Академический Документы
Профессиональный Документы
Культура Документы
Egypt | Telecoms
Market Price
Recommendation
Upside Potential
Investment Grade
EGP1.01
EGP1.03
HOLD
-2%
Speculative
Executive Summary
OTMT.CA
Sector
Telecoms
EGX
Report Reason
Re-initiation
Stock Currency
EGP
Exchange Rate
LE7.63/USD
5,403
5,246
0.42
1.46 - 0.94
51.6 Mn
Shareholders
Ownership Stake
52%
Other Shareholdings
8%
Free Float
40%
Senior Analyst
Mahmoud Mardishy
Phone
mmardishy@egy.primegroup.org
1.40
160
1.20
1.00
120
TargetPrice:
EGP1.01
0.80
Mn Shares
200
1.60
EGP/share
80
0.60
0.40
40
0.20
0
Apr-15
Mar-15
Jan-15
Feb-15
Dec-14
Oct-14
Volume
Nov-14
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
May-14
0.00
OTMT
Source: Bloomberg
Prime Research
2013a
2014a
2015f
2016f
2017f
2,471
2,707
3,301
3,642
3,889
Growth
12%
10%
22%
10%
7%
EBITDA margin
70%
70%
74%
74%
73%
1,119
264
2,522
1,698
1,789
1,119
264
2,522
1,698
1,789
EPS (EGP)
0.1
-0.012
0.409
0.3
0.3
DPS (EGP)
0.3
0.0
0.0
0.0
0.0
BVPS (EGP)
1.3
1.2
1.7
1.9
2.2
P/E x
7.47
NA
2.52
3.74
3.55
Dividend Yield
25%
0%
0%
0%
0%
P/BV x
0.80
0.83
0.62
0.53
0.46
Egypt | Telecoms
A New Story,
Expansion Strategy - No More a Telecom Player OTMT unveiled its intentions turning into a
holding company investing in three main industries in Egypt; GSM, Energy and Logistics.
The GSM - Experience Backlog Has been and will continue to be the companys main segment and
its area of expertise. Currently, the company assets are dominated by its North Korean Mobile operator
Koryolink which represents more than 50% of assets by the end of Sep 2014, and represents around 70%
of total consolidated revenue. However the currency repatriation policies applied by the North Korean government makes it a more betting game, which motivates OTMT management to seek other investments in
the segment, in the EMEA region whether by acquiring a mobile operator or starting a new mobile operations. Its worth noting that OTMT is no more bidding for Mobinil mobile towers, however it
still show willingness to invest in mobile infrastructure as well.
Sustainable Energy Value Exploration As Egypt is one of the major countries in the world blessed
with high solar intensity of direct solar radiation (2,000-2,600 KWh/m2) which shows a great potential for
solar energy development, especially in Upper Egypt. Beside studies have revealed that with the present
rate of usage, all fossil fuel resources will be practically depleted within this decade thereby stressing the
need to develop cheaper sources of renewable energy of which solar applications would play an important
role. While the Egyptian government seeks to reform the energy system, targeting approximately 12-15
GW of production over the next five years by the local and international private sector, the government
plans to introduce a feed-in tariff and a seamless licensing process to boost private investment. Furthermore, it will reduce the cost of infrastructure investment for renewable energy companies by identifying
logistically suitable areas and at the same time providing the locations with connection access to the national grid. OTMT seized the day, and showed eagerness by partaking in renewable energy in
Egypt, and recently signed a MoU with the ministry of electricity to build a solar energy plant
with estimated initial investment around USD120 million and takes around 12-18 month to
start operating, its worth noting that management has revealed intention to borrow around
80% of the plant financing from banks. While guidance regarding the operations and how
many solar or wind plants would be started are not available yet, and consequently not reflected in the target price.
