Omani Qatari Telecommunications Company SAOG Under Transformation – IPO Review The proposal Nawras is undertaking the IPO in order to comply with the obligations of its licences, which require that it make 40% of its outstanding shares available for public subscription, thus transforming the Company from a Closed Joint Stock Company to a Public Joint Stock Company. In accordance with the above obligation to Telecom Regulatory Authority (TRA), Nawras is offering 260,377,690 (Two Hundred and Sixty Million, Three Hundred and Seventy Seven Thousand, Six Hundred and Ninety) Shares representing 40% of Nawras’ total share capital. In case of oversubscription of the Offer, for the purpose of allotting the Shares between the eligible investor groups, the allocation for [260,377,690] Shares will be made as follows: ¾ Category I Investors: [182,264,383] Shares, being [70%] of the Offer, on a proportionate basis. ¾ Category II Investors: [78,113,287] Shares, being [30%] of the Offer, on a proportionate basis. ¾ The subscription price for Category I investors is RO 0.902, subject to maximum of 500,000 shares per application. The selling Share holders Selling Shareholder’s Name 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 Total Source: Nawras prospectus
Number of Shares held 455,660,940 91,132,190 19,528,330 32,547,220 32,547,220 13,018,890 6,509,440 650,944,230 Divesting Shares 97,641,630 91,132,190 13,425,720 22,376,210 22,376,210 8,950,490 4,475,240 260,377,690 NBO Research 27th September, 2010 Omani Qatari Telecommunications Company SAOG Under Transformation – IPO Review Investment rationale: ¾ Nawras has grown rapidly since it commenced operations in March 2005. According to TRA, the company has acquired more than 1.97m customers, which represents a market share of 45% based on number of customers. As of 30th June 2010, Nawras’ network footprint covered approximately 96% of the population in Oman’s challenging geographical landscape. ¾ Nawras’ EBITDA has grown from OMR 25.5m in FY 2007 to OMR 87.5m in FY 2009, with EBITDA margin increasing from 27.0% to 51.0% over the same period. For the six months ended 30 June 2010, Nawras’ EBITDA was OMR 51.2m and EBITDA margin 56.1%, as compared to OMR 35.8m and 45.1% for the corresponding period of 2009. ¾ Benefiting from the Qtel network: The Qtel group has operations in 16 countries and has over 65m customers worldwide. Through this relationship, Nawras has received technical support for its network, thereby benefiting it. ¾ Investment in data business and fixed line to generate growth in coming years : Nawras is also in the process of building a complementary Huawei‐based WiMAX network which covered 54% of the population as of June 2010 and is intended to cover approximately 81% of the population by 2011, utilising up to 30 MHz of spectrum included as part of the Fixed Licence that Nawras was issued in 2009. ¾ As the penetration in data segment is nearly 3% (TRA, Oman, 2009) in Oman, the lowest in the region, it provides ample scope for growth. Data business contributed nearly 9% of the total revenue for the company while growing @14% in the year 2009. ¾ The new fixed line addition also adds value to the top line as well as bottom line with the penetration level now reaching 9%. ¾ New International gateway services to generate business as three Mobile Virtual Network Operators (MVNO) are already on Nawras network and result in cost savings for Nawras. ¾ Favourable demographic: with nearly 38% population of the country under the age of 19 years, significant scope for further growth exists for