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Vodafone Qatar

Source: Naeem Investment

Vodafone Qatar: Rate tweaks blur trends – BUY

Vodafone Qatar (VFQ) continues to make good inroads into Qatar’s cellular market. EBITDA (still negative) is in line with estimates at this early stage. VFQ added 202k subs in 3QFY10, representing a 14% market share. Subs far exceeded the IPO plan, but are slightly behind our earlier full-year FY10 target of 450k. Blended ARPU held up well at QAR171 (down 1% QoQ). VFQ tested IDD elasticity during 3QFY10 and this impacted ARPU and subscriber adds. Promotions in 2010 will focus on more margin-friendly on-net deals. EBITDA should be positive in 4QFY10. The accelerated subscriber adds resulted in increased capex spend. We remain buyers but have cut our TP to QAR10.1/share after lowering our FY10 subs estimates and increasing capex (partially offset by lower risk-free rate).

Early-stage numbers on track. VFQ reported 9MFY10 revenue of QAR217m (46% more than management IPO estimates). 9MFY10 EBITDA was negative QAR186m, while EBITDA for the quarter was negative QAR30m. We expect EBITDA to turn positive in 4QFY10. 9M operating cash outflow was QAR296m in addition to a capex of QAR322m. Our revised full-year FY10 forecast is a net loss of QAR626m.

Subscribers ahead of plan. VFQ’s subscriber base grew by 134% QoQ in 3QFY10 to 354k. According to management, this is 84% above their initial plan. After three quarters of operations, the subscriber base is already 51% of the company’s own FY12 forecast of 700k. The current 354k subscriber base gives VFQ a 22% population market share and an estimated customer market share of 14%, up from 7% in 2QFY10. Note that VFQ’s subscriber recognition method is conservative, recognising only those with either a balance above QAR0.50 or a balance less than QAR0.50, but who have topped up within the past 30 days. If customers who topped up outside the 30-day period are included, the customer base would have been c. 390k as on 31 Dec 2009.

As good as the numbers are against plan, we were slightly disappointed by the adds because based on the surge in 2Q, we expected promotions to continue to boost subscriber growth during 3Q and were forecasting 450k by end FY10. We have now cut our year-end estimates to 429k.

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