Morning Call about – Pakistan Telecommunication Co. Telecom – Arif Habib Limited

Karachi, March 28, 2014 (PPI-OT): 1QCY14 earnings to clock in at PKR 0.72/share +10% YoY

In Arif Habib Limited’s today’s Morning Call, Arif Habib Limited highlights upon PTC’s result preview for the 1QCY14, PKR/USD appreciation impact on LDI revenues and latest updates on Telenor Pvt. Ltd’s partial exit from the International Clearing House (ICH) arrangement.

1QCY14 EPS to clock in at PKR 0.72/share +10% YoY
For the 1QCY14, Arif Habib Limited expects PTC to post a consolidated EPS of PKR 0.72/share depicting a +10% YoY growth from PKR 0.65/share in the corresponding period last year.

According to Arif Habib Limited, this is mainly on account of 42% YoY increase in broadband subscribers with growth primarily on EvDO wireless broadband segment and a 58% YoY drop in finance cost as Ufone paid off all its long debts (PKR 20.5bn). Arif Habib Limited believes this phenomenon of lower financial charges is temporary as PTC will take fresh heavy leverage positions going forward to fund its bid for 3G/4G spectrum next month.


Financial Highlights
PKRmn 1QCY14 1QCY13 QoQ
Net Sales 32,105 32,181 0%
Gross Profit 11,334 11,435 -1%
GP Margin 35% 36%
Other Income 1,041 1,233 -16%
Finance Cost 452 1,070 -58%
Profit after tax 3,671 3,331 10%
EPS – (PKR) 0.72 0.65
Source: AHL Research and Company Accounts

PTC’s LDI revenues to take a slight hit from a stronger PKR against USD
As Long Distance Int’l (LDI) revenues of PTC are collected from foreign operators in USD, Arif Habib Limited foresees an annualized minor 2% negative bottom-line impact of a 5% appreciation from Arif Habib Limited’s initial PKR/USD average assumption of 108 in CY14.

LDI minutes expected in Mar’14 and update on Telenor partial exit from ICH
Based on 23 days extrapolated of Mar’14, LDI monthly minutes are expected to clock in at ~480mn (-1% MoM from 486mn in Feb’14), which have remained in the range of 470mn-526mn since Nov’13. This has also outplayed concerns from the exit of Telenor LDI Pvt from ICH. As per latest developments, the matter of Telenor’s exit from ICH is still pending in Sindh High Court since Feb’14 (to recall earlier other LDI operators had taken a stay order). Its last hearing was held on 24th of Mar’14 which has now been deferred till 2th Apr’14. Exit of Telenor from ICH remains partial with it yet to start its full fledge LDI operations on its own.

Recommendation
Arif Habib Limited maintains Arif Habib Limited’s BUY stance on PTC with Dec’14 TP of PKR 36/share offering an upside of 18% from its last closing, the scrip is currently trading at a CY14E P/E and P/B of 8.9x and 1.46x. With Ufone one of the favorites to acquire 3G/4G spectrum to be held on 23rd Apr’14 and a potential revival in the Warid Telecom acquisition, Arif Habib Limited will then accordingly re-visit Arif Habib Limited’s investment case on PTC as per these developments.

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