cfa institute research challenge · main sector indicators 116 108 110 102 2012 2013 2014 2015 uae...
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CFA Institute Research Challengehosted by CFA Society UAE – Local Challenge
S P Jain School of Global Management (Team A)
Emirates Integrated Telecommunications Company (DU)
All figures in AED unless otherwise noted
SP Jain School of Global Management
8.9%
EV/EBITDA
DCF HOLD
6.53 AED
8.8%
Sustained Market Share
Regulated Duopoly
Reliable Network Coverage
Infrastructure Investment
Limited Churn Rate
Drag On ARPU in Mobile Segment
Royalty Structure
Market
Capitalization:
27.4 Bn
Price as on
8th March:
6 AED
Price as on
23rd March:
6 AED
I N V E S T M E N T T H E S I S
4.5
5
5.5
6
6.5
7
7.5
Jan '16 Apr '16 July '16 Nov '16 Feb '17
Stock Price
Target Price: 6.53
One Year Target
Business Overview
Industry & Competitors
Financial Analysis ValuationRiskAnalysis
InvestmentThesis Appendices
BUSINESS OVERVIEW
F O U N D E D
2005
E M P L O Y E E S
2000 (approximately)
R E V E N U E
12.73 BLN (AED)
N E T I N C O M E
1.74 BLN (AED)
F O O T P R I N T
U.A.E.
C E O
OSMAN SULTAN
K E Y I N F O R M AT I O N
Source: Company filings
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
C O M PA N Y P R O F I L E
Source: Company filings
UAE Government Via Emirates Investment
Authority (EIA)39.5%
Dubai Holding Via Emirates
International Telecommunication
(EIT)19.5%
Public20.92%
ShareholdingPattern
Abu Dhabi Government via Mubadala 20.08%
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
C O M PA N Y M I L E S TO N E S
Source: Company filings
2005 Company formed as EITC
2007
Rebranded as du.
Launched Mobile
Services2009
Launched Internet Services
with 24Mbps
2017
Partnered with
Virgin Mobile
2008 Added 1.8M subscribers in one year
2011 Over 5M subscriber base
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
INDUSTRY & COMPETITORS
P O R T E R ’ S F I V E F O R C E S
0
1
2
3
4
5Threat of New Entrants
Power of Suppliers
Power of BuyersThreat of Substitutes
Rivalry
UAE Telecommunications Sector - Porter's Five Forces
Source: Team Research
Regulated and capital intensive
Competitive prices & diversified product offerings
Intense rivalry
Offers substitutes (landline + cable tv + data services)
Not able to forward integrate
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
30
25 24 23
45
33 32 32
24
19
12
17
2012 2013 2014 2015
UAE Worldwide Rankings
NRI IDI GCI
Source: TRASource: TRA
2015 UAE GCC Rankings
G C C & WO R L D W I D E R A N K I N G S
NRI
1ST
IDI
3RD
GCI
2ND
Network Readiness Index
ICT Development Index
Global Competitive
Index
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
VA LU E A D D E D TA X
2 0 1 8 5 %
U N I T E D A R A B E M I R AT E S
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
M A I N S EC TO R I N D I C ATO R S
73%
8%
19%
UAE Telecommunications Sector Revenue Break-Up
Mobile Services Fixed Telephony Services Internet Services
AED 31.9 BLN (-0.9%)
AED 5.9 BLN (+28.0%)
AED 23.2 BLN (-6.0%)
AED 2.7 BLN (-3.2%)
Source: TRA
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
M A I N S EC TO R I N D I C ATO R S
Source: TRA
136 124 126 112
2012 2013 2014 2015
UAE Telecommunications Sector - Mobile Services ARPU (AED)
13.78 16.06 16.82 17.94
2012 2013 2014 2015
UAE Telecommunications Sector - Mobile Services Subscribers (Millions)
73%
8%
19%
