Omani Qatari Telecommunications Company
Under Transformation
Price Range of RO 0.702 to RO 0.902
Outlook: Subscribe
Gulf Baader Capital Markets Research
Disclaimer: The Research report is intended for usage of Category II Investors who is
eligible to participate through book-build offering as mentioned in the offer prospectus
Nawras – IPO
Omani Qatari Telecommunications Company (Nawras) - IPO
Outlook: Subscribe
Evolution as an Integrated player in Oman Telecom market
Leader in providing innovative services
Own international gateway to reduce costs
Success of Nawras in Omani telecom market…
September 27, 2010
The long awaited IPO of Omani Qatari Telecommunication Company (Nawras) is finally out in Oman and
up for subscription to the local and foreign investors. The journey of Nawras commenced in March
2005 with the startup of Mobile operations in Oman and has currently 1.97 million mobile customers
with a market share of 45% (excluding subscribers of resellers) as at end of June 2010 (Source: Prospectus).
The success and growth of the company garners from launch of innovative products and services to
provide heighten customer delight.
Stable local economic growth…
GBCM Research expects the presence of favorable Demographics in Oman along with strong Fiscal
Spending to aid steady economic growth in the coming years. The non-oil GDP growth, especially the
services sector contribution to the overall GDP is expected to increase moving ahead. The emphasis on
new employment generation for local population (FY2010 Oman Budget) is expected to increase product
and services demand, enhance healthy domestic savings and consumption mix in the coming years.
Providing whole range of services, strong shareholder backup…
Despite the phenomenal growth seen in Mobile segment in Oman, the other two key segments namely
fixed line and fixed broadband market penetration continues to be at lower levels. This in turn provides
an opportunity for telecom service providers to offer whole gamut of services moving forward. In June
2009, Nawras was granted the second fixed line license in Oman which enabled it to provide fixed
telecom services including Internet, Satellite and international services.
Nawras has started the rollout of its fixed line products beginning May 2010. The company has also
started providing international services with the completion of its own international gateway in May
2010, which helps in significant reduction in interconnection expenses of the company. The presence of
strong shareholder backup in the form of Qtel (Post IPO stake of 55%) would help Nawras in leveraging
growth and taking collaborative efforts in providing novel solutions to customers.
Kanaga Sundar
sundar@gbcmoman.net
+968 2479 0614 Ext: 534
Outlook - Quality Issue for long term investors, Fair Value at RO 0.801
Based on our Valuation methodologies (Discounted Cash Flow, Dividend Discount Model and Company
Comparative Valuation), GBCM Research has arrived at a weighted fair value of RO 0.801 for Nawras.
We recommend the Category II investors (Institutional investors) to Subscribe for the issue at an
appropriate discount to the fair value to meet the expected return.
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Vijay Sridharan
vijay@gbcmoman.net
+968 2479 0614 Ext: 533
Oman Equity Research
Nawras – IPO
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Index
Page No
Issue Highlights.……………………………………………………………………………….
4
Shareholding Details.……………………………………………………………………….
5
Background…….……………………………………………………………………………….
6
Investment Rationale……………………………………………………………………….
7
Competitive Strengths…………………………………………………………………………
10
Risks and Concerns…………………………………………….…………………………….
11
Financials…………………………………………………………………………………………
12
Valuation Methodology………………....………………………………………………..
14
Outlook………………….………………………………………………………………………..
17
Financial Summary…………………………………………………………………………..
18
Oman Equity Research
Nawras – IPO
Nawras - Advantage Challenger …
Table 1: Offer Details
Details
Detailed Figures
Authorized share capital
RO 70.0 million
Nominal Value
RO 0.100
Issued and paid up share capital
RO 65.09 million
Total No. of Shares for Subscription
RO 260.38 million
Percentage on Offer
40% of the total share capital
Purpose of IPO
Use of the offer proceeds
To comply with the obligations stipulated in Licenses;
Require to make 40% of Shares available for public
Offer represent the selling of part of shares by existing
shareholders; No issuance of new shares
Allotment to Foreign Nationals
70% of the paid up capital
Proposed Allocation
70% - Category I Investors
30% - Category II Investors
Category I Investors
Minimum of 500 shares and a maximum limit of 500,000 shares
Category II Investors
Minimum of 500,100 shares and a maximum limit of 10% of offer
Price Range
RO 0.702 to RO 0.902 per share
Price for Category I Investors
RO 0.902 per share
Price range for Category II Investors
RO 0.702 to RO 0.902 (Book Building Process)
Offer Period
15 Sep 2010 to 14 Oct 2010
Finalization of Offer Price/ Notification to CMA
24 Oct 2010
Listing of Shares in MSM
27 Oct 2010
Source: Prospectus, GBCM Research
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Oman Equity Research
Nawras – IPO
Nawras - Shareholding Details…
Table 2: Selling Shareholders - Shares on Offer
Shareholders
TDC-Qtel Mena Investcom BSC
Nawras Development LLC
Diwan of the Royal Court Pension Fund
Ministry of Defence Pension Fund
Royal Office Pension Fund
Internal Security Service Pension Fund
Sultan’s Special Force Pension Fund
No. of Shares (in millions)
97.64
91.13
13.43
22.38
22.38
8.95
4.48
% on Offer
37.50%
35.00%
5.16%
8.59%
