dialog axiata plc · expanded business functions: ... competitor analysis for dialog axiata ltd...
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Capital TRUST Securities (Pvt) Ltd
DIAL Page | 1
Dialog Axiata PLC
Earnings Review – BUY | Rs.10.00 | March 2016
CASE FOR INVESTMENT
Being the market leader: Dialog Axiata is the market leader for Sri Lankan
mobile market which accounted for nearly 43% of market share. Dialog
broadband Network is Sri Lanka‟s second largest Fixed Telecommunications
service provider, and also a leading provider of Radio and Optical Fiber based
transmission infrastructure facilities.
Attractive performance: The Company continues to perform well in both
mobile and non-mobile (DTV and DBN) segments.
Strong brand name and reputation: Strong brand name and reputation
associated with the group also assists in the development of the business.
Expanded business functions: DIAL is the pioneer for international roaming
facility in Sri Lanka which comprises voice roaming collaborations through 617
operators in 225 countries around the globe.
Improving demand: Increase in demand for smart phones will eventually
improve the demand for mobile data which will positively contribute to the
mobile operation segment.
Strong infrastructure development: Dialog focus on expanding the high
speed Fiber Optic network on island wide together with the establishment of
strong International (Sub-Marine) Optical Fibre connectivity to the Global
Internet via the Bay of Bengal Gateway (BBG) Cable project.
Key Data
Sector Telecommunication
CSE ticker DIAL.N0000
Shares in issue 8.1bn
Public holding 16.68%
52wk High - Low LKR 12.50-9.80
Avg. daily volume 1,945,621
Current MPS LKR 10.00
Market Cap LKR 81.4bn
Market Cap USD 0.6bn
A Member of the Colombo Stock Exchange
Foreign Broker-Dealer of
Maybank Kim Eng Securities USA Inc.
Investor Guide FY13 FY14 FY15 FY16E FY17E
Revenue (LKR mn) 63,298 67,286 73,930 80,954 88,217
Growth 12% 6% 10% 10% 9%
Gross Profit (LKR mn) 26,432 28,489 33,102 35,863 38,904
Growth 10% 8% 16% 8% 8%
EBIT (LKR mn) 7,664 8,054 9,497 10,605 11,574
Growth 13% 5% 18% 12% 9%
PAT (LKR mn) 5,201 6,098 5,187 6,235 7,575
Growth -14% 17% -15% 20% 21%
Gross margin 42% 42% 45% 44% 44%
Operating margin 12% 12% 13% 13% 13%
Net margin 8% 9% 7% 8% 9%
ROE 13% 14% 11% 13% 14%
ROA 5% 5% 4% 5% 6%
EPS (LKR) 0.64 0.75 0.64 0.77 0.93
BVPS (LKR) 4.98 5.59 5.81 6.09 6.52
MPS (LKR) 9.00 13.30 10.70 10.00 10.00
PE (x) 14.1 17.8 16.8 13.1 10.8
PBV (x) 1.8 2.4 1.8 1.6 1.5
DPS (LKR) 0.29 0.13 0.32 0.32 0.32
Dividend payout 45% 17% 50% 42% 34%
Debt to equity 74% 67% 54% 51% 52%
Major Shareholders – 31st
Dec 2015
Axiata Investments (Labuan) Ltd 83.3%
HSBC INTL Nom Limited-BBH Genesis Smaller Companies
2.1%
Employees Provident Fund 1.8%
HSBC INTL Nom Limited-SSBT-National Westminster Bank PLC as depositary of first state Indian subcontinent fund
1.2%
CB NY S/A International Finance Corporation
0.8%
Top 20 shareholders 95.6%
Foreign ownership* 93.7% *as at 11th March 2016
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ASI vs. DIAL
ASI PRICE
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Incorporated in 1993, Dialog Axiata PLC (DIAL) a subsidiary of Axiata Group
Berhad is Sri Lanka‟s largest mobile telecommunications operator. Dialog is the
market leader for Sri Lanka‟s mobile industry which also holds leading positions
in non-mobile segments such as broadband and television.