UAE Telecommunications Sector Revenue Break-Up
Mobile Services Fixed Telephony Services Internet Services
Mobile Services Market Saturating
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
M A I N S EC TO R I N D I C ATO R S
116
108 110
102
2012 2013 2014 2015
UAE Telecommunications Sector - Fixed Telephony Services ARPU (AED)
1.96
2.08 2.09
2.24
2012 2013 2014 2015
UAE Telecommunications Sector - Fixed Telephony Services Subscribers (Millions)
73%
8%
19%
UAE Telecommunications Sector Revenue Break-Up
Mobile Services Fixed Telephony Services Internet Services
Fixed Line Services Market Declining
Source: TRA
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
M A I N S EC TO R I N D I C ATO R S
345 357 354 416
2012 2013 2014 2015
UAE Telecommunications Sector - Internet Services ARPU (AED)
0.96 1.04 1.09 1.23
2012 2013 2014 2015
UAE Telecommunications Sector - Internet Services Subscribers (Millions)
73%
8%
19%
UAE Telecommunications Sector Revenue Break-Up
Mobile Services Fixed Telephony Services Internet Services
Internet Services Market Growing
Source: TRA
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
M A I N S EC TO R I N D I C ATO R S
Source: Team Research
Internet Services Market Growing
Mobile Services Market Saturating
Fixed Line Services Market Declining
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
52%
ETISALAT
3%others
45%
DU
U N I T E D A R A B E M I R AT E S
Source: Company filings, TRA
C O M P E T I T I O N
71% of new postpaid subscribers
75% of International traffic
62% of new total connections
29% of new postpaid subscribers
25% of International traffic
38% of new total connections
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
C O M P E T I T I O N
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
GCC UAE QATAR KUWAIT BAHRAIN KSA OMAN
Company Du Etisalat Qatar Telecom Zain Batelco Mobily Oredoo
CAPEX 1.5 4.9 (3.3x)
7.5(5.0x)
0.4(0.3x)
0.7(0.5x)
5.5(3.7x)
0.6(0.4x)
Revenue 12.73 28.8 (2.3x)
32.8(2.6x)
3.9(0.3x)
3.6(0.3x)
12.3(1.0x)
2.4(0.2x)
EBITDA 5.4 16.3 (3.0x)
13.5(2.5x)
1.9(0.4x)
1.3(0.2x)
3.9(0.7x)
1.3(0.2x)
EBITDA % 42% 57% 41% 50% 38% 32% 55%
In equivalent AED BLN 2016 figures. * Etisalat numbers are for 2015 since 2016 are not available.
Source: Team Research
FINANCIAL ANALYSIS
9.84
10.80
12.24 12.3412.73
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
2012 2013 2014 2015 2016
Total Revenue
340
360
380
400
420
440
460
480
0
20
40
60
80
100
120
140
160
2012 2013 2014 2015
ARPU Trends
Mobile Landline Call select TV Broadband
Mobile revenues under pressure
Gradual shift towards Non mobile revenue
YOY Growth of 3.16% In FY16
S T E A DY R E V E N U E
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
72%
21%
6%
1%
Revenue Break Up 2016
Mobile
7.618.37
9.18 8.99 9.12
0.00
2.00
4.00
6.00
8.00
10.00
2012 2013 2014 2015 2016
Mobile Revenue
103
9896
94
859095
100105
2012 2013 2014 2015
Mobile ARPU
Mobile
Growth in Subscriber base 11.95%
Growth in Revenue 1.47%
M O B I L E R E V E N U E
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
Mobile
Growth in Revenue 4.42%
F I X E D L I N E R E V E N U E
72%
21%
6%
1%
Revenue Break Up 2016
Fixed Line
1.62 1.68
2.252.55 2.67
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2012 2013 2014 2015 2016
Fixed Line Revenue
300
350
400
450
500
0
50
100
150
2012 2013 2014 2015
FIxed Line ARPU
Landline Call select TV Broadband