8.59%
3.44%
1.72%
260.38
100.00%
Total Shares
Source: Prospectus, GBCM Research
Table 3: Shareholding pattern - Pre and Post IPO
Shareholders
TDC-Qtel Mena Investcom BSC
Nawras Development LLC
Diwan of the Royal Court Pension Fund
Ministry of Defence Pension Fund
Royal Office Pension Fund
Internal Security Service Pension Fund
Sultan’s Special Force Pension Fund
Public
Total Shares
Source: Prospectus, GBCM Research
Graph 1: Pre IPO Shareholding
No. of Shares
held (Pre IPO)
In millions
% Stake
(Pre IPO)
No. of Shares
held (Post IPO)
In millions
% Stake
(Post IPO)
455.66
91.13
19.53
32.55
32.55
13.02
6.51
650.94
70.00%
14.00%
3.00%
5.00%
5.00%
2.00%
1.00%
0.00%
100.00%
358.02
6.10
10.17
10.17
4.07
2.03
260.38
650.94
55.00%
0.00%
0.94%
1.56%
1.56%
0.62%
0.31%
40.00%
100.00%
Graph 2: Post IPO Shareholding
% Stake (Post IPO)
% Stake (Pre IPO)
16.0%
40.0%
14.0%
55.0%
70.0%
5.0%
TDC-Qtel Mena Investcom BSC
Nawras Development LLC
Others - Omani Pension Funds
TDC-Qtel Mena Investcom BSC
Others - Omani Pension Funds
Public
Source: Prospectus, GBCM Research
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Oman Equity Research
Nawras – IPO
Background of the company…
Evolution as an Integrated Player in Oman Telecom market…
The Omani Qatari Telecommunications Company (Nawras) was incorporated in 2004 and was resolved to
become a public joint stock company at an EGM held on 7 March 2010. The company currently provides a
complete range of telecommunications products and Services, including mobile, fixed voice and data
products to residential and corporate customers in the Sultanate of Oman.
The Telecom Regulatory Authority of Oman (TRA) has issued the second mobile license in Oman to Nawras
in Feb 2005 for period of 15 years. This license gave the company the right to provide cellular mobile
services, calling card services, information and other value added services. As per the company prospectus,
the market share of Nawras in Mobile Segment in terms of total Subscribers (excluding subscribers of resellers)
stood at 45% (end June 2010).
During June 2009, the company has been granted the second fixed license in Oman for a period of 25 years,
renewable under TRA act. With the license, Nawras would provide the complete range of fixed line services
including voice & data, International, satellite, Internet and lease lines. The company has started providing
fixed line services starting Q2FY10.
Effective May 2010, the company has started using its own international gateway to provide international
services which would lead to lower interconnection costs and increased revenues from International traffic
moving forward.
As at end of June 2010, the company has about 794 employees based in Oman and also meeting the
required Omanization ratios (90% in Mobile License and 57% in Fixed License). As far as the distribution network
is concerned, Nawras has about 23 direct distribution stores and kiosks (end of June 2010), with four
additional stores expected to be opened in the current fiscal year.
Nawras has a strong shareholder backup in the form of TDC-Qtel Mena Investcom (100% controlled by Qtel)
which could help in leveraging strength to provide world class services. Post IPO, Mena Investcom would
have 55% of the share capital. The Qtel group with an operational presence in 16 countries and about 65
million customers worldwide would benefit Nawras in its growth prospects.
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Nawras – IPO
Investment Rationale…
FY10 GDP growth to strengthen on back of higher oil prices…
Oman’s GDP growth has shown steady increasing trend starting 2004 to 2008 with a dip seen during 2009
on back of lower oil prices. Though Oil & Gas activities contribute about 41% of GDP in 2009; the
Government has taken efforts to increase non-oil income through increased investment in Industries and
development of services sectors like Tourism etc., in the coming years. As per GBCM research estimates, the
Oman Economy (nominal GDP) in FY2010E is expected to grow by about 23.6% YoY to RO 21.918 billion
(Assuming oil price average at $70/barrel and Production at $820K bpd) on back of incremental oil production and
the prevailing higher oil prices during the current fiscal.
Growth opportunities prevail in Oman Telecom market…
As per Ministry of National Economy (MoNE) statistics, the overall population of Oman stood at 3.17 million
as at end of June 2010. Of this around 45% of the current population is below 25 years of age, which
provides a new target customer segment for telecom services in the coming years. The local population mix
contributes about two third of the total population, while expats contribute to the other one third. In line
with the Oman average annual population growth of about 5% beginning 2003, we have assumed an annual
long term average growth of 3% in our earnings model.
Graph 3: Trend line of Population and Mobile Growth beginning 2005
4
6,000
3.5
5,000
3
4,000
2.5
2
3,000
1.5
2,000
1
1,000
0.5
0
0
2005
2006
2007
2008
2009
Mobile Subscribers in Oman (In 000s)
2010E
2011E
2012E
Total Population (in million)
Source: Prospectus, TRA, MoNE, GBCM Research Estimates
Over the last three years, the GCC telecom market has grown substantially especially in the Mobile segment
with the overall penetration levels crossing 150% in four of the six GCC markets (Source: Prospectus). The
mobile penetration levels in UAE and Saudi markets are at about 235% and 177% respectively (end of Dec
2009). While the Omani mobile penetration is at about 134% levels (end FY09). This presents further
opportunity for growth in the local markets going ahead.
