Morning Call about -Efforts to curb Grey Traffic to boost revenues of Telecos – Arif Habib Limited

Karachi, September 20, 2013 (PPI-OT): LDI operators contribute US$ 27mn to stem the flow of illegal traffic as per news reports and channel checks from Arif Habib Limited industries sources, the govt has launched a US$ 27mn monitoring system to curb the gray traffic in the country.

According to Arif Habib Limited the system was working on a trial basis since Aug’13 as Arif Habib Limited updated in Morning Call dated August 7, 2013. The equipment as reported has the capability of monitoring incoming and outgoing voice and data traffic and enables PTA to block the traffic without a physical raid on the premises.

Arif Habib Limited did witness a 21% MoM rise in Aug’13 LDI mins (611mn), which was mainly on account of seasonal uptake of Eid festival. Also, a significant contribution came from implementation of the monitoring equipment. Arif Habib Limited foresees a further uptake in LDI mins this Sep’13 and next month due to Hajj and Eid seasons.

A contribution of minute’s uptake due to monitoring equipment should also be taken into account going forward, with PKR/USD depreciation of 6% since Jul’13 being another beneficial factor as payments from foreign operators are booked in USD. Along with PTC (50% market share), Telecard Limited (TELE) is another beneficiary of the ICH arrangement since Oct’12, where 80% of its top line is from LDI operations (3.3% market share). Arif Habib Limited has also seen the company jump back into profitability in 1HFY13 result after a period of seven quarters.

Sensitivity LDI Minutes on EPS (Base Case 600mn from Aug’13 onwards to Dec’13)

Companies          600mn 700mn          800mn 900mn         1,000mn
PTC* 3.00            3.04                 3.08              3.12                   3.16                
PTC** 0.96           1.00                 1.04              1.08                   1.12                
WTL** 0.94           0.98                 1.02              1.06                   1.10                
TELE** 2.54          2.64                 2.75              2.86                   2.97                
Source: Arif Habib Research                           *Total Earnings                    **Only LDI earnings

Recommendation – ‘Hold’ with Dec-end TP of PKR 29.1/share
Arif Habib Limited DCF-based price target for PTC stands at PKR 29.1/share for CY13 year end (offering 11% upside from current levels) while the scrip trades at PBv and PE of 1.12x and 8.72x on CY13E estimates.

Arif Habib Limited also expect another payout of PKR 1.0/share as a final cash dividend from PTC, bringing total dividend payout for the year to PKR 2.0/share (DY 7.6% for the entire year) though there exists a possibility of a final dividend hold-back given the potential 3G auction bid and Warid deal being in the pipeline. However, Arif Habib Limited expects fresh rounds of borrowing by PTC through a mix of equity and long-term loans sources, as the balance sheet stands debt-free.

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