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
72%
21%
6%
1%Revenue Break Up 2016
0.44
0.58
0.660.63
0.77
0.17 0.18 0.16 0.16 0.17
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
2012 2013 2014 2015 2016
Wholesale And Broadcasting Revenue
W H O L E S A L E A N D B R O A D C A S T I N G R E V E N U E
Growth in Whole Sale Revenue 4.46%
Growth in Broadcasting Revenue 3.16%
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
3.04
3.79 3.87
4.81
3.45
1.72 1.56 1.7 1.7 1.58
0.68
2.3
1.411.96
1.5
0.00
1.00
2.00
3.00
4.00
5.00
6.00
2012 2013 2014 2015 2016
Operational cash flow / Capex
Operational cash flow Capex Dividend Payout
0.29
0.56 0.57 0.57 0.56
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
2012 2013 2014 2015 2016
Debt Equity
28.6% 28.2%30.4% 31.3%
30.1%
8.6%9.5%
13.0%
15.6%16.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2012 2013 2014 2015 2016
EBIT Margin | Royalty
EBIT Margin Royalty as % of revenue
Royalty taking away more than half the EBIT margin
Healthy operational cash flow and Royalty coverage
Steady debt equity
Adequate gearing and flexibility to borrow
C A S H F LOW | R OYA LT Y | D E BT
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
9.8410.80
12.24 12.34 12.73 12.59 12.83 13.26 13.68 14.11
2.81 3.043.72 3.86 3.84 4.01 3.95 3.99 4.01 4.02
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F
Revenue & EBIT
REV EBIT
DU Pont 2012 2013 2014 2015 2016
ROE 26% 27% 28% 25% 22%
Net Margin 20% 18% 17% 16% 14%
Asset Utilisation 0.71 0.72 0.72 0.69 0.70
Gearing 1.85 2.04 2.26 2.29 2.32
Stable margins
Saturating revenues
CAGR 2.3%
F I N ANC I AL A N ALYS I S | E X P EC TAT I O NS
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
VALUATION
VA LUAT I O N
Discounted Cash Flow Method
• Fair Value : 6.81 AED
• Weightage : 80%
Market Multiples
• Fair Value : 5.42 AED
• Weightage: 20%
PRICE TARGET : 6.53 AEDUpside : 8.87%
HOLD
Rating
Market Return +/- 5%
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
Source: Team Research
Population Growth Teledensity
Market Share
DU Subscriber Base ARPU
Revenue
UAE Subscriber Base
FY 2017 Data
Population 9.4 Mln
Market share 45.62%
DU subscriber base 9.15 Mln
Mobile ARPU 85
R E V E N U E D R I V E R S
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
R E V E N U E D R I V E R S
91559723
1028810813
11357
0
2000
4000
6000
8000
10000
12000
2017 2018 2019 2020 2021
Mobile subscribers for DU (in '000)
8579
7469
65
0
10
20
30
40
50
60
70
80
90
2017 2018 2019 2020 2021
Monthly ARPU
F F F F F F F F F F
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
D I S C O U N T E D F R E E C A S H F LOW M E T H O D
Terminalgrowth rate
1.75%WACC 7.35%
Cost of Equity 9.96%
Cost of Debt 2.72%
Target Price by
FCFF
6.81
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
WAC C
Cost of Equity 9.96%
Cost of Debt 2.72%
Effective Interest Rate
3.8% Risk Free Rate
8.67%
0.71 Volatility Weighted Beta
Risk Premium
Cost Of Capital:7.35%
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
M U LT I P L E S M E T H O D
EV/EBITDA multiple 4.51
EBITDA per share 1.20
Target Price by
Multiples
5.42
0.00
5.00
10.00
15.00
20.00
Price 15X 12X 9X 6X 3X
Price/EBTDA Bands
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
I N V E S T M E N T E F F I C I E N C Y
Mean 0.07%Standard Deviation 1.02%Skewness 0.86
Excess Kurtosis 4.34
0
20
40
60
80
-3.80% -2.12% -0.45% 1.23% 2.91% More
Fre
qu
en
cy
Returns