Logistics & Transportation - Delivering Potentials The transportation sector is the Trojan horse of
economic growth in Egypt, where all sectors of the national economy depend on the services and facilities
of this sector to link both production and consumption markets together. The unique geographic position
of Egypt connecting the international trade between Europe, the Middle East, Africa and Asia makes Egypt
to become a major global logistics hub. The Suez Canal is crucial to both global shipping and to the Egyptian economy, with the waterway representing one of the biggest revenue-generators in Egyptian trade. It
connects the Red Sea to the Mediterranean and acts as the country's major source of foreign currency,
which is also generated by oil and gas exports, tourism and remittances from Egyptians living abroad. With
the growing domestic demand for imports and a rapid rise in export oriented businesses the demand increase for logistics and transportation services raising potential areas for investments in the sector. OTMT
targets investing in the logistics and transportation to reap the potential uptake in the sector while targets
to grasp the know-how of the business by entering partnerships with global players or by acquiring existing companies that have operational excellence.
Non-Core Assets Divesture,
We Believe
OTMT
managed to reach the
best divesture for Mobinil remaining 5%
shares
Prime Research
In late Feb 2015, Orange (formerly France Telecom) agreed to exercise its call option buying OTMTs 5%
stake in ECMS, and 28.75% of the voting rights in MT Telecom, for a gross proceeds of approximately
EUR209.6 million. The transaction is seen the best close of the deal with Orange. We were expecting that
OTMT would exercise the put option for the 5% remaining direct stake in Mobinil to 1.67% per annum
over a three-year period from 2015 to 2017. while the positive part was luring Orange to exercise the option to call all of OTMTs direct and indirect stake, While taxation will have different rates, 10% capital gain
tax for the proceeds from Mobinil stake and 30% for the proceeds from selling the voting rights, implying
a net proceeds of EGP1.6 billion from the sale, representing EGP0.3 per OTMT share.
Egypt | Telecoms
At the mean time we reckon further positive effect on OTMTs profit margins post sale effective 2015, as this sale would save the share of losses coming from Mobinil in the short term.
Besides Mobinil Sale, the board of OT Ventures (OTMTs fully owned subsidiary) approved the sale of its
internet based assets and their subsidiaries for a net equity value of EGP100 million. These assets, operating in Mobile Value Added Services, Online Advertising, Development and Content Management, include: Link for Programming Development - Connect Ads for Advertising and Programming - Link on line - Arab
finance for Brokerage - Link Register - ARPU For Telecommunication Services - Egypt Call S.A.E - Otlob.com for Restaurant Reservation Services - LINK dot NET Al Arabia El Saudia - LINK dot NET Qatar LINK dot NET UAE. The transaction is was closed during the first quarter of 2015.
We reckon no dividend distribution in the short term as OTMT will be investing the proceeds
of this divesture in the expansions plan.
Figure 1. OTMTs key subsidiaries by operational segments, and ownership percentage (direct
and indirect).
Source: OTMT
com Holding (OTH) (ORTE.CA). OTMT is a holding company that has investments in subsidiaries with operations mainly in North Korea, Egypt, Lebanon and other North African and Middle-Eastern countries.
The GSM Segment
The largest contributor to OTMTs Top line and bottom line, the core operational and management expertise,
Koryolink, a 75% owned subsidiary in the republic of North Korea, jointly with the state-owned KPTC, it
is one of the rare cases of green-field operations in the world telecom industry. The unit was launched by
the end of 2008, with a 25-year license as well as a four year monopoly, and 5 years tax holiday.
Prime Research
Egypt | Telecoms
Orascom Telecom Lebanon-OTL, Is the primary management for Alfa, one of two operating GSM networks in Lebanon owned by the Ministry of Telecommunications (MoT) in Lebanon. The management contract has recently been renewed by the Republic of Lebanon until a further notice. Alfas coverage reaches
98.3% of the Lebanese territories and 98.8% of the populated areas.
Mobinil, Post the demerger in 2012, The holding of Mobinil was transferred to OTMT, in the recent transaction as discussed earlier, OTMT sold-out all its direct and indirect stack in Mobinil to Orange, this transaction seen positively affecting OTMT, to secure some cash required for the expansion plan, beside curbing the share of losses from Mobinil.
Media & Technology Segment
The ownership of the internet based assets was shifted to OTMT post the demerger. While at the meantime the board of its fully owned subsidiary OT Ventures approved the sale its internet based assets and
their subsidiaries for a total equity value of EGP100 million. While the company recorded an impairment
loss of EGP60 million to account to the different between the book value and the agreed sales value. The
media and technology will no more appear in the reporting structure going forward.
