qatar telecom (qtel) - investment update

Published August 20th, 2007 - 02:03 GMT

     qatar telecom (qtel)  - investment update

 Global Investment House – Kuwait – Qatar Telecom (Qtel)   – Investment Update-   
Recent Developments
Qtel acquired a controlling stake in National Mobile Telecommunications Company (Wataniya) in March 2007. Qtel now owns 51% of the share capital of Wataniya, acquired from Kuwait Projects Company Holding KSC (KIPCO) and other parties, as well as additional direct investments in its Algeria and Iraq operations, for a total cash consideration of US$3.8bn.

Qtel and A.A. Turki Corporation for Trading and Contracting of Saudi Arabia (ATCO) acquired 75% stake in Burraq Telecom Limited of Pakistan (Burraq). The acquisition has been made under ATCO Clear wire which is a joint venture between Qtel and ATCO, in which Qtel owns 78%. ATCO Clear wire owns 75% in Burraq and 100% in a venture to roll-out WiMAX in Jordan.

Qtel and Singapore Technologies Telemedia Pte Ltd ("ST Telemedia"), a leading information-communications company with operations in the Asia-Pacific, the Americas and Europe created a strategic alliance to explore and invest in new mobile telecoms opportunities while strengthening existing businesses in the Asia-Pacific region.  Under this strategic alliance Qtel acquired a 25% stake in Asia Mobile Holdings (AMH), Singapore. ST Telemedia will remain the controlling shareholder with an approximate 75% equity stake in AMH. AMH currently holds ST Telemedia's stakes in Star Hub Ltd (49%), Singapore's second largest info-communication company, and PT Indosat Tbk (41%), Indonesia's second largest mobile operator with over 14mn subscribers.

Recently, AMH has completed the acquisition of a 49% shareholding in Shenington Investments Pte. Ltd, a wholly owned subsidiary of Shin Satellite Public Company Limited, for US$200mn. Shenington owns 100% of Cambodia Shinawatra Company Limited, as well as 49% of Lao Telecommunications Company Limited in Laos.

Qtel acquired a strategic stake in NavLink, a Delaware-based Ieading provider of managed data services to businesses in the Middle East. Qtel holds 38.2% equity stake in the business. NavLink is a global venture of U.S.-based telecoms giant AT&T.

Currently the telecom regulatory authority, of Qatar, is in the process of issuing second mobile as well as fixed line license. Therefore going forward, from 2008 onwards we believe that Qatar will have a duopoly market structure for both GSM as well as fixed line network with the advent of second operator in both the segments.

Over the last few years, GSM penetration rate has been rising rather steeply in Qatar, which went up from 65% in 2004 to 110% in 2006.

Nawras Telecom enjoys 38% market share in Omani GSM segment with customer base of 787,000 as of 1H-2007. The total GSM subscriber base of the sector was 2,067,647 at the end of 1H-2007 as compared to 1.82mn at the end of the year 2006. The year end penetration rate for 2006 was 71% for Oman GSM segment, witnessing growth of 36% in its GSM subscriber base.

Financial Performance
Qtel’s total revenue stood at QR4, 420.4mn at the end of FY2006, which registered a growth of 48.2% over FY2005. Its EBITDA margin increased marginally to 59.4% in FY2006 from 58.5% in FY2005. With a y-o-y growth of 50.6% in FY2006, its EBITDA was at QR2, 626.6mn as compared to QR1, 743.9mn in FY2005. In FY2006 the company’s net profit margin declined to 38.5% from 39.9%. The company’s consolidated net profit stood at QR1, 700.4mn at the end of FY2006 as compared to QR1, 190.4mn in FY2005.

In 1H-2007 Qtel reported group revenue of QR4, 014.5mn which was at QR2, 033.5mn during corresponding period of the previous year. Qtel’s consolidated EBITDA stood at QR2, 113.4mn as compared to QR1, 258.7mn reported during 1H-2006, registered an increase of 67.9%. Net profit of the Qtel Group attributable Qtel’s shareholders, after royalties was QR895.6mn, registered an increase of 4.4%.

Qtel’s significant thrust on capturing market before the advent of competition in Qatar, especially in GSM segment, is clearly visible in steep growth in penetration level over the last two years. During the coming years the company expects to witness significant growth from wireless, data and internet services. The company’s successful introduction of new products and value added services, coupled with a series of new customer promotions and continuous commitment to improve services will help it to have an edge and enable it to compete better with the advent of competition in the telecom sector as a whole. With regard to Nawras Telecom, the company is out of its initial phase of rolling out of operations and it is vigorously focusing on increasing its market share in Oman.

With regard to Qtel’s expansion plans, the acquisition of Wataniya has significantly widened Qtel’s geographical presence. Now we believe that the focus will be more on consolidating these operations. Going forward, raising of debt for acquisitions will have significant impact on Qtel’s profitability for the next two to three years.

We have used sum-of-parts valuation method for company’s operations in different countries. Based on consolidation of the individual country operations, our sum-of-parts valuation estimates the fair value of
Qtel’s stock at QR232.5, which is higher by 2.62% vis-à-vis the current market price of the stock. We, therefore, revise our recommendation on the stock from “BUY” to “HOLD”.

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