Returns - Distribution
Frequency
Sharpe Ratio Index 2.558824
Sharpe Ratio Du 0.86375
Sharpe Ratio Etisalat 1.08
Daily Annualized
VAR Index (95%) -1.81% -28.63%
VAR Du (95%) -2.31% -36.59%
VAR Etisalat (95%) -2.18% -34.47%
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
RISKANALYSIS
R I S K P R O F I L E
• Deregulation of VOIP Call
• Introduction of Third Player
Regulatory
• Increasing Operating Cost
• Shifting Customer Preferences
Operational• Oil Prices
• Global Pressures of Protectionism
Macroeconomic
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
S E N S I T I V I T Y A N A LYS I S
Mobile ARPU Price Potential
Down by 10% 6.2 3.27%
Down by 5% 6.36 6.07%
Down by 2% 6.47 7.75%
BASE CASE 6.53 8.87%
Up by 2% 6.6 10.00%
Up by 5% 6.7 11.68%
Up by 10% 6.87 14.48%
Growth rate
AED 6.53 0.00% 1.00% 1.75% 4.00% 5.10%
WACC
3% 12.79 18.42 28.54 -32.20 -14.52
5% 7.74 9.30 11.10 32.73 -310.97
7.35% 5.32 5.93 6.53 9.96 14.14
8% 4.90 5.40 5.88 8.39 11.04
9% 4.37 4.75 5.10 6.77 8.28
10% 3.96 4.24 4.51 5.68 6.66
Market Share
Growth Rate
AED 6.53 0.00% 1.00% 1.75% 4.00% 5.00%
43.00% 5.15 5.75 6.34 9.68 13.23
44.00% 5.21 5.82 6.41 9.79 13.37
45.62% 5.32 5.93 6.53 9.96 13.6
46.00% 5.34 5.96 6.56 10 13.65
47.00% 5.4 6.03 6.64 10.11 13.79
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
R I S K M AT R I X
Macro Economic
Regulatory
Operational
Shifting Customer
Preferences
Rising Operational Cost
PR
OB
AB
IL
IT
Y
Hig
hM
od
erat
eOpening up VoIP
callsNew Player in the
Market
Low
Insignificant Moderate Severe
I M P A C T
A steep fall in oil prices
Business Overview
Industry & Competitors
Financial Analysis
Valuation RiskAnalysis
InvestmentThesis Appendices
8.9%
EV/EBITDA
DCF HOLD
6.53 AED
8.8%
I N V E S T M E N T T H E S I S
4.5
5
5.5
6
6.5
7
7.5
Jan '16 Apr '16 July '16 Nov '16 Feb '17
Stock Price
Target Price: 6.53
One Year Target
Business Overview
Industry & Competitors
Financial Analysis ValuationRiskAnalysis
InvestmentThesis Appendices
Market
Capitalization:
27.4 Bn
Price as on
8th March:
6 AED
Price as on
23rd March:
6 AED
Q&AYashodhan. Anna. Salman. Paras. Aakash.
THANK YOU!
APPENDICES
A P P E N D I X : R AT I N G K E Y
A P P E N D I X : K E Y F I N A N C I A L S
A P P E N D I X : F I N A N C I A L S : K E Y R AT I O S
A P P E N D I X : F I N A N C I A L S : K E Y R AT I O S
A P P E N D I X : VA LUAT I O N
9155 9723 10288 10813 11357
8579 74 69 65
0
20
40
60
80
100
0
2000
4000
6000
8000
10000
12000
2017 2018 2019 2020 2021
Mobile
Mobile Subscribers Mobile ARPU
364 379 394 410 426
233231
229
227
224
218220222224226228230232234
320
340
360
380
400
420
440
2017 2018 2019 2020 2021
Fixed Line
Fixed line Subscribers Fixed Line ARPI
220 240 261 285 310
510 538 568602
638
0
100
200
300
400
500
600
700
0
50
100
150
200
250
300
350
2017 2018 2019 2020 2021
Broad Band
Broad Band Subscribers Broad Band ARPU
176 189 203 218 235
82 86 90 95100
0
20
40
60
80
100
120
0
50
100
150
200
250
2017 2018 2019 2020 2021
TV
T V Subscribers TV ARPU
S EG M E N T A N A LYS I S
A P P E N D I X : F I N A N C I A L S : R E V E N U E P R OJ EC T I O N S
A P P E N D I X : A R P U S TAT I S C A L A N A LYS I S
A P P E N D I X : F I N A N C I A L S : BA L A N C E S H E E T A S S E T S
A P P E N D I X : F I N A N C I A L S : BA L A N C E S H E E T L I A B I L I T I E S
A P P E N D I X : F I N A N C I A L S : BA L A N C E S H E E T S H A R E H O L D E R S EQ U I T Y