Cable Business
Trans World Associates - TWA, is Pakistans leading submarine fiber optic cable operator started operations in 2006. OTMT holds a 51% ownership stake in TWA, which is a joint-venture with Orastar Limited,
UK and Omzest group of Oman. TWA owns and operates its own cable system, known as TW1, and provides direct broadband and high-speed connectivity to telecom operators, internet service providers and
major corporations.
MENA Cable, is a fiber optic submarine cable system connecting three continents (Europe, Africa and
Asia), and spanning two seas (the Mediterranean and the Red Sea) and one ocean (the Indian Ocean).
MENA Cable in its first phase of operation spans a distance of 8,800 km and lands in Italy, KSA, Oman and
India passing through Egypt with potential for expansion through additional landing points in East Africa
and East of the Mediterranean Sea. The company plans also include serving the Far East through partnerships with other international submarine cables. With the latest technology of 100 Gbps, the connectivity
services provided by MENA submarine cable system provide the lowest latency between South Asia,
Europe and the Middle East amongst existing competitive cables. MENA Cable plans to reach a 10% market share of the incremental addressable market with the company target sales over USD140 million in the
coming 3 years.
Prime Research
Egypt | Telecoms
Financial Summary
OTMTs consolidated results showed a top line growth of 10.5% reaching EGP2.7 billion in 2014, up from
EGP2.4 billion in 2013, backed by the continued growth from the North Korean arm Koryolink revenues,
EBITDA also showed improvements reaching EGP1.9 billion with EBITDA margin of 70%, compared to
EGP1.7 billion and 70% in 2013 respectively. We believe the operational results deemed normal and yet to
show further improvements after the divesture of the non-core assets (OT ventures and Mobinile).
Figure 2. Revenues to sustain growth backed by the
accretive subscribers base in Koryolink.
Yet below the line, OTMT have logged EGP340 Figure 4. Profit margin to jump on Mobinil sale in 2015
and stabilize around 35% going forward.
million losses from financing in 2014, against
EGP341 million gains in 2013 mainly due to
changes in financial derivates valuation, in addition to the increase in taxes on profits, due to the
end of tax holiday on Koryolink the major assets.
consequently, logged a net loss after tax and
minority amounting EGP62 million in 2014
against EGP723 million profits in 2013.
While for 2015, we reckon top line to show further improvements to record EGP3.3 billion up
Source: OTMT & Prime Estimates
from EGP2.7 billion in 2014 supported by Koryolink subscribers accretion, moreover EBITDA to reach EGP2.4 billion and EBITDA margin to reach 74%
compared to EGP1.9 billion and 70% in 2014 respectively. This boost is backed by 1) the divesture of OT
Ventures which have been accumulating losses from operations for the last couple of years, 2) the launch
of MENA cable operations which is expected to boost EBITDA of the Cable Business starting 2015.
While we reckon net profits to significantly lunge recording EGP2.1 billion in 2015 fueled by Mobinil capital
gain, coupled with absence of the historical share of loss from subsidiaries. NPM to reach 65% in 2015 and
to stabilize around 35% going after.
Prime Research
Egypt | Telecoms
Koryolink currently the major contributor to OTMTs top line. It have seen a successive growth rates with
tremendous revenue generation in the last 5 years where mobile subscribers reached 2.6 million by Dec2014 more than fivefold subscribers of 2010, we reckon mobile subscribers to further uptake given the low
mobile penetration rates in the North Korean market of 10 subscriber per 100 inhabitants in 2014.
Figure 6. ARPU slide, positively affecting top line and
EBITDA.
Prime Research
Figure 7. Foresee higher penetration rates while decreasing annual net adds.
Egypt | Telecoms
Figure 10. CAPEX to normalize around 19% of revenues over the forecast period.
We reckon CAPEX to stabilize around 19% of revenues
over the forecast period given that an excess CAPEX was
incurred in 2013 and 2014 related to MENA Cable linkage through Telecom Egypts network.
Prime Research
Egypt | Telecoms
Re-Initiation of Coverage
Valuation
We used sum of the parts - SOTP discounted cash flow valuation model to account for the different nature
of operations among the companys business segments.
