3,355) (3,115) (3,056) (3,240)

Cash flow from financing activities (1,516) (3,237) (3,816) (3,221) (3,562) (3,875)

Change in cash 728 28 (912) 983 2,193 1,921

Net cash at end 1,661 1,690 778 1,761 3,954 5,876

Updated Financial Statements


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Closed Joint Stock company and operating under the regulatory supervision of the

Capital Market Authority. AlJazira Capital is licensed to conduct securities business in

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Capital is expanding its brokerage capabilities to offer further value-added services,

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securities business.

Overweight:This rating implies that the stock is currently trading at a discount to its

12 months price target. Stocks rated Overweight will typically provide an upside

potential of over 10% from the current price levels over next twelve months.

Underweight:This rating implies that the stock is currently trading at a premium to

its 12 months price target. Stocks rated Underweight would typically decline by

over 10% from the current price levels over next twelve months.

Neutral:The rating implies that the stock is trading in the proximate range of its 12

months price target. Stocks rated Neutral is expected to stagnate within +/- 10%

range from the current price levels over next twelve months.

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of a rating pending further analysis of a material change in the fundamentals of the

company.

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Documents

Mobily Ratio.pdf