A P P E N D I X : F I N A N C I A L S : I N C O M E S TAT E M E N T
A P P E N D I X : F I N A N C I A L S : R OYA LT Y C A L C U L AT I O N
A P P E N D I X : C A P E X S C H E D U L E
A P P E N D I X : LOA N S C H E D U L E
A P P E N D I X : M AC R O EC O N O M I C O U T LO O K
A P P E N D I X : M AC R O EC O N O M I C O U T LO O K
A P P E N D I X : P O R T E R ’ S F I V E F O R C E S
5 Forces Degree Rationale
Rivalry High • Duopoly of Etisalat and Du• Easy number portability
Threat of New Entrants Low • Capital Intensive• Regulated telecom license
Power of Buyers Moderate • Only two options, Etisalat and Du• Since rivalry is high, prices for mobile services are competitive• Wide variety of products and services offers
Threat of Substitutes Low • Both operators offer landline, cable TV, and data services
Power of Suppliers Low • Low product differentiation, high bargaining power• Low price elasticity due to low buyer switching cost• Inability to forward integrate
Source: Team Research
A P P E N D I X : UA E T E L EC O M M U N I C AT I O N S S EC TO R
A P P E N D I X : D U O U T R E AC H
Company License Mobile Fixed Line Internet Broadcasting Satellite
Al Yah Satellite Services Company 2010 ✔️ ✔️ ✔️
Star Satellite Communications 2010 ✔️ ✔️ ✔️ ✔️
Al-Maisan Satellite Communications 2011 ✔️
Media Zone Intaj FZ LLC 2011 ✔️
Thuraya 2013 ✔️ ✔️
Inmarsat 2015 ✔️
A P P E N D I X : UA E N E W L I C E N S E S
Source: TRA
A P P E N D I X : UA E M O B I L E S E R V I C E S
23.54 26.18 28.70 31.49
5.16 7.05
9.25 11.15 28.70
33.23 37.95
42.64
2012 2013 2014 2015
UAE Telecommunications Sector - Mobile Traffic (Bln of Minutes)
Total Mobile Traffic (Bln of minutes) International Mobile Traffic 2,723
43
2,373
33
2,039
20
1,515
6
SMS Traffic (Mln) MMS Traffic (Mln)
UAE Telecommunications Sector
2012 2013 2014 2015
43%
2%
25%
48%
23%
30%
5%14%
4% 6%
Outgoing Calls Incoming Calls
UAE Telecommunications Sector - 2015 Most Popular Destination
Bangladesh India Pakistan Egypt Nepal
168%
193% 199%210%
2012 2013 2014 2015
UAE Telecommunications Sector Mobile Services Penetration Rate
35%
1%3%
61%
Breakdown of Mobile Voice Traffic
International Minutes Outbound Roaming
Mobile to Fixed Mobile to Mobile
12.06 13.95 14.35 15.14
1.72 2.11 2.47
2.80 13.78 16.06 16.82
17.94
2012 2013 2014 2015
UAE Telecommunications Sector - Mobile Subscriptions (Mln)
Prepaid Subscribers Postpaid Subscribers
Source: TRA
A P P E N D I X : UA E F I X E D L I N E S E R V I C E S
3.53
3.41
2.96
3.38
2012 2013 2014 2015
Total Fixed Line Traffic (Billions of Minutes)
450
396
349 343
2012 2013 2014 2015
International Fixed Line Traffic (Millions of Minutes)
15%
75%
10%
Breakdown of Total Voice Traffic (Minutes %)
Fixed to Fixed Fixed to Mobile International
1.10 1.20 1.21 1.22
0.86 0.88 0.89 1.01
1.96 2.08 2.09
2.24
2012 2013 2014 2015
UAE Telecomunnications Sector - Fixed Line Subscriptions (Millions)
Residential Fixed Lines Business Fixed Lines
Source: TRA
A P P E N D I X : UA E I N T E R N E T S E R V I C E S
847 925 969 1066
108 117 121168955
1042 10901234
2012 2013 2014 2015
UAE Telecommunications Sector -Broadband Subscribers by Service
(Thousands)
Residential Business
679841 964
1101
272198
122129951
1039 10861230
2012 2013 2014 2015
UAE Telecommunications Sector - Internet Subscriptions by Technology
Fiber Copper Total
32% 24% 23% 16%
36% 39% 31%23%
32% 37% 46%61%
2012 2013 2014 2015