The company established as MTN Networks Private Limited in 1993 with 90% of
equity through Telekom Malaysia Berhad and 10% by Capital Maharaja
representing as the local party to the investment. In 1995 the company branded
the telecommunication provider under the name of Dialog GSM and again
unveiled under Dialog Telekom in 2005. Further expanding the business, Dialog
acquired Suntel Limited, the second largest fixed telecommunication provider in
the country in December 2011.
In addition to its core business of mobile telephony, the company has a range of
products and services including Dialog TV, the country's Direct to Home
Satellite TV service and Dialog Global which provides international
telecommunication services. Dialog Broadband offers fixed-line and broadband
internet services, whilst Dialog Tele-Infrastructure is the company‟s national
telco infrastructure arm.
The company operates on 2.5G, 3G, 3.5G and 4G LTE communications
networks. Dialog‟s mobile segment serves more than 10 million citizens of Sri
Lanka while Fixed Telecommunications and Digital Satellite Television Services
extended nearly 425,000 and 600,000 Sri Lankan households respectively.
Dialog Axiata is the Sri Lanka‟s largest Foreign Direct Investment (FDI) with
investments totaling to more than USD 1.7 billion. DIAL listed in Colombo Stock
Exchange in 2005.
Dialog has the largest capitalization in the telecommunication sector with a
market capitalization of LKR 82bn compared to LKR 72bn of Sri Lanka Telekom.
Communication Sector
Sri Lankan mobile industry consists of five main licensed players; Dialog Axiata
PLC and Sri Lanka Telecom PLC are the only two listed operators that
dominates the industry with nearly a combined revenue market share of
approximately 80%, out of which DIAL has the higher market share in the
mobile operations segment with a larger mobile subscriber base of over 10mn
(SLT - Over 5mn).
The telecommunication sector is a rapidly developing segment in Sri Lanka to
match with global standards and technologies. The number of mobile
subscribers exceeded 22 million in 2014, which translates to a mobile phone
penetration of 107 compared to 99 in 2013 with a growth of 7.9%. Sri Lanka‟s
total telephone penetration for 2014 was at 120; a growth of 6.7% compared to
the penetration of 112 recorded in 2013. The number of mobile telephone
connections increased by 9%, while fixed wire line telephone connections
recorded a 6% growth in 2014.
Fixed wireless connections continued its declining trend to record a drop of
5.4% in 2014, and this triggered a marginal reduction of 1% in total fixed
telephone connections. The fixed telephone penetration stood at 13 by end of
2014; a decline of 2% compared to 13.2 reported in 2013.
Sri Lanka‟s total internet connections grew 68.4 during 2014, largely supported
by accelerated growth of 86% in mobile internet connections due to growth in
mobile internet usage. The internet connections penetration increased from 9.8
Source – Central Bank of Sri Lanka
Source – Central Bank of Sri Lanka
The rapid growth of internet connection witnessed from 2010 with the inclusion of mobile internet connections
Source – Central Bank of Sri Lanka
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to 16.4. Further, active usage of Information and Communication Technology
services in economic activities such as: e-banking, mobile banking, e-bus
ticketing, and mobile points of sale (POS) has also increased during the period
which contributed towards a positive growth in mobile data.
Competitor analysis for Dialog Axiata
Celltel was the pioneer mobile service provider in Sri Lanka who started
operations in early 1990s, while Dialog and Mobitel entered Sri Lankan mobile
industry in 1993. However, Dialog gained the forefront in the industry by
introducing new technologies and providing better coverage, while Celltel
underwent two management changes in 2007 and 2009 (Tigo and Etisala), and
during this period many subscribers migrated to other networks.
Dialog grabbed the customer base through aggressive promotions and strong
coverage where ultimately a brand loyal customer base was created. Mobitel was
not an aggressive player until it was acquired in 2002 by SLT. Currently Dialog
has direct competition form Mobitel as most public servants and their families use
Mobitel „Upahara‟ package.
Voice & Video Calls: Dialog dominates the mobile voice segments (Pre-paid &
Post-paid) and the charges are comparatively in line with the industry rates.