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Nawras – IPO
Mobile segment growth to slow down moving ahead…
Beginning 2005, the demand for mobile segment grew at a robust pace mainly on back of favorable
demographics, stronger economic growth and introduction of competitive packages in the Oman telecom
market. However we believe that the level of growth is expected to saturate in mobile segment moving
ahead. GBCM Research estimates the overall mobile subscribers’ growth in Oman to be around 7.0% CAGR
over 2009 to 2012E in our revenue model (taking penetration levels to about 140% by 2012). Over the same
period, we expect the market share of Nawras to increase to about 50% levels. As per the management of
Nawras, the ARPU levels are showing some stabilization at the current levels. However, we have assumed a
decline of about 5.4% CAGR over the next three years. In line with these assumptions, the overall mobile
revenue of Nawras is expected to show a CAGR of about 6.4% over 2009 to 2012E.
Graph 4: Mobile Revenue Growth trend
90.0%
200,000.0
85.3%
80.0%
180,000.0
160,000.0
70.0%
140,000.0
60.0%
120,000.0
100,000.0
45.1%
50.0%
40.0%
80,000.0
30.0%
18.1%
20.0%
60,000.0
12.8%
3.9%
2.8%
10.0%
40,000.0
20,000.0
0.0%
2007
2008
2009
2010E
Total Mobile Revenue (RO 000s)
2011E
2012E
YoY (% Chg)
Source: Prospectus, TRA, GBCM Research
Data Services to be the next growth arena…
With an outlook for lower growth to saturation levels in voice market moving ahead, we expect the demand
for data services segment to aid in improving revenue growth in Oman telecommunications market. As per
third party research done by Arab Advisors, Oliver and Pyramid Research, the growth in data markets is
expected to offset the lower demand prospects seen in voice markets moving ahead. As at end of FY09, Data
revenue contributes around 9% of the revenues for Nawras. The management sees this as a next potential
growth driver for the company. In line with this, we have estimated the revenue from Data segment of the
company to show a CAGR of about 23.3% over the next three years.
Table 4: Data Revenue Growth
2007
2008
2009
2010E
2011E
2012E
Total Data Revenue (In RO millions)
2.40
7.20
15.40
19.25
24.06
28.88
YoY (% Chg)
243%
200%
114%
25%
25%
20%
Source: Prospectus, GBCM Research Estimates
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Oman Equity Research
Nawras – IPO
Acquisition of fixed services license to be a long term value creator…
In June 2009, Nawras has been granted the license to provide second fixed line services which includes
Internet, satellite and International services in Oman. Since mid 2010, the company has started providing
fixed line products and services (both voice and data) to both retail and corporate customers. Nawras intends
to use this fixed license so as to provide a complete range of services to its customers, thus creating a synergy
with its existing range of mobile and internet products.
Towards developing its fixed line network in Oman, the company has planned to install about 5,035 km of
fiber optic cable by 2011. We expect the overall fixed line market penetration to remain at around 10% levels
over the next three years. In the same time, we have estimated the Nawras market share in fixed line services
to go up to 22% by end of 2012E on back of innovative products along with the competitive pricing which
could lead to shift in customers from the incumbent player. We expect the fixed line segment revenue of the
company to contribute about 4.27% of total revenues by 2012E.
Graph 5: Nawras – Revenue Breakup
100%
2.56%
5.15%
8.96%
9.80%
2.42%
11.42%
12.71%
4.27%
80%
60%
97.44%
94.85%
91.04%
89.91%
86.16%
83.02%
2007
2008
2009
2010E
2011E
2012E
40%
20%
0%
Total Mobile Revenue
Total Data Revenue
Total fixed line Revenue
Source: Prospectus, GBCM Research Estimates
Wholesale services make Nawras an integrated play…
Nawras has signed reseller arrangements with three resellers namely Mazoon, Injaz and Samatel to provide
mobile wholesale services in Oman. The resellers would sell Nawras mobile services under their own brand
name and the company expects this agreement to augment revenue from the wholesale services moving
ahead. The resellers have launched several products to cater to the cost conscious markets which include
subscribers calling to the Sub-continent countries.
In May 2010, Nawras has started using its own international gateway to provide international services which
in turn led to a sharp decline in interconnection expenses paid to the incumbent operator and also in
achieving higher revenues from incoming international traffic. With the inclusion of wholesale services to its
gamut of services, Nawras has become an integrated play by providing a whole range of services and
products to the customers. Going forward, the company expects to leverage its fixed license to expand
wholesale services market share for incoming international traffic.
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Nawras – IPO
Nawras - Competitive strengths
Strong track record of providing innovation: Nawras has an established track record of providing innovation
and in delivering quality services to the customers in its mobile business since 2005. The journey of the
company which started in March 2005, lead to the transformation of the telecom market in the Sultanate.
