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Large Cap4,023 0.80
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Ticker Price Volume
GFH 0.46 3,578,848
BKSB 0.14 275,822
DSI 0.39 45,711,538
ALINMA 16.5 3,084,810
DAMAC 3.84 686,475
ALKHODARI 10.04 34,083
DANA 0.6 9,001,191

Oman Qatari Telecommunications -Equity Report -14-12-2011

Source: HC Securities & Investment

ARPU stability driven by MBB and usage

3Q11 results indicate near-term ARPU stabilization as a result of the accelerated uptake of MBB and higher national call usage

We expect Nawras and Omantel to maintain the second- and third-highest margins among peers, though their margin superiority remains unrecognized

We reiterate our Overweight recommendations, increasing our TP 10% to OMR1.59 for Omantel and maintaining it at OMR0.82 for Nawras

We reiterate our Overweight ratings for both companies, increasing our TP 10% to OMR1.59 for Omantel and maintaining it at OMR0.82 for Nawras. Omantel trades at a 2011e dividend yield of 7.7% and Nawras at 6.5%. Both companies’ superior margins, low leverage, and CAPEX normalization support strong cash flow generation (2012e FCF yields of 10.5% for Omantel and 8.2% for Nawras). Downside risks to our valuations include (1) higher MBB and voice ARPU dilution, (2) higher competition on international rates as Samatel’s international gateway (IGW) begins
operations, and, specifically for Nawras, (3) lower than expected fixed line
revenue as fixed to mobile substitution occurs in the broadband segment.

Valuation and risks

We reiterate our Overweight ratings for both companies, maintaining our TP at OMR0.82 for Nawras and increasing it 10% to OMR1.59 for Omantel (for details, see the Omantel section on page 7 and the Nawras section on page12). Omantel and Nawras trade at discounts to peers of 6% and 11% on 2012e P/E and 23% and 12% on 2012e EV/EBITDA. Downside risks to our valuation include (1) higher ARPU dilution on both the MBB and mobile voice fronts, (2) intensified competition on international calling rates once Samatel starts its IGW, and, specifically for Nawras, (3) lower revenue from the fixed line segment as fixed to mobile substitution occurs in the broadband segment.

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