Post paid Prepaid
Same Network Any Network Same Network Any Network
Diolog 1.50 2.00 1.50 2.00
Mobitel 1.50 1.50 1.00 2.00
Hutch 1.50 1.50 1.50 1.50
Etisalat 1.00 2.00 1.50 1.50
Airtel 1.00 2.00 1.00 2.00
Fixed Telecommunication
Mobile Operators Broadband Services Direct-to-home
satellite broadcasting services
Sri Lanka Telecom PLC
Hutchison Telecommunications Lanka (Pvt) Ltd
Dialog Broadband Networks (Pvt.) Ltd
Future Satcom Holding (Pvt.) Ltd
Lanka Bell Limited Etisalat Lanka (Pvt) Ltd
Eureka Technology Partners (Pvt.) Ltd
Dialog Television (Pvt.) Ltd
Dialog Broadband Networks (Pvt) Ltd
Dialog Axiata PLC Etisalat Lanka (Pvt) Ltd DISH TV Lanka (Pvt.) Ltd
Mobitel (Pvt) Ltd
Dialog Axiata PLC
Bharti Airtel Lanka (Pvt) Ltd
Mobitel (Pvt) Ltd
Hutchison Telecommunications Lanka (Pvt) Ltd
TATA Communications Lanka Ltd
Lanka Education and Research Network
Bharti Airtel Lanka (Pvt) Ltd
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In the terms of mobile coverage Dialog and Mobitel have the strongest coverage
compared to other operators. Dialog has strongly covered all the aspects
including GSM, 3G, and 4G etc..., whereas Mobitel has focused on GSM
coverage.
Etisalat has the next best coverage after Dialog and Mobitel, while Hutch has the
minimum level of coverage compared to all telecommunication network
operators.
Mobitel GSM Coverage Mobitel 3G Coverage
Mobitel GSM and 3G Coverage Dialog Island wide Coverage
Etisalat Coverage Airtel Coverage Hutch Coverage
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Dialog is in the forefront of catering mobile telecommunication needs of the
corporate sector, while mobiltel has dominance in the public sector through the
„Upahara Package‟
Dialog Ultra 99 Business Package – Per Minute
Mobitel Upahara Package
Monthly Fee LKR 99.00 LKR 240.00
Incoming Call Charges Free Free
Free Outgoing 50 mins* M2M: LKR 0.50/Free**
Outgoing rate LKR 1.50* LKR 3.00
Free SMS 50* -
SMS rate LKR 0.20* M2M: LKR 0.25, M2Other: LKR 2.00
Free Data 140MB n/a
GPRS Rate LKR 1.00 per MB n/a
*To any network
** UPAHARA Subscribers: Voice and video calls, M2M and to fixed lines including to CDMA lines free, subject to a Fair Usage Policy (FUP) between 12.00 A.M to 6.00 P.M. The charges between 6.00 P.M to 12.00 A.M are LKR 0.50 per minute. Free usage of voice/video facilities are limited to 1,000 minutes per month, between of 12.00 A.M to 6.00 P.M and usage beyond FUP will be
charged at LKR 0.50 per minute.
Making consideration on IDD rates, Dialog IDD rates are comparatively high with its peers.
Per second IDD rates for selected countries
Country Dialog Airtel Etisalat Mobitel Hutch
USA 0.18 0.12 0.15 0.08 0.10
Australia 0.37 0.35 0.37 0.33 0.44
India 0.10 0.10 0.10 0.10 0.07
UAE 0.50 0.45 0.50 0.50 0.34
UK 0.37 0.35 0.37 0.33 0.40
Dialog dominates in the IDD mobile market flowed by Mobitel who is the main
competitor to DIAL. However, all other players are competing heavily in the IDD
market as well as in the data market, as they cannot compete in terms of local
call charges.
Television: Dialog TV currently holds more than 70% market share in pay TV
segment, while PEO TV is the main competitor. Competition from other cable TV
& web TV companies such as SAT Lanka, TV Lanka, and Videocon etc. appear
to be insignificant especially within Colombo. Dialog TV has strengthened their
foot print in other regions in Sri Lanka, where there is very minimal competition.
However, low cost cable TV providers in the region are an imminent threat to
DIAL in the future.
