03 June 2013
Muscat: The Sultanate's telecommunication service providers are witnessing a stable revenue growth and therefore, the stocks are attractive for investment.
The shares of Oman Telecommunications Company (Omantel) and Oman Qatari Telecommunications Company (Nawras) are quoting on the Muscat Securities Market (MSM) at a discount compared to its Gulf Cooperation Council (GCC) counterparts, according to a detailed research study conducted by the United Securities.
Omani telecommunication service providers are offering a fundamental shift on the valuation front as well as on a yield perspective leading to a revisit on the sector story. These companies offer 10-15 per cent discount to GCC telecommunication firms' price earnings ratios.
Additionally, Omantel and Nawras are the only telecommunication firms in the entire GCC, which offer eight per cent yield that is higher by 200 basis points spread to GCC telecommunication service providers' average yields, noted the report, which was jointly prepared by Joice Mathew and Santhosh Balakrishnan.
"Our long-term positive view on the sector is largely supported by stability in payouts and the conviction theme has factored in the lower earnings volatility in the sector. The post facto analysis suggests free cash flow (FCF) yields, which is the key reason for attracting large investor attention," the report added.
The research report, which recommended for buying both stocks, projected a 12-month target price of OMR1.645 for Omantel and upgraded Nawras to buy with 12-month price target of OMR0.538.
'Maturity curve'
"We believe Oman telecom forms are nearing the maturity curve of the voice revenue cycle and repositioning to resolve structural voice contraction; focusing on costs. However, imminent growth in mobile broadband (MBB) segment proved to offset such concerns, making our sanguinity more perceptible.
The conventional voice segment has slowed to a certain extent but expect usage growth upon deteriorating call rates, a factor of price elasticity. We believe the sector is likely to have limited growth in revenues and expect a 1-2 per cent growth range across both telecommunications over the forecast period. We see the sector growth trends to make a gradual shift to new age data growth like 4G LTE and given the last three years trends on 2G to 3G migration, our analysis holds true." Oman's telecommunication sector is still an oligopolistic market, with two key players and host of other resellers.
The report noted that Oman telecommunication sector continues to show signs of maturity in conventional call volumes but witnessing a robust data growth, which is in line with telecom industry dynamics.
"Globally, telecommunication firms, being a sector with emphasis on technology upgradation, have undergone phased transition including shift from GPRS, EDGE, WCDMA and HSPDA, which is essentially a 2G to 3G migration," said the report, adding; "The operators are now focusing on 4G LTE being the lat- est one and unlike 3G; 4G is more focused on data and efficiency. Oman's telecom sector is still an oligopolistic market, with two key players and host of resellers."
"We expect the telecommunication industry growth to moderate owing to slow down in conventional voice revenue as well as SMS traffic, while pick up in data revenue stream is likely to offset such decline."
The report noted that the industry revenue to grow at a compounded annual growth rate (CARG) of two per cent to OMR756 million in 2015, from OMR714 million in 2012. The sector's revenue grew at a CARG rate of 10 per cent between 2005 and 2012 to touch OMR714 mil- lion in 2012.
However, revenue streams within Internet segment provide opportunity upon growth in mobile broadband and fixed broadband subscriber base, which is likely to strengthen further. "We expect fixed line voice revenue to witness marginal decline, while FBB to see reasonable growth rate."The subscriber base of Oman's telecom sector has reached 5.8 million, which include fixed line, wireless and Internet segments, with Omantel, Nawras and resellers competing in a highly competitive market.
The wireless market has 5.3 million subscribers, with a penetration rate of 190 per cent (190 subscribers for every 100 people), while fixed line subscriber base has reached 305,000 by end-2012 leading to penetration rate of 76 per cent. "We expect the wireless subscribers' growth to stabilise at current levels owing to lower net additions, while we expect the fixed line business to decline."
The report also noted that Omantel has been on the forefront of higher capital expenditure spending, mainly to modernise its ageing 2G network and bring in efficiency to the respective networks.
"We believe 16 per cent to 18 per cent of the sale would be the ideal strategy for telecommunication firms on a normal investment cycle, while introduction of newer technology would result in higher capital expenditure over the short-medium term," added the report.
Additionally two of the leading mobile virtual network operators -- Renna and Friendi -- have already planned to expand, raising funds through private equity, with Renna focusing to improve it customer service to boost top-line growth. Friendi has robust plans to expand and recently raised $50 million for its Middle East business, a sizeable allocation of this is likely to come in to Friendi Oman mainly to cater to service its subscriber base of 400,000 customers.
