Morning Call about -LDI minutes for Jun’13 down, interim dividend a possibility? – Arif Habib Limited

Karachi, July 03, 2013 (PPI-OT): LDI minutes for Jun’13, decline continues 10.4% MoM Although reservations have been expressed by the new Minister of IT in its recent meeting with LDI operators on the ICH arrangement on lowering int’l incoming minutes, the ICH consortium remains adamant on maintaining rates at current levels.

According to Arif Habib Limited Continuing with the declining trend, incoming int’l call minutes were recorded at its lowest level in Jun’13, at 501mn (down 10.4% MoM) due to rampant grey trafficking and alternative modes of communication adopted by int’l callers, such as VOIP.

Grey traffic issue to be taken up on serious note
The impact on PTC’s earnings however is not very significant, as a 100mins monthly decline, or increase, from Arif Habib Limited bases case of monthly 600mins have an EPS impact of ~PKR 0.02 on PTC’s CY13 earnings.

A seasonal uptake is also expected in the coming months of Aug’13 and Oct’13 (Eid festivals, Hajj). Arif Habib Limited believes, controlling grey traffic by the new gov’t would be taken up more swiftly as this might be an incentive for the gov’t with respect to pending USD800mn from Etisalat as well, where the later may pay the pending amount contingent upon effectively handling of grey traffic paving the way for further expansion and investment in the Telecom sector (3G/4G auctions are also planned).

PTC 1HCY13 result: interim dividend a possibility?
A possibility of interim DPS (PKR 0.5-1.0) from PTC does exist with 1H’13 result, since gov’t expectation for dividend from PTC last year could not materialize due to hefty VSS payment (PKR 9.5bn, PKR 1.86/share) in 2HCY12.

With the gov’t expectation this year for dividend from PTC standing same as PKR 2.05/share, and PTC realizing strong cash flows due to the ICH arrangement despite decline in LDI minutes (PKR 13bn operating cash flows with no significant investment and other outflows, as of Mar’13 financials), Arif Habib Limited can safely expect an interim dividend from PTC with 2Q’13 result (2Q’13E EPS PKR 0.6, 1H’13E EPS PKR 1.25).

However, hindrances to dividend still stand in the form of cash required for 3G license and any potential deal for acquisition of Warid Telecom (either through PTC or directly by Etisalat). Arif Habib Limited recommends ‘Buy’ on PTC with Arif Habib Limited Dec-end revised price target at PKR 29/share (due to decline in risk-free rate for valuation).

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