This in turn led to strong surge in current market share to about 45% in the mobile segment over the last
five years. The company has also developed a strong branding in Omani telecom market through providing
quality service and enhanced customer satisfaction. The company has been able to attract new customers
from incumbent player along with the ability to retain customers through providing quality services.
Robust Management to provide impetus to growth: The Company has a competent senior management
team with immense experience in the global telecom market, working with more than 30 companies across
the world. Besides, most of their top management personal has been with the company since the beginning
of operations in 2005. Nawras has also been able to attract and retain talented employees’ with a low
employee turnover of about 1.8% in 2009.
Established Distribution network: Nawras has developed a well established direct and indirect distribution
network in Oman. The company has also signed six strategic distribution partners who can manage their
own dealer networks. The presence of diversified existing distribution network could be leveraged for the
distribution of its fixed line products moving ahead.
Strong relations with Qtel: The robust back up of Qtel has helped the company in designing world class
network infrastructure in delivery quality products and services in Oman. The strong backing of Qtel group
would continue to benefit Nawras by means of sharing technical expertise, best in class industry standards
and to leverage the combined strength in achieving enhanced purchasing power and participate in regional
projects.
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Oman Equity Research
Nawras – IPO
Risks and Concerns…
The intense competition prevailing in the Oman telecommunications segment could put further pressure on
the customer additions moving ahead. In the coming years, the possibility of granting new license to an
additional player by TRA cannot be ruled out, thus making the domestic telecom market more competitive.
Recently, TRA has informed the company about its recommendation for providing class I license for an
international gateway. Added to this, TRA has also put on a competitive process to award the first “Universal
Service License” which would enable the player to provide subsidized fixed services in a specific region.
Market Saturation to put pressure: With the levels of saturation seen in Mobile segment, we expect the
growth in customers to remain lower than the previous year levels. The market saturation is expected to put
pressure on the pricing of products thereby impacting the revenues and margins of the company.
Failure to make up technological changes: If the company is not able to identify evolving technologies in the
coming years they may lose out in getting additional subscribers to their product offerings. For e.g. the
introduction of Voice Over Internet Protocol (VOIP) may negatively impact the usage of the fixed line
services.
Change in regulatory environment: The change in regulations like asking for license providers to bill
customers in smaller units could impact several products and services of the company. Added to this, the
TRA can grant additional licenses and spectrum to other operators, which could put pressure on the
company’s operations.
Entry of resellers to intensify competitive pressure: The entry of resellers in local markets along with the
presence of strong competition lead to the continuing efforts taken by the company in maintaining its
market share. The resellers expect to keep the mobile market in a competitive manner.
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Oman Equity Research
Nawras – IPO
Financial Highlights…
Data and fixed line segment growth to drive topline growth…
GBCM Research expects the mobile segment growth to saturate moving ahead on back of stabilizing ARPU
levels along with lower growth in customer base. The future growth arena lies in the data and fixed line
broadband segment, where the penetration levels continue to remain low. The fixed market penetration
remains at 9.9% levels, while the fixed broadband market penetration is at 1.5%, showing tremendous growth
opportunity. GBCM Research estimates the data revenue to show CAGR of about 23% over 2009-2012E. With
the launch of fixed line during 2010, we expect the revenue from fixed line to grow to about RO 9.704 million
over the next two years.
Table 5: Nawras – Segmental Revenue Growth
Nawras - Revenue Break up
Total Mobile Revenue
YoY (% Chg)
Total Data Revenue
YoY (% Chg)
Total fixed line Revenue (In RO 000s)
YoY (% Chg)
Total Revenue
YoY (% Chg)
2007
2008
2009
2010E
2011E
2012E
91,337
85.3%
2,400
132,490
45.1%
7,200
200.0%
156,511
18.1%
15,400
113.9%
176,595
12.8%
19,250
25.0%
560
93,737
139,690
49.0%
171,911
23.1%
196,405
14.2%
181,536
2.8%
24,063
25.0%
5,107
812.0%
210,706
7.3%
188,560
3.9%
28,875
20.0%
9,704
90.0%
227,139
7.8%
Source: Prospectus, GBCM Research Estimates
Capital expenditure to focus on fixed line services
Beginning its launch of Mobile operations, Nawras has spent about RO 140 million in network related capex
(end of Dec 09). Currently the company has about 1,140 2G and 495 3G base stations in Oman. In addition,
Nawras is planning to build WiMAX network in Oman which has coverage of about 54% of total population as
at end of June 2010. This is further expected to cover about 81% of population by end of 2011. Presently, the
WiMAX network is expected to be supported by optic fibre network leased from incumbent player. While the
company has also planned to build up about 5,035 kms of optic fibre network by 2011 (currently more than
2,027 kms have been built).
Towards expansion in International network, Nawras has entered into an agreement with India’s TATA (along
with Qtel and GCC telecom players) in the construction of new submarine cable which would have a dedicated
landing station in Qalhat, Oman. The company expects this network to reduce international interconnection
expenses and also enable it to maintain its highest service quality levels.
RO 150 million to be spent by 2011…
Overall, Nawras expects to spend around RO 150 million in capex over the next two years, of which, major
capex is expected to be deployed in the fixed line services. We have assumed that the capex financing is
expected to be done by a mix of internal accruals and debt facilities. In our model, we have estimated the long
term debt to equity ratio to about 1.0x levels by 2012E.