In our valuation of the North Korean telecom operator - Koryolink, we used a WACC of 21.8% to account
for the country risks, with a beta of 1.2 and perpetual growth rate of 4%, we calculated the enterprise
value of Koryolink at EGP8.3 billion. OTMT management guided that Koryolink operations are 75% dominated in KPW, hence we adjusted enterprise value of Koryolink to account for the black market rate resulting in an adjusted enterprise value of EGP2.3 billion. Knowing that the restricted cash balance in North
Korea which amounts EGP4.2 billion include amount of EGP608 million in EURO (EUR75 million), and the
rest in KPW, which should be adjusted to the black market rate.
While the rest of the operating segments were valued using a WACC of 17.0%, a perpetual growth rate of
2.5%, and a beta of 1.2. Target price came at EGP1.01/share, USD0.66/GDR, with 2% downside
risk compared to the market price of EGP1.03/share, accordingly we issue a Hold recommendation.
2015f
2016f
2017f
2018f
2019f
NOPLAT
Non-cash Items
Gross Cash Flow
Change in Operating Working Capital
Capital Expenditure
Free Cash Flow
Present Value of Free Cash Flows
Terminal Value
Present Value Of Terminal Value
Value for Operation
Currency Adjusted Value For Operation
Net Cash
Currency Adjusted Net Cash
1,657
361
2,018
(649)
(615)
753
625
12,836
5,097
9,979
3,513
6,602
3,096
1,798
416
2,215
46
(679)
1,582
1,088
1,899
473
2,372
34
(725)
1,681
959
2,094
526
2,620
39
(802)
1,858
879
2,296
582
2,878
45
(881)
2,042
801
Long-term investment
Minority Sharholdings
Shareholder Value
DCF Value Per Share (EGP)
272
1,572
5,309
1.01
1.03
Upside potential
-2%
(EGP Millions)
Prime Research
Egypt | Telecoms
Re-Initiation of Coverage
8,344
2,207
399
399
Koryolink EV
OT Lebanon - Alpha EV
Cables Segment EV
707
721
9,450
3,327
1.06
1.06
9,979
3,513
745
745
3,575
69
Cash Summary
Holding Copmany
Restricted Cash in KPW
Restricted Cash in EUR
608
608
1,618
1,618
100
100
6,647
3,140
272
272
44
44
1,572
1,572
15,282
5,309
2.91
1.01
183%
-2%
SOWT Analysis
Opportunities
Strengths
The
Huge potential in the companys new core segments in which energy, logistics, beside mobile infrastructure.
Weakness
Highly
Unclear
New
Prime Research
Threats
Persistence
of currency protection and dividend repatriation restrictions imposed by the North Korean government which harshly limit OTMTs ability to pay dividends.
Instability
Egypt | Telecoms
Re-Initiation of Coverage
FINANCIAL
SUMMARY
(Figures in
EGP million))
Income Statement
Revenue
2013a
2,471
2014a
2,707
2015f
3,301
2016f
3,642
2017f
3,889
Growth
12.1%
9.5%
22.0%
10.3%
6.8%
COGS
436
540
679
771
838
123
176
130
151
44
132
46
146
46
156
EBITDA
1,735
1,886
2,447
2,679
2,850
Growth
90.3%
8.7%
29.7%
9.5%
6.4%
EBITDA Margin
70%
70%
74%
74%
73%
201
256
361
416
473
1,535
1,629
2,086
2,263
2,377
Interest Income
341
-340
99
143
145
Investment Income
-49
-50
Interest Expense
37
19
Non-Operating Income
Non-Operating Expenses
26
94
121
131
138
EBIT
Extra-Ordinary Items
-477
-447
1,203
1,287
679
3,262
2,274
2,385
Income Tax
Effective Tax Rate
167
13%
415
61%
740
23%
576
25%
596
25%
Net Income
1,119
264
2,522
1,698
1,789
Growth
-78.9%
-108.6%
-3560.2%
-32.7%
5.4%
1,119
264
2,522
1,698
1,789
Growth
NPM
-78.9%
-108.6%
-3560.2%
-32.7%
5.4%
45.3%
9.8%
76.4%
46.6%
46.0%
Balance Sheet
Cash & Marketable Securities
2013a
4,245
2014a
5,387
2015f
8,875
2016f
10,490
2017f
12,258
459
4
100
2
424
2
467
3
499
3
Trade Receivables-Net
Inventory
Other Current Asset
87
140
149
164
175
4,794
1,359
5,628
1,922
9,449
2,220
11,123
2,521
12,935
2,805
1,220
171
128
90
58
642
592
Other Assets
1,922
1,889
518
518
518
Total Assets
9,937
10,203
12,315
14,252
16,316
45
1,310
29
1,078
13
950
13
1,079
12
1,173
110
1,465
