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Vodafone Qatar

Source: Naeem Investment

VFQ: Virgin territory? – ACCUMULATE (from BUY)

Vodafone Qatar (VFQ) continues to make good progress in gaining market share. It added 111k subscribers in 4QFY10 and hit the 500k mark by 9 May, which gave it a c. 30% market share and brought the number of subscribers to 71% of VFQ’s pre plan of 700k by end-FY12. Blended ARPU fell sharply to QAR101, down 41% QoQ from QAR171 in 3Q, impacted by on-net promotions and a shift down market in customer quality. VFQ’s base comprises mostly blue-collar workers now. Also worrying is the threat posed by Qtel’s new partnership with Virgin Mobile. EBITDA is heading to break even next quarter, in line with estimates. VFQ will begin broadband services under its new fixed-line license in 3 months’ time. Factoring in the steep ARPU decline, we have cut our target price to QAR10 and downgraded to Accumulate (from BUY).

Fair value cut to QAR10/share: We have adjusted our model to increase subscribers and accelerate market share gains; however, this was offset by lower blended ARPU and the rising capex estimates for FY11 and FY12 according to new management guidance.

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