NBK Capital is the investment bank subsidiary of National Bank of Kuwait, and occasionally release reports on UAE stocks. Here's the introduction for a recent one about Du Telecom (DU) (thanks doublesam) ...
NBK Capital 16 December 2008:
EITC (DU) 12-Month Fair Value: AED 4.53
Recommendation: Buy - Risk Level**: 4
Reason for Report: Initiation of Coverage
Closing Price (15 December 2008): AED 2.85
52 Week High: AED 7.89
52 Week Low: AED 2.34
Avg. Value Traded per Day: AED 34.5 mln
Market Cap: AED 11.4 bln
Current Number of Shares: 4 bln
Highlights
It was only in February 2006 that the TRA ended the monopoly of Etisalat by granting a second mobiie, fixed line, and Internet license to EITC, branded as "du"
Even though du is a startup company, it was able to grab 19% of the market by capturing 64% of the net additional subscribers within 10 months. As of 9M2008, du had a market share of 23%.
With two mobile operators competing in the UAE, and taking into consideration the minor effect of the current financial crisis on the growth of the telecom market, we forecast that the penetration rate (using active subscribers) will increase from the current 141% to 163% in 2013.
We forecast that du's mobile subscribers will grow at a CAGR of 11% over the next five years, while its market share will stabilize at 38% in 2013. The fixed-line penetration rate stands at 30% as of 9M2008, and we are forecasting it to increase to 35% by 2013, with du having a market share of 20%.
As a startup company, du has been growing rapidly; its revenues reached AED 2.7 billion during 9M2008, compared to AED 1.5 billion in the first 10 months of operation In 2007. It was able to break even in terms of EBITDA in the 2Q2008, and it showed a positive profit in the 3Q2008. We forecast du's revenues to grow at a CAGR of 14% from 2008-2013 and its EBITDA margin to continue growing to reach 42% In 2013. As for the net profit, we believe it will grow at a CAGR of 35% from 2009-2013.
We arrived at a 12-month fair value for du of AED 4.53 per share by using two vaiuation methods: discounted cash flow (DCF) and peer comparison based on forward price-to-earnings ratio growth (PEG) and EV/EBITDA multiples.
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2008 FY
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