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Nawras – IPO
Graph 6: Revenue and EBITDA Growth since 2007
250,000
120,000
200,000
100,000
80,000
150,000
60,000
100,000
40,000
50,000
20,000
-
-
2007
2008
2009
2010E
Total Revenue (In RO 000's)
2011E
2012E
EBITDA (In RO 000's)
Source: Prospectus, GBCM Research Estimates
Margins to improve on back of lower interconnection costs…
Beginning mid of 2010, the company has started using its international gateway which in turn lead to sharp decline in
interconnection costs. On back of this, we expect the EBITDA margins of the company to improve to about 49% levels
in FY2011E as against 42.3% at the end of FY09. The company has reported EBITDA margins of about 50% during
Q2FY10 mainly on back of usage of its own international gateway. We have estimated FY10E EBITDA to be about RO
90.765 million, an increase of 25% on a YoY basis. In addition, the startup of using its own international network
would further aid in margin expansion moving forward. We have assumed the EBITDA margins to be maintained at
about 50% levels moving ahead.
Graph 7: EBITDA and PAT Margins trend since 2007
60.0%
46.2%
50.0%
48.9%
49.3%
42.3%
40.0%
31.3%
30.0%
24.2%
22.2%
20.0%
10.0%
27.5%
28.1%
28.7%
14.1%
8.7%
0.0%
2007
2008
2009
EBITDA Margins (%)
2010E
2011E
2012E
PAT Margin (%)
Source: Prospectus, GBCM Research Estimates
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Oman Equity Research
Nawras – IPO
Stable growth in profits…
GBCM Research has assumed an additional capital expenditure of about RO 150 million over the next two years in
our earnings model which would be funded through a mix of internal accruals and debt facilities. This in turn will
lead to peaking out of depreciation expenses in 2011E, while the financing costs is expected to jump over the next
two years on back of assumption of incremental debt facilities taken by the company. Overall debt to equity ratio
of the company has been maintained at average levels of 1X over the next three years. We have maintained our
tax rate at about 12% levels moving ahead.
We have estimated the net profit after tax (PAT) for FY10E to increase by about 30.2% YoY to RO 54.091 million
(FY10E EPS of RO 0.083). The growth in PAT is mainly driven by lower interconnection costs which lead to
improved EBITDA margins. We have estimated the PAT to show CAGR of about 16.2% over 2009 to 2012E.
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Nawras – IPO
Valuation Methodology…
GBCM Research has projected the financial estimates of the company over the next three years with the
following assumptions,
Mobile segment growth to slow down and estimated to report CAGR of 6.4% over 2009 to 2012E
Data revenue growth to remain strong at CAGR of 23.3% over the same period
Market share in Fixed line segment to increase to about 22% over the next three years
Estimates the EBITDA margins to stabilize at about 50% levels; the margins to improve over next
two years on back of lower interconnection expenses
Capital expenditure of about RO 150 million over the next two years.
Financing of Capex to be done by internal accruals and assuming additional debt of RO 70 million
over next two years
Financing costs has been assumed taking an average interest rate of 7%
Tax rate has been assumed at about 12% levels
Estimated dividend of RO 0.040 and RO 0.075 for FY10E and FY11E respectively. While the payout is
assumed to be 80% levels in FY12E.
We have used three different types of valuation model to arrive at the fair value of Nawras.
Table 6: Discounted Cash Flow (DCF) Methodology – Derives a fair value of RO 0.810
DCF Valuation (RO 000s)
Net Operating Cash flow
Capex
Free Cash Flow (Incl of Opex)
PV (FCFF)
Terminal Value
PV (Terminal Value)
PV- Cash Flow
Debt
Fair Value Per Share (RO)
Dec-10 E
Dec-11 E
Dec-12 E
80,944
70,000
10,944
10,630
91,529
80,000
11,529
10,072
99,505
30,000
69,505
54,603
682,960
536,530
611,835
84,815
0.810
Source: GBCM Research Estimates
On DCF valuation model, the fair value of Nawras works out to be RO 0.810. We have assumed a WACC of
about 11.2% and terminal growth of 1%.
Table 7: Valuation Assumptions
Beta
1.250
Premium
Cost of Equity
Cost of debt
WACC
Terminal Growth
9.4%
13.9%
7.0%
11.2%
1.0%
Source: GBCM Research Estimates
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Nawras – IPO
Table 8: Dividend Discount Valuation (DDM) Methodology – Derives a fair value of RO 0.785
DDM (In RO)
Dividend
PV (Dividend)
Terminal Value
0.787
PV (Tr. Value)
0.618
Fair Value- DDM (RO)
0.785
Dec-10 E
Dec-11 E
Dec-12 E
0.040
0.075
0.080
0.039
0.066
0.063
Source: GBCM Research Estimates
In our DDM valuation model, we have assumed dividend of RO 0.040 and RO 0.075 for FY10E and FY11E
respectively. We have also assumed a payout of 80% in FY2012E. Thereby, we have arrived at a fair value of
RO 0.785. The WACC assumption of 11.2% and terminal growth of 1% is similar to DCF valuations.