However, the aggressive door to door promotion campaign launched by DIAL
was very strong and successful to achieve an average subscriber growth of 25%-
30% in last few years.
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Network Type Packages Rental Other Fees Benefits
Sri Lanka Telecom - PEO TV
Postpaid 32 – 92
Channels LKR 799.00-
1999.00
Startup fees: SLT customers - LKR
6990.00+Taxes. Non SLT Customers –
LKR 10,000.00-11,000.00+Taxes.
Re-wind system
High quality pictures
Dialog Axiata - DTV
Per day TV
35-48 Channels
Daily rental LKR 3.00-18.00
LKR 4,990.00 High quality pictures
Availability of HD channels
Per day TV Facility
Postpaid 70-111
Channels LKR 699.00-
1949.00 LKR 5,990.00
RP Satellite Network – Dish TV
Postpaid 64-92
Channels LKR 249.00-
699.00 LKR 2,774.00
Low charges
Re-wind system
Recharge facilities
PESTEL analysis for Telecommunication Industry
Political Analysis:
To boost the urban development and technological knowledge of the community,
Sri Lankan government started launching free Wi-Fi zones.
Sri Lankan government and Google signed an agreement to cover the Island with
3G internet under „Google Loon project‟ where Sri Lanka is the first country in the
world to have Internet access covering the whole country with the government
support.
Relaxed FDI (Foreign Direct Investment) standards.
Introduced a common floor rate for the telecom industry - Charge for short
Messages (SMS) increased from cents 10 to 20. Within network, the local voice
call per minute billing basis remained at Rs. 1.50 while per second billing basis
the rate increased from Rs. 1.50 to 1.80 per minute. Outside networks, the local
voice call per minute billing basis decreased from current Rs. 2.00 to Rs. 1.50
per minute while the per second billing basis rate reduced from Rs. 2.50 to Rs.
1.80.
Political
Economic
Social
Technological
Environmental
Legal
PESTEL
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The government removed the VAT and NBT exemptions for telecommunication
companies.
The government recently increased the International Telecommunication
Operator Levy in order to surge the Consolidated Fund by operators.
Telecommunication service providers are subject to an annual fee of LKR 50,000
per telecommunication tower.
Economic Analysis:
Depreciation in Rupee – This may negatively impact high Dollar borrowings in
the telecommunication industry. However, revenue earned in dollars will be a
natural hedge.
Increasing GDP Per Capita - GDP PPP in 2014 was USD 3,654 which enables
the consumers to switch to smart phones that increase the data usage among
the middle class customer base.
Social Analysis:
High end phones have become a status symbol in society and have become an
essential item for day to day lives.
Increasing need for communication and the decline in use of postal services.
Inclination towards internet information.
Busy life styles drives demand for mobile value added services
Technological Analysis:
Value added services such as mobile banking, mobile appointments, mobile
ticket booking etc. are becoming more popular among people
Accelerated improvement in new mobile applications as smart phone usage has
increased to 33% in 2015 compared to 28% in 2013.
High speed internet 4G and 4G-LTE
Equipped with highly advanced technological instruments that are in line with
global standards such as Optical Fibre connectivity
Smart phones have brought a world of possibilities near to the fingertips
Improvement in mobile software drives data usage.
Environmental Analysis
The government charges an annual fee of LKR 50,000 per telecommunication
tower considering the negative environmental impact.
Improvement in “Green Planet‟ project in line with global standards.
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Use of environmentally savvy cell phones.
The amount of carbon released when manufacturing mobile phones, and the
heat emitted when using them has an effect on global warming.
Legal Analysis:
Sri Lanka‟s telecommunication sector operates under highly regulated
environment. Telecommunications Regulatory Commission of Sri Lanka (TRCSL)
acts as the national regulatory agency for telecommunication with in the country.
Sri Lanka Telecommunications (Amendment) Act, No. 27 of 1996 is the regulated
act for Sri Lanka‟s telecommunication sector.