Muscat: The Sultanate's telecommunication service providers are witnessing a stable revenue growth and therefore, the stocks are attractive for investment.
The shares of Oman Telecommunications Company (Omantel) and Oman Qatari Telecommunications Company (Nawras) are quoting on the Muscat Securities Market (MSM) at a discount compared to its Gulf Cooperation Council (GCC) counterparts, according to a detailed research study conducted by the United Securities.
Omani telecommunication service providers are offering a fundamental shift on the valuation front as well as on a yield perspective leading to a revisit on the sector story. These companies offer 10-15 per cent discount to GCC telecommunication firms' price earnings ratios.
Additionally, Omantel and Nawras are the only telecommunication firms in the entire GCC, which offer eight per cent yield that is higher by 200 basis points spread to GCC telecommunication service providers' average yields, noted the report, which was jointly prepared by Joice Mathew and Santhosh Balakrishnan.
"Our long-term positive view on the sector is largely supported by stability in payouts and the conviction theme has factored in the lower earnings volatility in the sector. The post facto analysis suggests free cash flow (FCF) yields, which is the key reason for attracting large investor attention," the report added.
The research report, which recommended for buying both stocks, projected a 12-month target price of OMR1.645 for Omantel and upgraded Nawras to buy with 12-month price target of OMR0.538.
'Maturity curve'
"We believe Oman telecom forms are nearing the maturity curve of the voice revenue cycle and repositioning to resolve structural voice contraction; focusing on costs. However, imminent growth in mobile broadband (MBB) segment proved to offset such concerns, making our sanguinity more perceptible.
The conventional voice segment has slowed to a certain extent but expect usage growth upon deteriorating call rates, a factor of price elasticity. We believe the sector is likely to have limited growth in revenues and expect a 1-2 per cent growth range across both telecommunications over the forecast period. We see the sector growth trends to make a gradual shift to new age data growth like 4G LTE and given the last three years trends on 2G to 3G migration, our analysis holds true." Oman's telecommunication sector is still an oligopolistic market, with two key players and host of other resellers.
The report noted that Oman telecommunication sector continues to show signs of maturity in conventional call volumes but witnessing a robust data growth, which is in line with telecom industry dynamics.
"Globally, telecommunication firms, being a sector with emphasis on technology upgradation, have undergone phased transition including shift from GPRS, EDGE, WCDMA and HSPDA, which is essentially a 2G to 3G migration," said the report, adding; "The operators are now focusing on 4G LTE being the lat- est one and unlike 3G; 4G is more focused on data and efficiency. Oman's telecom sector is still an oligopolistic market, with two key players and host of resellers."
"We expect the telecommunication industry growth to moderate owing to slow down in conventional voice revenue as well as SMS traffic, while pick up in data revenue stream is likely to offset such decline."
The report noted that the industry revenue to grow at a compounded annual growth rate (CARG) of two per cent to OMR756 million in 2015, from OMR714 million in 2012. The sector's revenue grew at a CARG rate of 10 per cent between 2005 and 2012 to touch OMR714 mil- lion in 2012.
However, revenue streams within Internet segment provide opportunity upon growth in mobile broadband and fixed broadband subscriber base, which is likely to strengthen further. "We expect fixed line voice revenue to witness marginal decline, while FBB to see reasonable growth rate."The subscriber base of Oman's telecom sector has reached 5.8 million, which include fixed line, wireless and Internet segments, with Omantel, Nawras and resellers competing in a highly competitive market.
The wireless market has 5.3 million subscribers, with a penetration rate of 190 per cent (190 subscribers for every 100 people), while fixed line subscriber base has reached 305,000 by end-2012 leading to penetration rate of 76 per cent. "We expect the wireless subscribers' growth to stabilise at current levels owing to lower net additions, while we expect the fixed line business to decline."
The report also noted that Omantel has been on the forefront of higher capital expenditure spending, mainly to modernise its ageing 2G network and bring in efficiency to the respective networks.
"We believe 16 per cent to 18 per cent of the sale would be the ideal strategy for telecommunication firms on a normal investment cycle, while introduction of newer technology would result in higher capital expenditure over the short-medium term," added the report.
Additionally two of the leading mobile virtual network operators -- Renna and Friendi -- have already planned to expand, raising funds through private equity, with Renna focusing to improve it customer service to boost top-line growth. Friendi has robust plans to expand and recently raised $50 million for its Middle East business, a sizeable allocation of this is likely to come in to Friendi Oman mainly to cater to service its subscriber base of 400,000 customers.
© Times of Oman 2013