Company Comparable Valuation Methodology
At base price of the issue (RO 0.702), Nawras is expected to trade at FY10E P/E of 8.4X and FY10E EV/EBITDA
of 5.8X, which is lower than the GCC telecom sector average of FY10E P/E of 11X and 5.9X EV/EBITDA.
At mid levels of the issue price of RO 0.802, Nawras would trade at FY10E P/E of 9.7X and FY10E EV/EBITDA of
6.5X. Here the P/E multiples would still be lower than GCC telecom average, while EV/EBITDA would be higher.
At cap price of the issue (RO 0.902), Nawras would trade at FY10E P/E of 10.9X and FY10E EV/EBITDA of 7.2X.
The P/E multiples would be in line with the GCC telecom average P/E (FY10E) of about 11X.
Table 9: Nawras – Valuation Multiples
P/E
P/BV
Dividend Yield
EV/Sales
EV/EBITDA
2007
2008
2009
Market Multiples at 0.702 (at base price)
55.9
23.3
11.0
14.6
9.3
5.0
2010E
2011E
2012E
5.3
24.1
8.4
4.0
5.7%
2.7
5.8
7.7
4.1
10.7%
2.8
5.7
7.0
4.3
11.4%
2.6
5.3
9.7
4.6
5.0%
3.0
6.5
8.8
4.7
9.4%
3.1
6.3
8.0
4.9
10.0%
2.9
5.9
10.9
5.2
4.4%
3.3
7.2
9.9
5.3
8.3%
3.4
6.9
9.0
5.5
8.9%
3.2
6.5
P/E
P/BV
Dividend Yield
EV/Sales
EV/EBITDA
63.9
16.6
P/E
P/BV
Dividend Yield
EV/Sales
EV/EBITDA
71.8
18.7
6.0
27.2
6.7
30.3
3.6
11.3
2.9
6.8
Market Multiples at 0.802 (at mid levels)
26.6
12.6
10.6
5.7
4.0
12.8
3.3
7.7
Market Multiples at 0.902 (at cap price)
30.0
14.1
11.9
6.4
4.5
14.3
3.7
8.6
P/E – Price to Earnings ratio, P/BV – Price to Book Value, EV – Enterprise Value; Source: Prospectus, GBCM Research Estimates
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Table 10: Comparable Valuations
P/E
Est. P/E (FY10E)
P/B
P/S
EV/MC
ROA LF
ROE LF
7.70
7.42
2.14
2.02
1.02
18.56
29.09
Emirates Integrated Tel (DU)
24.97
21.45
2.52
1.70
1.10
4.16
12.65
Etihad Etisalat Co (Mobily)
11.08
11.00
2.97
2.64
1.19
11.21
29.73
Emirates Telecom Corp (Etisalat)
10.42
9.16
2.23
2.63
0.98
11.54
22.87
Saudi Telecom Co (STC)
8.57
9.22
1.87
1.55
1.41
8.50
22.55
Qatar Telecom (Qtel)
8.77
9.24
1.57
1.00
2.57
3.48
19.42
National Mobile Tel (Wataniya)
14.12
9.79
2.03
1.81
1.01
7.46
14.87
Bahrain Telecom Co (Batelco)
8.12
7.97
1.61
2.28
0.96
14.78
20.27
GCC Average
12.29
11.12
2.11
1.94
1.32
8.73
20.34
MTN Group Ltd
15.17
12.82
2.97
2.07
1.03
9.89
21.37
Maroc Telecom
14.00
13.94
7.01
4.17
1.06
22.33
50.57
Bezeq Israeli Telecom Corp
10.80
10.25
4.48
2.19
1.21
26.26
70.47
Telecom Egypt
8.73
9.53
1.11
2.95
0.97
10.75
13.06
Orascom Telecom Holding
10.02
5.91
2.54
0.54
2.10
4.11
27.37
MENA Average
11.74
10.49
3.62
2.38
1.27
14.67
36.57
Overall Average (GCC/ MENA)
11.73
10.59
2.70
2.12
1.28
11.77
27.25
Domestic Comparable
Oman Telecommunications Co
GCC Comparables
MENA Comparables
Source: Bloomberg, GBCM Research Estimates, P/E – Price to Earnings, P/B – Price to Book Value, P/S – Price to Sales, EV/MC –Enterprise
value to Market cap, ROA LF – Return on Assets Last fiscal, ROE LF – Return on Equity Last Fiscal
At offer price band of RO 0.702 to RO 0.902, Nawras is estimated to trade at P/E multiple range of 8.4X to 10.9X
on FY10E EPS. This is as compared to the regional (GCC/MENA) P/E average of 10.6X of FY10E EPS (Source:
Bloomberg).
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Table 11: Comparable Valuations
Curr.