UAE Telecommunications Sector -Broadband Subscription Shares by
Package
Standalone Internet Double Pay Triple Pay
4.00% 8%2.90% 4%9% 5%
84.10% 83%
Residential Business
Distribution of Broadband Subscribers by Internet Speed
Below 1 Mbps 1 Mbps 2-4 Mbps Above 4 Mbps
Source: TRA
A P P E N D I X : D U S WOT
0
5
10
15
20Total Strengths
Total Weaknesses
Total Opportunities
Total Threats
DU SWOT
Threats DU
Market Saturation 25
Declining ARPU 25
Substitute Products 5
Entry Barriers 5
Regulations 5
New Competitors 20
Pricing 20
Average Threats 15
Opportunities DU
Vertical Integration 20
International Expansion 25
Market Growth 15
Product Offerings Expansion 20
Untapped Market 25
New Technologies 25
Competition Complacency 5
Average Opportunities 19
Weaknesses Du Etisalat
Profitability 15 5
Market Share 15 10
Management 5 5
Cost Structure 15 10
Product Offerings 10 15
Infrastructure 15 10
Brand Name 15 5
Average Weaknesses 13 9
Strengths Du Etisalat
Technology 20 25
Connectivity 15 25
Economies of Scale 15 20
Customer Service 20 20
Sales Team 15 20
Management Team 25 25
Value for Money 30 20
Average Strengths 20 22
Source: Team Research
A P P E N D I X : S WOT
0
5
10
15
20
25
30Technology
Connectivity
Economies of Scale
Customer ServiceSales Team
Management Team
Value for Money
Strengths
Du Etisalat
0
5
10
15Profitability
Market Share
Management
Cost StructureProduct
Offerings
Infrastructure
Brand Name
Weaknesses
Du Etisalat
0
5
10
15
20
25Vertical Integration
InternationalExpansion
Market Growth
Product OfferingsExpansion
Untapped Market
New Technologies
CompetitionComplacency
Opportunities
0
5
10
15
20
25Market Saturation
Declining ARPU
Substitute Products
Entry BarriersRegulations
New Competitors
Pricing
Threats
Source: Team Research
A P P E N D I X : BA S K E T O F G O O D S C O M PA R I S I O N
Du Postpaid Plans
Monthly Charge
Activation (One Time)
DataFlexible Minutes
Contract Others
150 125 6 GB 30024
months
300 125 18 GB 60024
months300 minutes call 1
preferred numbers free
450 125 25 GB 120024
months600 minutes call 2
preferred numbers free
1000 125100 GB
250024
months1000 minutes call 3
preferred numbers free
Etisalat Postpaid Plans
Monthly Charge Data Minutes Contract
500 25 GB 2000 local 12 months
500 25 GB 750 flexi 13 months
1000 100 GB 2000 local 14 months
1000 100 GB 1000 flexi 15 months
Du Prepaid Plans (Pay As You Go)
Monthly Charge Flexi Minutes Data
25 35 N/A
50 75 N/A
100 150 500 MB
100 100 1 GB
150 150 2 GB
200 300 3 GB
Etisalat Prepaid Plans (Monthly Combo Pack)
Monthly Charge Flexi Minutes Data
Small 60 100 MB
100 100 1 GB
150 150 2 GB
200 300 3 GB
Du (iPhone 7 32GB - Flexible Mins)
Contract Monthly MonthlyMonthly Data Total Cost
Comparable iPhoneApple
Duration Payments Minutes Plan Cost
24 260 300 6GB 6,240 150 2,640 2,599
24 410 600 18GB 9,840 300 2,640
24 560 1200 25GB 13,440 450 2,640
12 370 300 6GB 4,440 150 2,640
12 520 600 18GB 6,240 300 2,640
12 670 1200 25GB 8,040 450 2,640
Etisalat (iPhone 7 32GB - Flexible Mins)
Contract Monthly MonthlyMonthly Data
Total Comparable iPhoneApple
Duration Payments Minutes Cost Plan Cost
24 265 500 6GB 6,360 150 2,760 2,599
24 265 200 6GB 6,360 150 2,760
18 400 1000 12GB 7,200 250 2,700
18 400 300 12GB 7,200 250 2,700
18 650 750 25GB 11,700 500 2,700
18 650 2000 25GB 11,700 500 2,700
These are only a representative of the mobile product offerings of Du and Etisalat.
