Etihad Etisalat Company (Mobily)

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ETIHAD ETISALAT COMPANY (MOBILY) Defining a league... July 22, 2008 Recommendation STRONG BUY Target Price SAR 73

Husain Thaker Analyst Snehdeep Fulzele Head of Research +966 1 2118455 snehdeep.fulzele@FALCOM.com.sa FALCOM Financial Services P.O. Box 884 Riyadh 11421 Kingdom of Saudi Arabia

Saudi Arabia

Telecom Sector

Market Performance Current Market Price SAR (July , 008) 5 week High (SAR) 5 week Low (SAR) PER (TTM) PBVR Dividend Yield YTD 008  Year Return 3 Years Return Beta 30 day Avg. Volume Shareholding Pattern Etisalat (UAE) Saudi Private Investors GOSI Public Capital Action (SAR Million) Rights Issue (Expected) Capital Increase Current Capital Total Share Capital CAGR (2005-2007) H’008 ,000 5,000 7,000 76.75 45.50 5.9 4.0 .0% -30.6% -.% -54.% .04 755,0 2008 6.5% .50% .5% 40.00% 5.00 No. of Outstanding Shares (millions) Market Capitalization (SAR millions) Enterprise Value (SAR millions) Tadawul Code TASI PER PBVR Div Yield Valuation Indicators 700 9096. 0.0 3. .% Bloomberg Code Telecom Sector PER PBVR Dividend Yield EEC AB 397.8 3.6 3.3 5.5% 33,70 5,500 500 % to Total Market Capitalization % to Telecom Sector 3.6% .5%

PEG PEG (5 year Ex-Rights Est.) PER 008 PER 009 PER 00

0.35 0.7 4.3 .5 9.5

Price Volume Chart
12 9 80 70 60 50 40 7/21/08

Millions Millions

Sales Net Profit Fixed Assets Shareholders’ Equity CAGR (2008-2012) Est. Sales Net Profit Fixed Assets Shareholders’ Equity (SR ‘000) Sales EBITDA Net Profit EPS (SR) PER ( X ) PBV ( X ) EV/EBITDA (X) Asset turnover Ratio ROE (%) ROA (%)

5% NA 4% 4%

6 3 0 7/21/07

3.3% 9.8% 0.7% 5.4% 2006 5,846,59 ,000,504 700,358 .40 37. 5.7 7.4 0.34 6.7% 6.8%

10/24/07

1/27/08 Volume

4/23/08 Price

2007 8,440,43 ,946,809 ,379,548 .76 6.6 6. 5.3 0.45 6.4% 0.%

2008E 0,596,3 3,755,0 ,785,63 3.57 4.3 3.0 9.4 0.47 4.6% 0.4%

2009E ,685,80 4,553,33 ,5,39 4.43 .5 .5 7.7 0.49 3.7% .0%

2010E 4,54,85 5,9,90 ,687,896 5.38 9.5 . 6.7 0.54 4.8% .5%

FALCOM Research

SAR 

Etihad Etisalat Company (Mobily)

Saudi Arabia

Telecom Sector

CONTENTS

Executive Summary Company Profile Service Offerings Operations & Marketing Financial Analysis Strategy & Competitive Advantages SWOT Analysis Future Outlook Valuation Company Financials Glossary Rating Rationale Disclaimer

04 06 09 0 4 9 3 4 7 30 34 35 36

FALCOM Research

Etihad Etisalat Company (Mobily)

3

Saudi Arabia

Telecom Sector

EXECUTIVE

SUMMARY

Mobily, the second GSM mobile operator in Saudi Arabia transformed the telecommunications landscape with its entry in 005. In three years of operation, Mobily had Market share of 39% with over . million subscribers under its prepaid and post paid plans; Total and 3G population coverage of 97% and 50% respectively; Over 00,000 mobile broadband internet subscribers; Revenues of SAR 9.4 billion (USD .5 billion) and net profit margin of 7.0% for TTM in Q’08; EBITDA margin of 34.4% and a debt equity ratio of .54 for the same period. Mobily growth has been spurred with a lower calling tariff structure coupled with rising higher net disposable income within the target population. Lately, Mobily’s focus has been to expand the broadband market where the ARPU margins are higher than the conventional voice based ARPU. Mobily has also been consolidating its position in the telecommunications value chain with the acquisition of Bayanat Al-Oula, a data communications operator, in Q 008 and Zajil International, an ISP provider, in July 008. Mobily’s stake in the international fiber optic network with its parent operator Etisalat of UAE would bring long term synergic benefits with such inorganic growth. The completion of the ,600 km fiber optic network and the international gateway in 008 would reduce Mobily’s dependence on STC and ensure cost savings. At the same time, with the entry of Zain and...
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