EV/T12M
EBITDA
EV/ EBITDA
(FY10E)
EV/ EBITDA
(FY11E)
EV/ Sales
(FY10E)
EV/ Sales
(FY11E)
4.30
4.49
4.45
2.19
2.15
Emirates Integrated Tel (DU)
7.79
7.85
5.24
1.91
1.67
Etihad Etisalat Co (Mobily)
8.50
8.10
7.38
3.02
2.76
Emirates Telecom Corp (Etisalat)
8.21
4.39
4.23
2.56
2.44
Saudi Telecom Co (STC)
5.91
5.58
5.37
2.12
2.07
Qatar Telecom (Qtel)
4.69
5.32
4.94
2.47
2.27
National Mobile Tel (Wataniya)
5.22
4.78
4.50
1.82
1.70
Bahrain Telecom Co (Batelco)
5.05
4.93
4.74
2.13
2.06
GCC Average
6.48
5.85
5.20
2.29
2.14
MTN Group Ltd
-
4.77
4.28
2.02
1.82
Maroc Telecom
7.66
7.44
7.15
4.38
4.21
Bezeq Israeli Telecom Corp
6.02
6.00
5.92
2.48
2.48
Telecom Egypt
6.92
6.01
6.41
2.82
2.90
Orascom Telecom Holding
2.75
4.77
4.49
2.04
1.94
MENA Average
5.84
5.80
5.65
2.75
2.67
Overall Average (GCC/ MENA)
6.09
5.72
5.32
2.46
2.34
Domestic Comparable
Oman Telecommunications Co
GCC Comparables
MENA Comparables
Source: Bloomberg, GBCM Research Estimates, EV / T12M EBITDA – Enterprise value to Trailing 12 Months EBITDA, EV/ Sales – Enterprise
value to sales
At offer price band of RO 0.702 to 0.902, Nawras would trade at EV/EBITDA (FY10E) range of 5.8X to 7.2X. This is
as compared to the GCC average EV/EBITDA (FY10E) of 5.85X and MENA average of 5.8X (Source: Bloomberg).
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EV/ EBITDA Method: Derives a fair value of RO 0.800
Nawras is expected to trade at premium to Omantel valuation mainly on back of estimated PAT CAGR of about
16.8% over 2009-2012E. Over the same period, GBCM Research estimates Omantel PAT CAGR to decline by
5.8%.
We have compared the same with the average EV/EBITDA multiple of GCC Telecom and MENA Telecom
comparables (Refer Table 11 in last page).
Based on the assumptions of FY10E EV/EBITDA multiple of 6.5X, we have arrived at the fair value of RO 0.800.
Table 12: Weighted Fair Value
Fair Value (RO)
Weightage
Fair value -DCF
0.810
50%
Fair value - DDM
0.785
25%
Fair value - EV/ EBITDA (6.5X of FY10E)
0.800
25%
Weighted Average Fair Value
0.801
Source: GBCM Research Estimates
Outlook - Quality Issue for long term investors, Fair Value at RO 0.801
Based on our Valuation methodologies (Discounted Cash Flow, Dividend Discount Model and Company Comparative
Valuation), GBCM Research has arrived at a weighted fair value of RO 0.801 for Nawras. We recommend the
Category II investors (Institutional investors) to Subscribe for the issue at an appropriate discount to the fair value
to meet the expected return.
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Table 13: Financial Highlights – Profit & Loss Statement
Profit and Loss Statement (In RO 000s)
2007
2008
2009
2010E
2011E
2012E
94,372
139,222
171,623
196,405
210,706
227,139
Other income
647
1,034
375
491
527
568
Total Revenue
95,019
140,256
171,998
196,897
211,233
227,707
47.6%
22.6%
14.5%
7.3%
7.8%
(48,234)
(37,551)
(27,437)
(22,124)
(22,955)
18.6%
-22.1%
-26.9%
-19.4%
3.8%
(41,345)
(51,691)
(64,946)
(71,261)
(76,862)
46.7%
25.0%
25.6%
9.7%
7.9%
(7,060)
(10,173)
(13,748)
(14,749)
(15,900)
34.9%
44.1%
35.1%
7.3%
7.8%
Revenue
YoY (% Chg)
Operating expenses
(40,686)
YoY (% Chg)
General and administrative expenses
(28,181)
YoY (% Chg)
Royalty
(5,232)
YoY (% Chg)
EBITDA
20,920
YoY (% Chg)
Depreciation and amortisation
(12,576)
YoY (% Chg)
EBIT
8,344
YoY (% Chg)
Financing costs
(4,370)
YoY (% Chg)
Profit Before Tax
3,974
YoY (% Chg)
Income tax expense
4,202
YoY (% Chg)
Profit after tax
YoY (% Chg)
8,176
43,617
72,583
90,765
103,099
111,990
108.5%
66.4%
25.0%
13.6%
8.6%
(16,191)
(20,549)
(22,448)
(26,398)
(27,948)
28.7%
26.9%
9.2%
17.6%
5.9%
27,426
52,034
68,316
76,700
84,042
228.7%
89.7%
31.3%
12.3%
9.6%
(4,310)
(5,104)
(6,849)
(9,432)
(10,006)
-1.4%
18.4%
34.2%
37.7%
6.1%
23,116
46,930
61,467
67,268
74,036
481.7%
103.0%
31.0%
9.4%
10.1%
(3,520)
(5,399)
(7,376)
(8,072)
(8,884)
-183.8%
53.4%
36.6%
9.4%
10.1%
19,596
41,531
54,091
59,196
65,151
139.7%
111.9%
30.2%
9.4%
10.1%
Source: Prospectus, GBCM Research Estimates
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Table 14: Financial Highlights – Balance Sheet
Balance Sheet (In RO 000s)
2007
2008
2009
2010E
2011E
2012E
