By: BMA Capital Management Limited
We revisit our investment case on Pakistan Telecommunication Company (PTC) to incorporate the updated the statistics of Pakistan telecommunication indicators by PTA. As per the latest updates, mobile broadband internet has made significant inroads into Pakistan’s broadband market and 13.03mn customers have adopted the new technology. Also, as per the latest PTA’s latest stats, company’s subsidiary PTML lost ~16% of its total customer base since the turn of the year on back of crackdown by federal government of unregistered SIMs and increase competition within the cellular arena. On the positive side, the latest round of the monetary easing where the DR was cut by 100bps will give some support to the bottom‐line of the subsidiary PTML, which raised PKR15bn in long term debt for infrastructure development in CY14. Taking into account the said changes, our earnings forecasts on consolidated basis for CY15, CY16 and CY17 stand at PKR1.42/sh, PKR1.72/sh and PKR2.08/sh, respectively (down 5%‐7% from our previous estimates). We have rolled forward our model and at our Jun’16 TP of PKR24.5/sh, the stock offers a total return of 34% on last closing.
Changing dynamics of the competition: PTC has enjoyed a dominant position in country’s broadband market with a customer base that was 1.44mn (Dec’14 figures) which grew 24%YoY in CY14 and broadband revenues contributed ~30% to the company’s top‐line, as per our estimates. However more recently, the company’s standing as the market leader has been challenged after the country auctioned 3G/4G licenses and new players entered the broadband market. Mobile broadband have made significant inroads in the Pakistan’s broadband market with an addition of 13.03mn customers since the services were first launched in Jul’14. Taking into account the rising competition we have tweaked our estimates of broadband segment growth and we now expect the company’s customer base to increase 15%YoY to 1.70mn customers (against 18% assumed earlier) and the ARPUs of the broadband consumers to touch PKR1,300 in CY15 (against PKR1,500 assumed earlier). This will have a negative impact of PKR0.06/sh (3% of CY15 EPS) on the company’s bottom‐line on an annualized basis.
Robust increase in ICH minutes: As per our channel checks, the minutes landing on the ICH network have averaged around 600‐650million/month while during the month of Apr’15 the figure crossed 900mn minutes/month mark. For our valuation purpose, we have assumed an average of 800mn minutes while every 100mn minutes addition to our base case will lead to a positive annualized earnings impact of PKR0.05/sh on PTC’s bottom line, on a standalone basis.