the overall business and will help in pushing the ARPU curve upwards. ¾ As the economy improves and given the huge investment and increase in Government expenditure in the current year, we expect the growth in the telecom space to be moderate but relatively better than that in FY2009. NBO Research 27th September, 2010 Omani Qatari Telecommunications Company SAOG Under Transformation – IPO Review Company Overview Nawras was launched in March 2005 as the nation’s second telecom operator, ending Omantel’s monopoly in the mobile services segment of the telecom industry. Since then, the company has been aggressively growing its customer base, which stood at 1.97 million as of June ’10, representing a 45% market share. Over the past 5 years, Nawras’s revenues and net profit have grown at a CAGR of 63% and 134%, respectively, indicating positive financial performance in an increasingly competitive marketplace Nawras was awarded a fixed‐line license in June 2009 allowing it to provide a full range of fixed telecommunication services across the Sultanate including international, internet and satellite services. Nawras launched its fixed voice and data services in mid‐2010 and aims to target the growing and lucrative corporate and broadband markets. 554%
600%
500%
200
400%
300%
111%
233%
150%
88%
100%
48%
125
75
0%
25
‐119%
‐200%
4
‐28
‐25
2007
Revenue Growth
2008
EBITDA growth
2009
100%
10.3
2000
1511
8.8
4
7.4
2
ARPU ( Blended )
82%
73%
66%
60%
40%
34%
40%
1000
500
0
27%
2007
2008
2009
18%
20%
10%
0
2006
EBITDA(LHS) Net Profit (LHS) 93%
Market Share (%)
50%
244
2005
Revenue(LHS) 30%
572
7%
0%
Jun/10
2005
ARPU 2009
60%
1500
7.7
1016
6
2008
70%
1,965
8
2007
80%
1861
11.4
0
2006
90%
2500
12
2006
2007
2008
2009
Customers Oman Mobile
Nawras Mobile
NBO Research 4
2
‐12
2005
Net profit growth
42
20
‐21
‐50
Nawras Customer & ARPU
11.0
8
8
6
88
26
15
0
‐167%
‐300%
2006
54
50
50
‐57%
‐100%
7.7
139
94
100
24%
10
8.8
150
63%
110%
12
172
10.3
175
200%
10
Nawras
11.4
11
27th September, 2010 Omanii Qatari TTelecomm
municatio
ons Comp
pany SAO
OG Under TTransformation – IPO
O Review
Share holding Share hold
ders Name TDC‐Qtel M
Mena Investco
om BSC Nawras De
evelopment LLLC Diwan of tthe Royal Courrt Pension Fu
und Ministry of Defence Pension Fund nd Royal Officce Pension Fun
Internal Se
ecurity Service
e Pension Fu
und Sultan’s Sp
pecial Force Pe
ension Fund Public Shares Outtstanding No of Sh
hares held
455
5,660,940 91
1,132,190 19
9,528,330 % Held
70.0%
14.0%
3.0%
Offer 97,641,630 91,132,190 13,425,720 % of shared held
21.4%
100.0%
68.7%
32
2,547,220 5.0%
22,376,210 68.7%
32
2,547,220 13
3,018,890 5.0%
2.0%
22,376,210 8,950,490 68.7%
68.8%
6
6,509,440 1.0%
4,475,240 68.8%
0.0%
‐ 0.0
0%
100%
260,377,690 40.0%
Tottal Beforre IPO
650
0,944,230 Share hold
ding Structure Posst IPO TDC‐Qtel M
Mena Investco
om BSC Diwan of tthe Royal Courrt Pension Fund Ministry of Defence Pension Fund Royal Officce Pension Fun
nd Internal Se
ecurity Service
e Pension Fund
d Sultan’s Sp
pecial Force Pe
ension Fund Public No of Shared Helld 358,019,31
10 6,102,61
10 10 10,171,01
10,171,01
10 00 4,068,40
2,034,20
00 90 260,377,69
% of total
%
55.0%
0.9%
1.6%
1.6%
0.6%
0.3%
40.0%
650,944,23
30 100.0%
Source: Naw
wras prospectus,, NBO Research Share Ho
olding before
e IPO
3%
5%
5%
% 2% 1%
TD
DC‐Qtel Mena Invvestcom BSC
TDC‐Qteel Mena Investco
om BSC
Posst IPO Shareh
holding
Naawras Deevelopment LLC
Diwan off the Royal Court Peension Fund
40.0%
Diw
wan of the Royaal Co
ourt Pension Fun
nd
14%
70%
Miinistry of Defencce Peension Fund
Ro
oyal Office Peension Fund
55.0%