147
1,254
0
963
0
1,092
0
1,185
16
593
15
638
14
770
12
916
11
1,072
1,136
6,727
9,937
1,772
6,523
10,203
1,901
8,667
12,315
2,122
10,110
14,252
2,417
11,630
16,316
2013a
1,545
201
2014a
1,016
256
2015f
1,657
361
2016f
1,798
416
2017f
1,899
473
1,746
510
1,272
99
2,018
-649
2,215
46
2,372
34
-231
230
-615
-679
-725
2,025
1,601
753
1,582
1,681
Long-Term Debt
Provisions
Capital Expenditure
Free Cash Flow Excluding Goodwill
Investment in Goodwill, Intangibles & and Adjustment
Free Cash Flow Including Goodwill
51
-112
2,076
1,489
753
1,582
1,681
Prime Research
10
Egypt | Telecoms
Strong Buy
x > 25%
Buy
Accumulate
5%< x <15%
Hold
Reduce
Sell
Strong Sell
x < -25%
Investment Grade
Explanation
Growth
Value
Income
Speculative
Prime Research
11
Egypt | Telecoms
Managing Director
hsamir@egy.primegroup.org
Mohamed Ezzat
mezzat@egy.primegroup.org
Shawkat Raslan
sraslan@egy.primegroup.org
asaber@egy.primegroup.org
Manager
aalaa@egy.primegroup.org
Mohamed Elmetwaly
Manager
melmetwaly@egy.primegroup.org
Emad Elsafoury
Manager
eelsafoury@egy.primegroup.org
Amr Saber
RESEARCH TEAM
research@egy.primegroup.org
HEAD OFFICE
PRIME SECURITIES S.A.E.
Regulated by CMA license no. 179
Members of the Cairo Stock Exchange
2 Wadi El Nil St., Liberty Tower,
7th-8th Floor, Mohandessin, Giza, Egypt
Tel: +202 33005700/770/650/649
Fax: +202 3305 4611
Disclaimer
Information included in this report has no regard to specific investment objectives, financial situation, advices or particular needs of the report users.
The report is published for information purposes only and is not to be construed as a solicitation or an offer to buy or sell any securities or related
financial instruments. Unless specifically stated otherwise, all price information is only considered as indicator.
No express or implied representation or guarantee is provided with respect to completeness, accuracy or reliability of information included in this
report.
Past performance is not necessarily an indication of future results. Fluctuation of foreign currency rates of exchange may adversely affect the value,
price or income of any products mentioned in this report.
Information included in this report should not be regarded by report users as a substitute for the exercise of their own due diligence and analysis
based on own assessment and judgment criteria. Any opinions given are subject to change without notice and may significantly differ or be contrary
to opinions expressed by other Prime business areas as a result of using different assumptions and criteria. Prime Group is under no obligation
responsible to update or keep current the information contained herein.
Prime Group, its directors, officers, employees or clients may have or have had interests or long or short positions in the securities and/or currencies
referred to herein, and may at any time make purchases and/or sales in them as principal or agent.
Prime Group, its related entities, directors, employees and agents accepts no liability whatsoever for any loss or damage of any kind arising from the
use of all or part of these information included in this report. Certain laws and regulations impose liabilities which cannot be disclaimed. This disclaimer shall, in no way, constitute a waiver or limitation of any rights a person may have under such laws and/or regulations.
Furthermore, Prime Group or any of the group companies may have or have had a relationship with or may provide or have provided other services, within its objectives to the relevant companies. Prime Group 2015 all rights reserved. You are hereby notified that distribution and copying of
this document is strictly prohibited without the prior approval of Prime Group.
Prime Research
12