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|24 April, 2019

Dubai's du reports drop in first quarter earnings, shares retreat

The company's revenue missed EFG Hermes' estimate by 7 percent, net profit came in line

iPhone user viewing illuminated screen. Image used for illustrative purposes.

iPhone user viewing illuminated screen. Image used for illustrative purposes.

Getty Images/Towfiqu Photography

Dubai’s Emirates Integrated Telecommunications Company (du), reported a drop in 2019 first quarter (Q1) earnings late on Tuesday.

Q1 2019 net profit amounted to 449.5 million United Arab Emirates dirhams ($122.37 million), compared to a net profit of 512.6 million dirhams in Q1 2018, a 12.31 percent drop.

du’s 1Q19 results were a mixed bag, as revenue missed our estimate by 7 percent, but earnings came in line owing to a stronger-than-expected EBITDA margin of 45.2 percent, the highest level on record since Q3 2015, and considerably higher than the FY18 (fiscal year 2018) margin of 40.9 percent,” Omar Maher, vice president of equity research at EFG Hermes told Zawya by email.

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EFG Hermes estimated the company’s EBITDA margin at 41.1 percent for Q1 2019.

The company’s Q1 2019 revenue amounted to 3.14 billion dirhams, compared to 3.33 billion dirhams in Q1 2018 - a 5.71 percent drop.

“Looking at revenue performance in depth, we saw significant weakness in the mobile segment (-8 percent from presentation, -12 percent from financials), which caused the bulk of total revenue drop of 6 percent Y-o-Y; we believe this was driven by ongoing weakness in consumer demand as a result of macroeconomic pressures, which we expect to continue throughout 2019,” Maher said.

“In 2020, however, stronger momentum from Expo 2020 could offset this weakness partially, we believe,” Maher added, noting that fixed-line and broadcasting revenues were surprisingly strong.

Du's chief executive officer, Osman Sultan, had said in a statement accompanying its results announcement on Tuesday that its decline in revenue reflected "industry-wide challenges, with continued pressure on voice revenues and data monetisation".

He had said that a decline in its base of mobile subscribe was due partly to a "clean-up of our prepaid base" through a campaign linking mobile numbers to identity documents and a strategy to focus on higher value, post-paid contract customers, which he said had increased by 12.4 percent year-on-year on the first quarter of 2019.

The company’s shares dropped 1.35 percent on Wednesday to 5.1 dirhams but have added 2.78 percent so far this year.

“We remain buyers of the stock, despite flattish results, as we continue to believe it is undervalued at current levels, and offers an attractive dividend yield,” Maher said.

“Moreover, we expect the stock could be opened to foreign ownership at any point in time, which would attract significant flows and lead to an immediate re-rating; however, there is no visibility on the timeframe for a potential FOL (foreign ownership limit) increase, and we treat it as a binary option on the stock,” he ended.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(gerard.aoun@refinitiv.com)

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© ZAWYA 2019

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