du -Equity Report -13-05-2012

Highest mobile adds since launch. 1Q12 saw Du register its highest ever quarterly mobile adds of 320k, , ahead of our estimate of 200k, and easily beating consensus of 160k, up 18% YoY and 15% QoQ (despite1Q usually being slower). The figure contrasts with the 870k net subscriber loss suffered by Etisalat during the same period. Du ended the quarter with 5.5m subscribers, up 20% YoY and 6% QoQ, giving a market share of c. 46.7%. It also reported a healthy increase in post-paid subscribers to 413k (up 35% YoY and 14% QoQ), which now represent 7.5% of its subscriber base, and contributed 49% of mobile revenue growth in 1Q12. Continued change in the subscriber base mix will be a key driver for growth going forward. We think recent add numbers shows that the difference in network quality between Du and Etisalat is narrowing (and therefore now no longer a barrier to subscribers switching). This puts Du in a strong position to win greater share of higher-end subscribers in the remainder of 2012. We have raised our 2012 subscriber base target to 6.20m, which represents growth of 19%, while assume 8% of this would be post-paid subscribers. Further, we expect Du to overtake Etisalat as subscriber market share leader by end 2012.

We remain BUYERS and raise our TP by 10% to AED4.63/share. Factoring in higher EBITDA margins over the remaining forecast period, increasing long-term revenue growth driven by better subscriber adds with more post-paid subs and thus higher blended ARPUs, we have raised our target price to AED4.63/share (from AED4.21).