| 25 Nov 2009 |
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HC sets Mobinil Target price at EGP 250
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Usage disappoints but remains elastic. 3Q09 results came in lower than expected due to lower usage QoQ. Given the significant financial obligations on MobinilMobinil
in 2010f, HC believes that its decision to lower dividend payout is well justified and now see MobinilMobinil as a play on growth, rather than dividends. HC lowers its target price by 5.1% to EGP250/share to reflect stronger competition while maintaining its "Buy" recommendation.3Q09 was impacted by seasonality coupled with increasing competition as the Egyptian mobile market penetration rate increased to 68%, leading MobinilMobinil
to post lower than expected figures. The company did not manage to stimulate usage as much as it did in 2Q09, which led sales to come in lower than HC's estimate and that of consensus by 6% and 2% respectively, growing 2.5% QoQ and 4.8% YoY. HC attributes the QoQ drop in usage to the increase in MobinilMobinil's effective price per minute by 6.6% QoQ to EGP0.25. This proves that demand for MobinilMobinil's services is elastic, a positive feature given that the focus is now on usage, value added services and business offers as the market penetration rate increases. EBITDA margin came in line with HC's estimates and those of consensus at 45.4%, down from 48.3% in 2Q09 and 47.8% in 3Q08 again due to the increasing competition and aggressive campaigns during the month of Ramadan, leading net income to fall short of HC's estimates and those of consensus by 9% to EGP497 million and to drop 7% QoQ and 8% YoY.MobinilMobinil is seeking to acquire LinkDotNet and has three major upcoming payments with a total combined value of around EGP2.6 billion, broken down as follows: an EGP750 million 2G related payment that was due in January 2009 but was postponed as the company did not receive the required frequency (will most probably be paid in 2010), an EGP750 million 3G payment that is due in January 2010, and an EGP1.1 billion 3G payment that is due in December 2010. Given the tight credit environment the company is operating in and the CBE regulations stipulating that banks are allowed to lend only a certain portion of their total loans to any one client (the banks are linking MobinilMobinil's ability to borrow to its shareholder OTH), the company has resorted to two solutions: 1) lowering the dividend payout. MobinilMobinil approved a DPS of EGP2.0 for 1H09, suggesting a dividend payout of 21%, lower than 68% in 1H08 which suggests that total dividends for 2009e will be lower than those in 2008. 2) Issuing bonds with a maximum value of EGP1.5 billion (USD273 million). HC believes that MobinilMobinil's decision to lower its dividend payout in 2009e is well justified.
Despite a downward revision of HC's target price by 5.1% to EGP250/share, HC is still maintaining its "Buy" recommendation given a 32% upside after the stock price dropped in line with the Egyptian stock market correction. HC has updated its estimates factoring in management's guidance of revenue growth of 9-10% YoY and a CAPEX towards the lower end of the previous guidance of EGP2.5-3.0 billion. HC forecasts net income to grow at a CAGR of 19% from 2010f-2012f backed by operational growth and deleveraging. The stock trades at a discount of 20.5% and 24.0% to peers on 2010f PER and EV/EBITDA multiples respectively.
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