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du
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Solid quarter builds confidence
Emirates Integrated Telecommunications Company (du), posted 3Q09 net profit before royalty of AED157m, up 36% versus 2Q09. Revenue grew 29% YoY and 6.7% QoQ, while the gross margin remained stable at 66%. EBITDA margin increased to 22% from 18% in 2Q09. Mobile net adds totalled 233k, above our forecast of 220k and gave du a market share of 31% (94% of net adds YTD). Blended ARPU held up at AED104, helped by an encouraging rise in post-paid customers and increasing market share in IDD. Fixed-line subscribers rose 9% QoQ to 358k. Wholesale slipped as traffic flow from bilateral agreements proved lumpy. Overall, a solid quarter in the circumstances. We have raised our DCF target to AED4.70 (assuming 20% royalty fee).
Cellular adds better than expected, market share gains continue. du’s cellular net adds of 233,200 in 3Q09 were 6% above our estimate of 220k. The resilience of the cellular market has been surprising given the state of the UAE economy and fears of a shrinking expat population. du’s market share rose to 31% in 3Q09 after it cornered 94% of net adds YTD. Etisalat’s poor 9M09 performance is perhaps explained by its gradual move from reporting gross subscribers to reporting active subscribers. In other words, in another quarter or so, Etisalat will be able to claim it reports only active subscribers. We also wonder whether – with one eye on the royalty fee deliberations – Etisalat is actually happy to see du outperform short term (note that any royalty rate imposed on du could be matched by a reduction in the rate paid by Etisalat). Further, passing the 31% market-share mark could be seen as a milestone after which du is able to stand on its own two feet, giving Etisalat ammunition to argue that the two operators should be treated equally from a regulatory perspective.
We remain buyers. Factoring in better-than-expected subscriber and ARPU trends, increasing 2010 Capex and running our DCF calculation forward one year, we revise upwards our fair value target to AED4.70/share.
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All data at market close |
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