PTCL under limelight – Global Research
By: Sana Abdullah,Global Securities Pakistan Ltd
ICH rates likely to go down to USD 0.058/min
Media reports suggest that the Ministry of Information Technology has drafted a working paper, where they are contemplating to either reduce the ICH Rates down to USD 0.058/min or to disband the International Clearing House (ICH) altogether. LDI incoming minutes have halved after the establishment of ICH, to ~500mn minutes/ month from 1.2bn minutes/ month in the Pre-ICH era. Although a lot of the business has suffered due to grey telephony, we believe the segment is likely to witness decline on the back of penetration of broadband connections and the popularity of VOIP. The Competition Commission of Pakistan has already ruled against ICH, however, no action has been taken to date by the GoP, to dissolve the arrangement.
PTC has been a major beneficiary of the ICH
PTCL’s consolidated PAT increased by 97% YoY in CY13 to PKR 15.75bn (EPS: PKR 3.09), on the back of turnaround in profitability due to the ICH. Revenues of the company depicted an increase of 11% YoY. The LDI business, which constituted 9% of PTC’s standalone revenues in the pre-ICH era, increased to 24% in CY13. Gross margins also witnessed an increase to 37% in CY13, compared to 34% in CY12. Decline in the ICH call termination rates from USD 0.088/min to USD 0.058/min will be negative for PTC’s revenues and profitability. As per crude estimates, if incoming minutes do not increase after the reduction in call termination rates, earnings of the company are likely to be negatively impacted by PKR 0.50/sh on an annualized basis.
3mo ending
|
%
|
3mo ending
|
%
|
12mo ending
|
%
| ||||
PKR mn
|
Sep13
|
Dec13
|
D
|
Dec12
|
Dec13
|
D
|
Dec12
|
Dec13
|
D
|
| Revenues |
34,913
|
30,749
|
(12)
|
33,514
|
30,749
|
(8)
|
118,415
|
131,224
|
11
|
| COGS |
23,069
|
18,573
|
(19)
|
18,829
|
18,573
|
(1)
|
74,600
|
83,067
|
11
|
| Gross Profit |
11,844
|
12,176
|
3
|
14,686
|
12,176
|
(17)
|
43,815
|
48,158
|
10
|
| SG&A Exp. |
7,181
|
6,389
|
(11)
|
6,319
|
6,389
|
1
|
24,409
|
26,261
|
8
|
| Other Income |
944
|
1,160
|
23
|
850
|
1,160
|
37
|
5,363
|
4,538
|
(15)
|
| Finance Cost |
381
|
479
|
26
|
991
|
479
|
(52)
|
3,813
|
2,642
|
(31)
|
| PBT |
5,225
|
6,469
|
24
|
9,756
|
6,469
|
(34)
|
11,489
|
23,794
|
107
|
| PAT |
3,414
|
4,474
|
31
|
9,446
|
4,474
|
(53)
|
7,997
|
15,753
|
97
|
| EPS (PKR) |
0.67
|
0.88
|
1.85
|
0.88
|
-
|
1.57
|
3.09
|
-
| |
| DPS (PKR) |
-
|
1.00
|
-
|
1.00
|
-
|
2.00
| |||
| Source: Company Accounts | |||||||||
Upcoming 3G license auction
PTC is likely to go for the 3G license auction for its subsidiary PTML (Ufone). The license’s base price is set at USD 295mn (PKR 28.9bn), and the auction is scheduled for the end of this month. The company held cash and cash equivalents of PKR 28.5bn, as of Dec13. Moreover, PTC repaid PKR 18.5bn worth of its long term debt on Ufone’s books in 2H CY13, making room to raise debt for new projects. 3G is likely to be revenue accretive for the company; however we anticipate cannibalization of the LDI segment post launch of faster internet on cellphones.
Outlook
Due to the recent share price run up in PTC, we downgrade our stance on the company from BUY to NEUTRAL. We have also tweaked the company’s earnings for the change in PKR/USD estimates for 2Q CY13. Change in the base rate for PKR/USD parity will significantly impact the earnings of the LDI segment in CY14 and beyond. Our Target Price for CY14 stands at PKR 34/sh. The stock offers an upside of 5% from current levels, and is trading at a forward PE of 11.9x.
CY11
|
CY12
|
CY13E
|
CY14E
|
CY15E
| |
| EPS (PKR) |
1.41
|
1.57
|
3.09
|
2.70
|
3.02
|
| DPS (PKR) |
1.65
|
0.0
|
2.0
|
2.00
|
2.75
|
| P/E |
22.9
|
20.6
|
10.4
|
11.9
|
10.7
|
| P/B |
0.81
|
0.74
|
0.67
|
0.66
|
0.65
|
| Div. Yield (%) |
5.11
|
-
|
6.20
|
6.20
|
8.53
|
| Earnings Growth (%) |
(34.2)
|
11.3
|
97.0
|
(12.4)
|
11.6
|
| ROE |
6.4
|
6.9
|
12.8
|
10.8
|
11.8
|
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