Ministry of Defence Pension Fund
Royal Offfice Pension Fund
0.3%
0.6%
1.6%
%
1.6%
0.9
9%
Internal Security Service P
Pension Fund
NBO Reseearch 27th September, 2010 Omani Qatari Telecommunications Company SAOG Under Transformation – IPO Review SWOT Analysis Strengths •
•
•
•
•
Opportunities • Capture lucrative corporate fixed line and broadband market • Developing wholesale opportunities • Strategic partnership with TATA, India • Low fixed line penetration in Oman Modern and adaptable network High level of customer satisfaction Efficient distribution network Innovative products and services Technical support from Qtel, the parent company Nawras
Weaknesses Threats
• New telecom license granted by TRA • Market saturation and price competition • Lack of external financing for capex • Inability to obtain additional spectrum • ARPU sensitive to competitor pricing • Limited allocated spectrum • Change in shareholding after lock‐in period NBO Research 27th September, 2010 Omani Qatari Telecommunications Company SAOG Under Transformation – IPO Review Market Trend – Population Penetration 250%
235%
GCC Telecom Market
200%
177%
165%
157%
143%
150%
122%
100%
50%
24%
18%
12%
10% 2%
1%
18%
18% 10%
7%
35%
15%
0%
Bahrain
Kuwait
Oman
Mobile
Fixed
Qatar
Saudi Arabia
UAE
Broadband
Following the liberalization of the GCC telecom industry, the region has been witnessing rapidly growing penetration rates albeit in varying degrees in different countries, particularly in the mobile segment. Mobile penetration rates in the GCC markets have surpassed 100%. However, the fixed line and broadband segments remain marginally penetrated due to the absence of effective competition. Growth in the region’s telecom industries over the years was underpinned by high population growth and favorable demographics. Oman telecom market
5,000,000
300,000
250,000
4,000,000
200,000
3,000,000
150,000
2,000,000
100,000
1,000,000
50,000
0
0
2005
2006
2007
Fixed Line(RHS) 2008
Internet(RHS)
2009
March,2010 Mobile(LHS) Rapid growth in Oman’s telecom industry has resulted in population penetration rates expanding from 56% in 2005 to 147% by March 2010, representing a CAGR of 21%. Fixed line penetration rates have seen slower growth over the period as a result of the fact that Omantel has been the only fixed line operator up until mid 2009. Growth in Oman’s market is expected to be fuelled by demand for data services. NBO Research 27th September, 2010 Omani Qatari Telecommunications Company SAOG Under Transformation – IPO Review Comparable Company Analysis Direct Comparables Du P/E EV/EBITDA 30.7x 9.9x Mobily 12.3x 9.1x Average 21.5x 9.5x Single Market Focused EM/MENA Safaricom 15.3x 6.7x Turkcell 11.9x 6.1x Maxis 17.8x 10.2x Etisalat 9.0x 3.0x STC 6.9x 5.1x Maroc Telecom 13.8x 7.9x Average 12.4x 6.5x Multi Market EM/MENA Orascom Telecom 12.5x 4.3x Qtel 8.8x 5.2x Wataniya Telecom 9.5x 4.8x Average 10.2x 4.8x Overall Average 13.0x 6.3x Nawras 9.5x to 12.2x 5.3 Omantel 6.9x 4.0x Dividend Payout (Average) 2009 2010E Nawras NA 40% Omantel 60% ‐ 67% 60% ‐ 65% Dividend Yield Nawras NA 4% Omantel 7.8% 7.8% Fig in RO Million Nawras Omantel Capital 65.094 75.000 Revenue 91.2 218.4 Net Profit 25.5 61.0 NP Margin 28% 28% Market Share 45% 55% Data taken from Q2 2010 financials Market share in terms of subscriber Source : NAWRAS IPO Prospectus, Zawya , NBO Research NBO Research 27th September, 2010 Omani Qatari Telecommunications Company SAOG Under Transformation – IPO Review DCF Valuation We initiated our valuation with a 5‐year running discounted cash flow approach using the following assumptions. ¾ Key