Morning Call about – Pakistan Telecommunication Company Telecom Sector – Arif Habib Limited

Karachi, January 21, 2014 (PPI-OT): LDI update: Minutes inflow to register 11% MoM growth in Jan’14

Zong receives 2% of PTC in LDI revenue market share
To recall, Zong (China Mobile, Pakistan) has been granted a Long Distance Int’l (LDI) license and its market share in the ICH consortium would be 2% (mainly from PTC’s market share, which would now be a revised to 48%).

According to Arif Habib Limited, as far as the bottom line impact on PTC of this minor decline in ICH market share is concerned, Arif Habib Limited foresees a marginal PKR -0.07/share (2%) annualized impact, as a result.

LDI minutes on upward trajectory with expected 11% MoM jump in Jan’14
On the basis of available extrapolated LDI minutes of Jan’14, an 11% MoM jump is expected where minutes are expected to clock in at ~528mn, from 476mn in Dec’13. In their last meeting, LDI operators and the PTA adopted a strategy to increase the LDI revenue market share of the Cellular Mobile Operators (CMOs) as an incentive for them to act on curbing grey traffic.

This is due to the fact that grey traffic from aboard is further routed mainly through CMOs’ networks. Jan’14 expected LDI minutes are an uptake after seven months of decline (excluding seasonal factor months of Eid and Hajj). This does indicate that the benefits of CMOs own efforts to curb illegal traffic themselves by scanning their own network traffic origins could be a way forward in curbing undocumented traffic from aboard.

Arif Habib Limited currently has a ‘BUY’ stance on PTC. Arif Habib Limited’s price target for PTC stands at PKR 34.6/share for Jun’14 (offering 17.2% upside from current levels) while the scrip trades at PBv and PE of 1.32x and 8.59x on CY14 estimates. Also, Arif Habib Limited expects PTC to post a consolidated CY13 EPS of PKR 3.13/share (9MCY13 EPS currently stands at PKR 2.21/share), with DPS of PKR 1.0/share taking total dividend payout for CY13 at PKR2.0/share. Though uncertainty regarding the funding of the Warid deal and 3G auction (expected in Mar’13) this year would test PTC’s financial muscle and does pose a threat in a final cash dividend.

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