Saudi Telecoms Sector: Mobily still ahead

Etihad Etisalat CompanyTelecom –Industrial04 December 2011We expect a revenue growth of22% for 2011; powered byhandset sales and broadbandgrowthIncome Statement (SARmn) 12/09A 12/10A 12/11E 12/12E 12/13ERevenue 13,058 16,013 19,474 22,226 24,827Cost of Goods Sold (5,512) (7,230) (9,362) (10,890) (12,165)Gross Profit 7,547 8,783 10,112 11,336 12,662Government ChargesS.G. & A. Costs (2,710) (2,619) (2,836) (3,253) (3,848)Operating EBIT 3,208 4,355 5,123 5,670 6,129We expect Mobily to pay adividend of SAR3.0 this yearand next yearWe expect gross margin to fallin 2011 and beyond on accountof increasing share of mobilesales carrying low marginsMobily’s ROIC is well above itsWACCMobily trades on a PE of 7.3xand EV/EBITDA of 5.9xCash Operating Costs (8,222) (9,849) (12,199) (14,143) (16,014)EBITDA 4,837 6,165 7,276 8,084 8,814Depreciation and Amortisation (1,629) (1,810) (2,153) (2,414) (2,685)Operating Profit 3,208 4,355 5,123 5,670 6,129Net financing income/(costs) (204) (146) (151) (187) (129)Forex and Related Gains - - - - -Provisions - - - - -Other Income 41 70 36 67 67Other Expenses - - - - -Net Profit Before Taxes 3,045 4,279 5,008 5,550 6,067Taxes (31) (67) (98) (133) (152)Minority Interests - - - - -Net profit available to shareholders 3,014 4,211 4,910 5,417 5,915Dividends (875) (1,400) (2,100) (2,100) (2,366)Transfer to Capital Reserve - - - - -12/09A 12/10A 12/11E 12/12E 12/13EAdjusted Shares Out (mn) 700.0 700.0 700.0 700.0 700.0CFPS (SAR) 6.63 8.60 10.09 11.19 12.29EPS (SAR) 4.31 6.02 7.01 7.74 8.45DPS (SAR) 1.250 2.000 3.000 3.000 3.380Growth 12/09A 12/10A 12/11E 12/12E 12/13ERevenue Growth 21.0% 22.6% 21.6% 14.1% 11.7%Gross Profit Growth 25.2% 16.4% 15.1% 12.1% 11.7%EBITDA Growth 27.5% 27.5% 18.0% 11.1% 9.0%Operating Profit Growth 28.5% 35.8% 17.6% 10.7% 8.1%Net Profit Growth 44.1% 39.7% 16.6% 10.3% 9.2%EPS Growth 16.8% 39.7% 16.6% 10.3% 9.2%Margins 12/09A 12/10A 12/11E 12/12E 12/13EGross profit margin 57.8% 54.9% 51.9% 51.0% 51.0%EBITDA margin 37.0% 38.5% 37.4% 36.4% 35.5%Operating Margin 24.6% 27.2% 26.3% 25.5% 24.7%Pretax profit margin 23.3% 26.7% 25.7% 25.0% 24.4%Net profit margin 23.1% 26.3% 25.2% 24.4% 23.8%Other Ratios 12/09A 12/10A 12/11E 12/12E 12/13EROCE 17.2% 20.6% 21.2% 20.7% 19.7%ROIC 18.4% 22.2% 23.4% 21.7% 22.6%ROE 27.4% 30.3% 29.1% 27.4% 25.4%Effective Tax Rate 1.0% 1.6% 1.9% 2.4% 2.5%Capex/Sales 25.6% 21.1% 21.2% 18.5% 18.0%Dividend Payout Ratio 29.0% 33.2% 42.8% 38.8% 40.0%Valuation Measures 12/09A 12/10A 12/11E 12/12E 12/13EP/E (x) 11.6 8.3 7.1 6.5 5.9P/CF (x) 7.5 5.8 5.0 4.5 4.1P/B (x) 2.9 2.2 1.9 1.6 1.4EV/Sales (x) 3.2 2.6 2.2 1.8 1.5EV/EBITDA (x) 8.7 6.6 5.8 5.0 4.2EV/EBIT (x) 13.1 9.4 8.3 7.1 6.1EV/IC (x) 2.2 1.9 1.7 1.5 1.4Dividend Yield 2.5% 4.0% 6.0% 6.0% 6.8%Source: Company data, Al Rajhi CapitalDisclosures Please refer to the important disclosures at the back of this report. 17