Assumptions: Blended market share of Nawras of 41% for the year 2010 and onwards; ¾ Risk free rate of 4% (CBO Coupon rate on GDBs), WACC of 8.7% and terminal growth rate of 2% in the best case scenario. Based on these assumptions, we have arrived at a fair value of RO 0.911 baiza per share. DCF Calculation No of years Terminal Value Calculation Terminal Value Growth Rate Projected Free Cash Flow Discount Rate (WACC) Terminal Enterprise Value Discounted Cash Flows at WACC Unlevered Free Cash Flow(A) Terminal Value(B) 2010E 2011E 1 2 2012E 3 Total Discounted Cash Flows(A+B) Less Debt Add cash Equity Value Shares outstanding( in mln) 632.4 ‐59.8 20.5 593.2 650.944 Fair Value per share 0.911
2.0% 41.2 8.7% 617.9 63.8 568.6 Fair Value Range Assuming a very conservative growth rate of 1% at the lower side and growth rate of 2% in the higher side, with WACC of 8.7%, the fair value range obtained is RO 0.781 baiza to RO 0.911 baiza. Terminal
Growth Rate
0.0%
1.0%
2.0%
3.0%
4.0%
DCF Value per Share WACC 7.7%
8.7% 0.737 0.695 0.842 0.781 1.056 0.911 1.274 1.043 1.611 1.259 9.7%
0.618 0.686 0.706 0.882 1.031 We believe that the stock is a good buy for long term given the perceived growth in the business and a high dividend payout expectation as indicated by the management of the company. NBO Research 27th September, 2010 Omani Qatari Telecommunications Company SAOG Under Transformation – IPO Review Scenario Analysis: Nawras vs. Omantel Key Figures Revenue Growth EBIT EBITDA Net Income 2008A 139.2 NA 23.1 43.6 19.6 NAWRAS 2009A 171.6 23% 46.9 72.6 41.5 2010E 218.6 27% 61.2 89.5 54.2 2008A 411.0 NA 158.0 213.0 120.0 OMANTEL 2009A 407.0 ‐1% 140.0 205.0 114.0 2010E 448.0 10% 162.5 243.0 133.4 Scenario – I : Valuation : Nawras @ RO 0.702 Baiza & Omantel @ RO 1.200 Key Ratios NPM(%) ROE(%) ROA(%) ROCE Div Yield Valuation EPS P/E(x) P/BV(x) 2008A 14% 40% 11% 18% NA 2008A 0.030 23.3 9.2 2009A 24% 45% 20% 27% NA 2009A 0.064 11.0 5.0 2010E 25% 49% 21% 28% NA 2010E 0.083 8.4 4.1 2008A 29% 39% 23% 38% 7.8% 2008A 0.160 7.5 2.6 2009A 28% 33% 19% 33% 7.8% 2009A 0.152 7.9 2.8 2010E 30% 35% 20% 35% 8.1% 2010E 0.178 6.7 2.5 Scenario –II Valuation : Nawras @ RO 0.802 Baiza & Omantel @ RO 1.200 Key Ratios 2008A 2009A 2010E 2008A 2009A 2010E 14.08% 24.20% 24.79% 29% 28% 30% ROE(%) 40% 45% 49% 39% 33% 35% ROA(%) 11% 20% 21% 23% 19% 20% ROCE 18% 27% 28% 38% 33% 35% NPM(%) Div Yield Valuation NA NA NA 7.8% 7.8% 8.1% 2008A 2009A 2010E 2008A 2009A 2010E EPS 0.030 0.064 0.083 0.160 0.152 0.178 P/E(x) 26.6 12.6 9.6 7.5 7.9 6.7 P/BV(x) 10.6 5.7 4.7 2.6 2.8 2.5 Scenario –III Valuation : Nawras @ RO 0.902 Baiza & Omantel @ RO 1.200 Key Ratios NPM(%) ROE(%) ROA(%) ROCE Div Yield Valuation EPS P/E(x) P/BV(x) 2008A 14% 40% 11% 18% NA 2008A 0.030 30.0 11.9 2009A 24% 45% 20% 27% NA 2009A 0.064 14.1 6.4 2010E 25% 49% 21% 28% NA 2010E 0.083 10.8 5.3 2008A 29% 39% 23% 38% 7.8% 2008A 0.160 7.5 2.6 2009A 28% 33% 19% 33% 7.8% 2009A 0.152 7.9 2.8 2010E 30% 35% 20% 35% 8.1% 2010E 0.178 6.7 2.5 Source: NAWRAS IPO Prospectus, NBO Research NBO Research 27th September, 2010 Analysts Aziz Al‐Jahdhami Partha Sarathi Rand Al Shaikh Brokerage Unit Khalid Al‐Sulaimi Hussain Al‐Lawati Murtadha Al‐Ajmi Amur Al Mashani Tel (+968) 24 778329 (+968) 24 778425 (+968) 24 778180 Tel (+968) 24 778697 (+968) 24 778791 (+968) 24 778761 (+968) 24 778790 Email Aziz@nbo.co.om
partha@nbo.co.om
rand@nbo.co.om
Email Khalidas@nbo.co.om
Hussain@nbo.co.om
MurtadhaA@nbo.co.om
Amur@nbo.co.om
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2477 8000, Fax: +968‐24778420;Email: research@nbo.co.om ; http://www.nbo.co.om