Assets
Property, plant and equipment
License fee
Deferred tax asset
Total Non-current assets
76,366
34,518
4,531
115,415
98,779
31,679
1,011
131,469
112,171
49,810
64
162,045
163,419
46,114
299
209,832
220,717
42,418
299
263,434
226,465
38,722
299
265,485
Inventories
Receivables and prepayments
Bank balances and cash
657
21,318
20,977
918
21,414
20,393
593
24,420
20,520
807
32,286
15,316
866
37,523
2,613
933
43,561
2,853
Total Current assets
42,952
42,725
45,533
48,409
41,001
47,347
Total Assets
158,367
174,194
207,578
258,241
304,435
312,833
Interest bearing borrowings
Site restoration provision
Finance Leases
Negative fair value of derivatives
Employees’ end of service benefits
Total Non current liabilities
58,161
1,286
241
1,942
108
61,738
47,992
1,838
1,896
188
51,914
48,551
2,366
1,252
448
52,617
69,548
2,957
944
526
73,975
106,448
2,957
944
550
110,899
114,648
2,957
944
575
119,124
Payables and accruals
48,094
53,814
39,730
43,048
46,182
49,784
Interest bearing borrowings
Finance leases
Negative fair value of derivatives
10,388
194
617
10,387
229
2,116
11,264
2,088
15,267
1,791
23,367
1,791
25,167
1,791
Deferred revenue
Income tax payable
Total current liabilities
Total Liabilities
5,962
65,255
126,993
6,455
73,001
124,915
5,707
4,452
63,241
115,858
6,829
3,884
70,818
144,794
6,829
3,884
82,053
192,952
6,829
3,884
87,455
206,579
Equity & Liabilities
Share Capital
Direct costs to IPO
Statutory reserve
65,094
818
65,094
(238)
2,778
65,094
6,931
65,094
12,340
65,094
18,259
65,094
21,150
Cumulative changes in fair value
Retained Earnings
Total Equity
(2,559)
(31,979)
31,374
(4,012)
(14,343)
49,279
(3,340)
23,035
91,720
(2,735)
38,749
113,447
(2,735)
30,864
111,483
(2,735)
22,745
106,254
Total Equity and Liabilities
158,367
174,194
207,578
258,241
304,435
312,833
Source: Prospectus, GBCM Research Estimates
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Table 15: Financial Highlights
Nawras: Ratio Analysis
2007
2008
2009
2010E
2011E
2012E
Total Mobile Revenue
45.1%
18.1%
12.8%
2.8%
3.9%
Total Data Revenue
200.0%
113.9%
25.0%
25.0%
20.0%
812.0%
90.0%
Total Revenue
49.0%
23.1%
14.2%
7.3%
7.8%
Total Assets
10.0%
19.2%
24.4%
17.9%
2.8%
Net Worth
57.1%
86.1%
23.7%
-1.7%
-4.7%
YoY - Growth (%)
Total fixed line Revenue
Margins (%)
EBITDA Margin
22.2%
31.3%
42.3%
46.2%
48.9%
49.3%
EBIT Margin
8.8%
19.7%
30.3%
34.8%
36.4%
37.0%
PAT Margin
8.7%
14.1%
24.2%
27.5%
28.1%
28.7%
26.1%
39.8%
45.3%
47.7%
53.1%
61.3%
48.6%
58.9%
52.7%
52.6%
59.8%
11.2%
20.0%
20.9%
19.4%
20.8%
11.8%
21.8%
23.2%
21.0%
21.1%
Return Ratio (%)
RoE
RoAE
RoA
5.2%
RoAA
Leverage ratios (x)
Total Debt to Equity
2.18
1.18
0.65
0.75
1.16
1.32
Long Term Debt to Equity
1.85
0.97
0.53
0.61
0.95
1.08
Total Debt to EBITDA
3.28
1.34
0.82
0.93
1.26
1.25
EPS
0.013
0.030
0.064
0.083
0.091
0.100
Book value
0.048
0.076
0.141
0.174
0.171
0.163
DPS
0.000
0.000
0.000
0.040
0.075
0.080
Per Share Ratio (RO)
Source: Prospectus, GBCM Research Estimates
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Nawras – IPO
Stock Rating Methodology:
Buy - Upside more than 20%
Accumulate - Upside between 10% and 20%
Neutral - Upside or downside less than 10%
Reduce - Downside between 10% and 20%
Sell- Downside more than 20%
Not Rated - Stocks not in regular research coverage
| Institutional Brokerage - Talal Al Balushi, (+968) 2479 0614 -560 |Institutional Sales - Hunaina Banatwala, (+968) 2479 0614- 559 |
Disclaimer: This document has been prepared and issued by Gulf Baader Capital Markets SAOC ("the Company") on the basis of publicly available
information, internally developed data and other sources believed to be reliable. While all care has been taken to ensure that the facts stated are accurate
and the opinions given are reasonable, neither Gulf Baader Capital Markets SAOC nor any employee shall be in anyway responsible for the contents of this
report. The Company may have a position and may perform buying/selling for itself or its clients in any security mentioned in this report. This is not an offer
to buy or sell the investments referred therein.
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Oman Equity Research