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Post  D.G.Dayaratne on Tue Jan 28, 2014 11:30 am

Dialog Axiata PLC (DIAL)

Earnings update



Steady growth in mobile – DIAL’s mobile telephony segment has seen steady growth in subscribers while average revenue per user (ARPU) has held steady. With the current floor price regime in voice and already low prices for data, we expect the ARPU to increase steadily in the medium term.



As a result we expect DIAL’s mobile business to see a top line growth of 10.2% annually on average through FY14 - FY16.



Positioning for growth in data – In order to capitalize on the next phase of telecommunication growth, mobile data, DIAL secured the spectrum for 4G auctioned in March 2013, for a sum of LKR 3.3 Bn. Additionally, a sum of USD 30 Mn will be invested through Bay of Bengal Consortium in undersea optical fibre connectivity.



However, data revenue is about 6% of total revenues of DIAL and significant impact on revenue is unlikely in the short term.



Upside to due to lower required return – Since our last recommendation to hold the share price has increased 14.4% while the ASPI has increased by 4.4%. We have revised our target price for DIAL upward on the back of lower required rate of return (due to 3 year treasury yield decreasing approximately 380 basis points since the last update). Thus we upgrade our recommendation to buy.

D.G.Dayaratne

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Post  balapas on Wed Jan 29, 2014 7:36 pm

Hi DG

There should be a PDF attachment?

balapas

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Post  D.G.Dayaratne on Wed Jan 29, 2014 10:45 pm











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NDB Securities (Pvt) Ltd.
5th Floor, NDB Building,
40, Nawam Mawatha,
Colombo 02

Sri Lanka.







This e-mail message is confidential. The information transmitted with it is intended only for the use of the individual or entity to which it is addressed and may contain information that is confidential, and or privileged/material. If you are not the intended recipient or the responsible person for delivery of the message to such person, you are notified that any review, retransmission, disclosure, dissemination, distribution, printing, copying, other use of or taking any action in reliance on the content of this e-mail and any files transmitted with it in whole or in part is strictly prohibited. If you have received this e-mail in error, please notify NDB Securities (Pvt) Ltd. immediately by e-mail or telephone and delete or destroy all copies of the original message and attachments thereto without review. E-mail transmission is not secure or error-free as information could be intercepted, corrupted, lost, destroyed, delayed, and incomplete and or contain viruses. NDB Securities (Pvt) Ltd does not accept liability for any damage caused by this e-mail.

Thank you.

NDB Securities (Pvt) Ltd,5th Floor, NDB Building, No 40, Nawam Mawatha, Colombo 02, Sri Lanka, Email: mail@ndbs.lk , Tel:+94112131000

















F



T


Share Data

Market price (as at 27.01.2014) LKR 9.50

52 week range LKR 7.90 - 9.90

Shares in issue (30.09.2013) 8,143,778

Average daily volume (52 weeks) 1,374,184

Estimated free float 14.73%

Target Price – LKR 13.00

Recommendation – BUY

Analyst – Buddhi Mahindaratne

Date – 27.01.2014

Dialog Axiata PLC (DIAL)

Earnings update

Steady growth in mobile – DIAL’s mobile telephony

segment has seen steady growth in subscribers while

average revenue per user (ARPU) has held steady. With the

current floor price regime in voice and already low prices

for data, we expect the ARPU to increase steadily in the

medium term.

As a result we expect DIAL’s mobile business to see a top

line growth of 10.2% annually on average through FY14 -

FY16.

Positioning for growth in data – In order to capitalize on

the next phase of telecommunication growth, mobile data,

DIAL secured the spectrum for 4G auctioned in March

2013, for a sum of LKR 3.3 Bn. Additionally, a sum of

USD 30 Mn will be invested through Bay of Bengal

Consortium in undersea optical fibre connectivity.

However, data revenue is about 6% of total revenues of

DIAL and significant impact on revenue is unlikely in the

short term.

Upside to due to lower required return – Since our last

recommendation to hold the share price has increased

14.4% while the ASPI has increased by 4.4%. We have

revised our target price for DIAL upward on the back of

lower required rate of return (due to 3 year treasury yield

decreasing approximately 380 basis points since the last

update). Thus we upgrade our recommendation to buy.











Mn

LKR

Volume Share Price

Price Performance
Page 1 of 5
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NDB Securities (Pvt) Ltd – Dialog Axiata PLC – 27th January 2014 2

Higher depreciation to subdue profit growth

Higher capital spending in FY13 and aggressive depreciation policy is

expected to increase DIAL’s depreciation charge over the medium term.

However, we expect profit margins to improve due to operating leverage

through FY14 – FY16. Gross profit margin and operating profit margin is

expected to improve to 42.1% and 13.8% in FY16 from 41.8% and 12.4% in

FY13.

Exchange loss reversal expected in FY13Q4

LKR appreciated 0.9% against the USD during FY13Q4, which is expected

to reduce the exchange loss incurred during FY13 and should enhance

profitability of DIAL. However, we expect the LKR to depreciate by

approximately 3% per annum in the medium term and therefore believe

exchange losses will continue to impact profitability.

