Foundation Research

Equities

PAKISTAN Pakistan Telecom Co.

24 May 2010
PTC PA Outperform
Non operating income boosts profits
Stock price as of 21 May Rs 21.2 Event
June 10 target Rs 27.1
Upside/downside % 27.9  Pakistan Telecommunication Company (PTC PA) for 9MFY10 announced net
Valuation Rs 27.1 earnings of PKR7,860mn (EPS PKR1.54, up 8.8% YoY), operating profit of
- Sum of Parts PKR8,463mn (down 6.7% YoY) and top line of PKR43,119mn (down 4.2%
Telecommunication YoY). PTCL also declared interim dividend of PKR1.75 per share. We
Market cap Rs bn 108.2 maintain our outperform rating for PTCL.
30-day avg turnover US$m 2.5
Market cap US$m 1,273
Impact
Number shares on issue m 5,100
 Revenues down by 4% YoY during 9MFY10: Despite growing revenues
Investment fundamentals from international and Broadband segment, net revenue declined by 4% YoY
Year end 30 Jun 2008A 2009A 2010E 2011E during 9MFY09 owing to declining domestic revenues. Fixed line revenues
Total revenue m 61,086 59,239 58,849 61,792 declined by 7% YoY on back of declining subscribers (3.2mn in dec-09, down
EBIT m (3,615) 10,754 11,792 12,011 9% YoY) due to competition from cellular services. International revenues
EBIT Growth % N.A N.A 9.7 0.0 increased by 23% YoY in 9MFY10 as international traffic increased after
Recurring profit m 12,659 9,151 10,728 11,252 decline in settlement rates from US$12.5 to US$10.5. Though Broadband
Reported profit m (2,825) 9,151 10,628 11,252
and EVDO are continuously increasing their share in net revenue, we do not
expect PTC to post annual growth in top line before FY11. As per PTA,
EPS rep Rs (0.55) 1.79 2.08 2.21 PTCL’s broadband subscribers increased by 61% to 0.33mn in 1HFY10.
EPS rep growth % N.A N.A 16.2 6.3
 Operating margins down to 19.6%: Operating margins declined by 53 basis
points on YoY basis to 19.6% owing to increasing marketing and
PE rep x N.A 11.8 10.2 9.6 administrative expenses. Provision for doubtful debts have declined from
PRK2,218mn in 9MFY09 to PKR1,390mn in 9MFY10. Operating profit
Total DPS Rs - 1.50 1.75 2.00
declined by 6.7% YoY to PKR8,463mn owing to 4% decline in revenues and
Total div yield % - 7.1 8.3 9.4 lower operating margins.

ROA % (2.0) 6.8 8.1 8.1  Non operating income grew by 32% YoY: Despite 6.7% decline in
ROE % (2.89) 8.44 8.92 9.24 operating profit, net earnings increased by 9% YoY on back of non operating
EV/EBITDA x 6.5 7.4 7.1 7.0 income. Non operating income increased by 32% YoY to PKR3,923mn in
Net debt/equity % -15.02 -14.77 -16.37 -16.04 9MFY10 owing to dividend income from Ufone, higher interest on loan to
Price/book x 1.0 0.9 0.9 0.9 subsidiary and higher return on bank balances. PTCL received PKR673mn
PTC PA rel KSE100 performance from Ufone during 9MFY10. Moreover, interest on loan to subsidiary
PTC KSE-100 increased by 163% to PKR410mn owing to another PKR2,000mn loan to
165 Ufone (PKR3,000mn loan was given in FY09).
140
Earnings Revision
115
90
 We are revising our earnings estimates for FY10 and FY11 upward by 1%
each after incorporating additional interest on loan to Ufone in our model.
65
Price catalyst
Sep-09

Nov-09

Jan-10

Mar-10
May-09

Jul-09

May-10

 Jun-10 price target: PKR27.1 based on Sum of Parts method

Source: Foundation Research, May 2010
 Catalyst: Realization of real estate potential and increase in subscriber base
(all figures in PKR unless noted) for new products like IPTV, EVDO and Broadband.

Analyst
Action and recommendation
Naukhaiz Saleem, ACCA  Since the stock is trading at 27.9% discount to our June-10 target price, we
92 21 5612290-94 Ext 339 nsaleem@fs.com.pk maintain our outperform rating.

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Pakistan Telecommunication Company Limited May 24, 2010

Fig 1 9MFY10 results review

Rs mn 9MFY09 9MFY10 %Ch 2QFY10 3QFY10 %Ch
Revenue 45,021 43,119 -4.2% 14,953 13,694 -8.4%
Cost of services 28,188 27,883 -1.1% 9,291 9,212 -0.9%
Gross Profit 16,833 15,236 -9.5% 5,661 4,483 -20.8%
Operating Costs (Total) 35,946 34,656 -3.6% 11,737 11,419 -2.7%
Operating Profit 9,075 8,463 -6.7% 3,215 2,275 -29.3%
Non-Operating income 2,964 3,923 32.4% 1,123 1,691 50.7%
Finance Cost 912 344 -62.3% 87 127 45.8%
PBT 11,126 12,042 8.2% 4,251 3,839 -9.7%
PAT 7,224 7,860 8.8% 2,785 2,506 -10.0%
EPS 1.42 1.54 8.8% 0.55 0.49 -10.0%

Source: Company data, PTA, FS Research, May 2010

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Pakistan Telecommunication Company Limited May 24, 2010

About The Company

Pakistan Telecommunication Company Limited (PTCL) is the largest telecommunication company in
Pakistan which provides basic telephony cellular mobile and internet/data services. The company was
incorporated in Pakistan on December 31, 1995 and is listed on Karachi, Lahore and Islamabad stock
exchanges. It was established to undertake the telecommunication business formerly carried on by
Pakistan telecommunication Corporation. The business was transferred to the company on January 1,
1996 under the Pakistan Telecommunication (reorganization) Act, 1996. PTCL launched its mobile and
data services subsidiaries in 2001 by the name to PTML (known as Ufone) and PakNet respectively.
The Paknet brand has effectively dissolved over the period of time and PTCL has directly launched
DSL services under its brand name. In 2006, the Government of Pakistan sold 26% shares and control
of the company to UAE based group “Etisalat”.

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