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Morning Call about Pakistan Telecommunication Company Ltd.- Arif Habib Limited

Karachi: Ufone and Broadband segment continue to fuel growth

According to Arif Habib Limited,

Arif Habib Limited has revised Arif Habib Limited’s earnings estimates and June 2012 target price downwards to PKR 19.54/share for Pakistan Telecommunication Company Limited (PTC) on account of continuous decline in its fixed line operations despite company’s focus towards broadband and wireless local loop services and renewal of its technical service agreement with Etisalat.

 

Earnings Revision  FY12 FY13 FY14 Target Price
EPS _PKR (Current)  2.09 2.11 2.16 19.54
EPS-PKR(Previous) 2.47 2.76  2.92  24.10
Change -15% -24%  -26%  -19%
Source: Company financials

 

Ufone and Broadband segment will continue to fuel growth

Going forward, shrinkage in fixed line & wireless local loop (WLL) operations and high operating expenditures pose major downside to PTC’s margins. Respite, however is expected to come from Ufone and broadband revenues, which are expected to grow by 6% and 5%, respectively.

Arif Habib Limited expects Ufone to hold market share of 20% and will continue to contribute significantly in PTC’s topline. Further the company will continue to improve its broadband services by introducing new high speed broadband packages to attract new subscribers. Moreover resolution of property issue with GoP and establishment of international clearing house for curbing grey traffic will act as key triggers.

1QFY12 Result Highlights

In 1QFY12 on standalone basis, company’s top line improved by 5% on the back of subscribers growth in broadband and DSL. DSL subscribers crossed 0.5 million mark while wire local loop (WLL) has over 1.32mn subscribers.

•             Operating costs went up by 6% YoY due to increase in salaries and marketing expenses, causing operating margin to decline by 130bps to 8.6%.

•             On the other hand other Income witnessed a 48%YoY decline as its subsidiary Pakistan Telecommunication Mobile Limited (Ufone) did not announce any dividend in 1QFY12.

•             On standalone basis company recorded PAT of PKR1,411mn (EPS of PKR 0.28) as compared to PAT of PKR 2,081mn (EPS of Rs0.41) in the same period last year, depicting a decline of 32%YoY.

 

Financial Highlights (PKR million) 1QFY12 1QFY11  % Chg.
Revenue 14,483 13,856 5%
Operating Cost 13,241 12,482 6%
Operating Profit  1,242 1,374  -10%
Other Income  979 1,894 -48%
Finance Cost 66 70  -6%
Profit Before Tax  2,155 3,198 -33%
Taxation  753  1,117  -33%
Unrealized Gain on investments 9  –  nm
Profit After Tax 1,411 2,081   -32%
EPS (PKR) 0.28 0.41  -32%
Source: Company Financials & AHL Research

 

Recommendation

Arif Habib Limited has valued the company on consolidated basis (PTC + Ufone) using DCF methodology. Arif Habib Limited’s June’12 based target price works out to PKR 19.5/share offering an upside of 87.9% from its last closing price of PKR10.4/share. Besides this Arif Habib Limited expects company to pay a dividend of PKR 1.70/share in FY12 translating into a dividend yield of 16.3%.

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