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NDB Securities (Pvt) Ltd – Dialog Axiata PLC – 27th January 2014 3

Financials

In LKR Mn FY11 (A) FY12 (A) FY13 (E) FY14 (E) FY15 (E) FY16 (E)

Revenue 45,412 56,345 63,923 70,345 76,872 84,003

Direct cost (24,949) (32,216) (37,189) (41,040) (44,663) (48,678)

Gross profit 20,463 24,129 26,734 29,306 32,209 35,326

Other Income 83 138 152 167 184 202

Administrative & distribution cost (14,339) (17,466) (18,964) (20,617) (22,201) (23,923)

Operating profit 6,207 6,801 7,923 8,856 10,192 11,605

Finance cost (769) (2,727) (1,398) (1,868) (1,772) (1,501)

Profit form associates 10 (9) (9) (9) (9) (9)

Profit before tax 5,448 4,066 6,517 6,979 8,411 10,095

Tax (579) 1,965 (1,128) (1,250) (1,374) (1,509)

Profit attributable to ordinary shareholders 4,870 6,030 5,388 5,730 7,038 8,586

In LKR Mn FY11 (A) FY12 (A) FY13 (E) FY14 (E) FY15 (E) FY16 (E)

Non Current Assets

Property,plant & equipment 51,128 59,064 65,631 65,235 65,008 64,920

Intangible assets 3,869 10,386 16,739 16,554 16,328 16,062

Investment in associates and other investments 87 278 269 261 252 244

55,084 69,727 82,639 82,049 81,589 81,226

Current Assets

Inventories 409 284 393 433 473 517

Trade & other receivables 10,281 12,022 12,652 13,923 15,214 16,626

Cash & cash equivalents 10,452 8,647 1,765 6,053 10,147 14,855

21,143 20,953 14,809 20,408 25,835 31,997

Total assets 76,227 90,680 97,449 102,457 107,423 113,223

Equity

Stated capital 28,104 28,104 28,104 28,104 28,104 28,104

ESOS trust shares (1,991) (1,991) (1,991) (1,991) (1,991) (1,991)

Dividend reserve- ESOS 292 331 384 438 496 566

Retained earnings 6,789 10,737 13,386 16,293 20,258 25,191

Total equity 33,194 37,182 39,882 42,843 46,868 51,870

Non current liabilities

Borrowings 17,018 12,094 23,935 26,253 24,205 22,315

Deferred income tax liabilities 1,973 0 0 0 0 0

Retirement benefit obligations and other provisions 1,030 1,401 1,590 1,796 2,021 2,267

Deferred revenue 1,057 983 1,116 1,228 1,341 1,466

21,078 14,478 26,641 29,277 27,568 26,048

Current liabilities

Trade & other payables 15,837 26,164 24,242 26,752 29,114 31,731

Current income tax liabilities 64 24 24 24 24 24

Borrowings 6,055 12,833 6,660 3,561 3,850 3,549

21,955 39,020 30,926 30,337 32,988 35,304

Total liabilities 43,033 53,499 57,566 59,614 60,556 61,353

Total equity & liabilities 76,227 90,680 97,449 102,457 107,423 113,223
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NDB Securities (Pvt) Ltd – Dialog Axiata PLC – 27th January 2014 4

In LKR Mn FY13 (E) FY14 (E) FY15 (E) FY16 (E)

Cash flows from operating activities

Cash generated from operations 19,006 24,742 26,213 28,091

Interest received 104 78 162 250

Interest paid (933) (1,107) (1,122) (1,081)

Tax/ SRL/ ESC paid (1,128) (1,250) (1,374) (1,509)

Net cash generated from operating activities 17,049 22,464 23,879 25,751

Cash flows from investing actvities 0 0 0 0

Purcases of property, plant & equipment (19,343) (13,288) (13,700) (14,100)

Purchases of intangible assets (7,000) (500) (500) (500)

Net cash used in investing activities (26,343) (13,788) (14,200) (14,600)

Cash flows from financing activities

Repayment of borrowings (4,053) (5,670) (2,572) (2,860)

Proceeds from borrowings 9,153 4,050 0 0

Dividends paid to company's shareholders (2,740) (2,823) (3,072) (3,653)

Dividend received- ESOS 52 54 59 70

Net cash generated from financing activites 2,412 (4,389) (5,585) (6,443)

Net (decrease)/ increase in cash & cash equivalents (6,882) 4,288 4,095 4,707

At start of year 7,368 486 4,774 8,868

(Decrease)/ increase (6,882) 4,288 4,095 4,707

At end of year 486 4,774 8,868 13,576

Key Ratios FY11 (A) FY12 (A) FY13 (E) FY14 (E) FY15 (E) FY16 (E)

Growth Ratios

Turnover Growth (%) 9.63 24.08 13.45 10.05 9.28 9.28

Operating profit growth (%) 14.66 9.57 16.49 11.77 15.09 13.87

Net Profit Growth (%) 2.42 23.83 (10.65) 6.34 22.82 22.00

Profitability Ratios

Net Profit Margin (%) 10.72 10.70 8.43 8.15 9.15 10.22

ROE (%) 15.44 17.14 13.98 13.85 15.69 17.39

Share Ratios

EPS (LKR) 0.60 0.74 0.66 0.70 0.86 1.05

DPS (LKR) 0.25 0.33 0.34 0.37 0.44 0.52

DY (%) 3.21 3.98 4.10 4.02 4.78 5.65

BV (LKR) 4.08 4.57 4.90 5.26 5.76 6.37

Gearing

Total Debt/Equity 0.70 0.67 0.77 0.70 0.60 0.50
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D.G.Dayaratne

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