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du
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3Q09 earnings in line but beat consensus – cut to
Underweight on recent stock rally
du continued to surprise on the upside in 3Q09 despite fears of global crisis repercussions. Net earnings after royalties rose by 36% to AED 78.5mn, beating consensus average by 16% but close to CICRe (+4%). Despite its focus on providing VAS to high-value customers, du's revenues increased slightly q/q, missing CICRe by 6% due to seasonality and weaker q/q wholesale revenues. While EBITDA was in line, the slight earnings variance mainly resulted from lower-than-expected interest expense. Overall, 3Q09 results are in line with our estimates, hence we maintain our LTFV at AED 4.6/share and our TP at AED 4/share (+3% upside). However, we cut our rating from Hold to Underweight after the stock has rallied by 14% since our initiation of coverage on October 18, 2009.
Earnings beat consensus, but close to CICRe: du delivered positive performance in 3Q09, reporting 36% higher q/q earnings of AED 78.5mn (2Q09 AED 57.6mn). The results came 16% above consensus average of AED 67mn but close to CICRe of AED 75.3mn (+4%).
Slight growth in revenues impacted by seasonality: Though du focuses on providing value-added services to high-income customers, total revenues increased by only 2% q/q (+26% y/y) to AED 1.33bn, falling short of CICRe by 6%. Management attributed the slow top-line performance to seasonality as business vacations usually increase in the summer (3Q). Our calculated fixed ARPU declined 14% to AED 382, driven by 23% lower wholesale revenues as 2Q09 was "exceptional" for the wholesale business.
Subs growth driven by mobile: Surprisingly, total subs (mobile and fixed) increased q/q by 8% (net adds of 263k) to 3.5mn vs. CICRe of 3mn. We had expected end of school year and wide layoffs would negatively impact net adds.
EBITDA in line; low finance cost led to a slight variance in earnings: du’s 3Q09 EBITDA was in line at AED 297mn (+23% q/q; +193% y/y). However, this implies a higher margin of 22.3% (+130 bps vs. CICRe), thanks to du’s effective cost control management in addition to a one-off gain of AED 21.7mn related to revaluation of LTI. Excluding such one-time item, EBITDA margin would have been 20.7%, in line with our estimates of 21%.
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All data at market close |
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