Source: Team Research
A P P E N D I X : UA E S TO R E C OV E R AG E
DU Etisalat
Store per SQM No of stores Store per SQM No of stores
UAE 153 60 102 90
Dubai 142 29 48% 98 42 47%
Abu Dhabi 49 20 33% 49 20 22%
Sharjah 47 5 8% 14 17 19%
Ajmaan 130 2 3% 29 9 10%
Fujaira 1,166 1 2% 1,166 1 1%
Ras Al Khaiman 1,684 1 2% 1,684 1 1%
Umm Al Quwain 389 2 3% - - -
Source: Team Research
A P P E N D I X : V I R G I N M O B I L E E N T RY S T R AT EGY
GCC # of Operators VM Entry VM Operates as
Qatar* 2 2010 MVNO
Saudi Arabia 3 2014 B-Brand
Oman 2 2009 MVNO
UAE 2 2017 B-Brand
*Virgin Mobile operated in Qatar for only one year.
Brand: Virgin MobileTarget Market: Youth
Brand: Friendi MobileTarget Market: Expatriates
Source: Team Research
VM – Virgin Mobile
GCC Qatar Kuwait Bahrain Saudi Arabia Oman
CompanyQatar
TelecomVodafone
QatarZain Ooredoo Viva Batelco Zain STC Mobily Zain Omante Ooredoo
Fiscal 2016 2015/2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2015
CAPEX 7.51 0.4 0.4 N/A 1.2 0.7 0.2 9.4 5.5 0.0 1.6 0.6
Revenue 32.83 2.1 3.9 2.4 3,365.5 3.6 0.6 50.8 12.3 0.0 5.0 2.4
EBITDA 13.50 0.4 1.9 0.6 1,592.3 1.3 0.2 17.6 3.9 0.0 2.5 1.3
EBITDA Margin
41% 21% 50% 26% 47% 37% 38% 35% 32% 26% 51% 55%
A P P E N D I X : G C C C O M PA R I S O N
Source: Team Research
A P P E N D I X : M A N AG E M E N T T E A M
A P P E N D I X : B OA R D O F D I R EC TO R S
A P P E N D I X : C O R P O R AT E S O C I A L R E S P O N S I B I L I T Y
CFA Institute Research Challenge
Disclosures:
Ownership and material conflicts of interestThe author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, ofthis report does not know of the existence of any conflicts of interest that might bias the content or publication of this report.
Receipt of compensationCompensation of the author(s) of this report is not based on investment banking revenue. Position as an officer or a director The author(s), or a member of their household, does notserve as an officer, director, or advisory board member of the subject company.
Market makingThe author(s) does not act as a market maker in the subject company’s securities.
DisclaimerThe information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does notmake any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions byany person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not beconsidered to be a recommendation by any individual affiliated with CFA Society UAE, CFA Institute, or the CFA Institute Research Challenge with regard to this company’s stock.