SWOT Analysis for Sri Lankan Telecommunication Industry
Strengths Barriers of market entry Skilled workforce involved in telecommunication industry High profitability and revenue Monetary assistance provided
Strong telecommunication infrastructure developments Huge customer potential Considerable amount of FDIs are coming into the market. (Dialog Axiata, the largest FDI of more than USD 1.7 billion).
Weaknesses Lack in quality of service against growing market demand Lack of consumer awareness in value added service offerings of mobile phone operators (mobile banking, internet banking, easy cash etc...) Market is strongly regulated by the government. Requirement of significant financial resources Very lower growth in ARPU and MOU.
Opportunities Growing demand in broadband and data segments. Growing demand for IDD and roaming facilities Growth in the domestic economy Infrastructure development in rural areas and war effected areas
Threats Changes in government Rules and regulations Changes in government fees and levy‟s Saturation of subscriber base for voice and video call segment Exposure to foreign debt makes many mobile operators vulnerable to foreign exchange losses due to depreciation in LKR Increasing interest rates will affect planned capital expenditure projects. Applications such as Viber, Skype, Whatsapp, and We Chat etc. may damage the voice and video call customer base.
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Budget 2016 impacts for DIAL
The government removed the Value Added Tax (VAT) exceptions on import or supply of telecom equipment or
machinery, high-tech equipment including copper cables for telecom industry. This may lead to an increase in
costs for DIAL which will eventually impact profit margins.
Nation Building Tax (NBT) exemption on telecommunication services was removed from January 2016, which
will adversely affect the top line performance.
Annual charge of Rs.50,000/- per telecommunication tower imposed by the government, will increase the cost of
telecommunication infrastructure services.
International Telecommunication Operator Levy (ITOL) on incoming international calls was increased from USD
9 cents (Out of which USD Cents 3 per minute is credited to the Consolidated Fund by operators) to USD 12
cents. The net increase (USD 3 cents) is to be credited to the Consolidated Fund by operators.
However, as per the request made by the Telecommunications Regulatory Commission on transit tariff revenue
to be exempted from gross turnover for the purpose of cess payment, the government decided to exempt the
Cess levied at 2% on international transit traffic with effect from 01st January 2016. This move will facilitate the
competitiveness in international transit traffic, and will increase the inflow of foreign revenue in to the country.
Therefore, the move does not affect telecommunication operators.
SWOT Analysis for DIAL
DIAL is the dominating player in Sri Lanka‟s Mobile industry that holds nearly 45%
of the market share. The company has played a pivotal role in changing the
landscape of the telecommunication industry. Concentrated strategies would
enable DIAL to convert internal weakness in to strengths, and external threats in
to opportunities, that would facilitate future growth.
Strengths Reputed brand name Being the market leader for Mobile sector and the Direct-to-home satellite broadcasting services Strong infrastructure Strong network coverage spread throughout the island Aggressive and effective advertising and promotions Technical innovations (Example -: Dialog 4G LTE) Dialog was the first operator in Sri Lanka to introduce international roaming facility and currently cover more than 200 destinations with more than 600 partnerships. Having more than 20 years of industry experience which leads to strong customer relationships. Large customer base of more than 10mn for mobile segment with a high growth rate. Expanded value added services improve competitive advantage (Example -: Easy cash) For the first time in Sri Lanka a telephone operator
Weaknesses High pricing compared to other competitors (broadband, IDD etc...) Gap in quality of service against growing market base. High rates for roaming facility. Very lower growth in MOU.
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launched a mobile phone under their brand name as Dialog mobile. Partnership with world famous „Vodafone‟ UK. Diversified into Satellite television sector which minimized the risk of being only in the telecommunication sector. Expanded business opportunities by acquiring Sri Lanka‟s second largest fixed telecommunication provider „Suntel‟.
Opportunities Accelerated growth of telecommunication industry in Sri Lanka. Smartphone penetration is increasing rapidly. Can go for business diversification supported by the parent company.
Threats Constant changes in technology Changes in macro-economic factors. Innovation and new products by other competitors. Peo TV (SLTL) is expanding their foot step as their value added services are higher than DTV (re-wined system, high signal levels). Managing customer requirements.
Financial Performance - Quarter
Net earnings down significantly by 58%YoY on increase in finance costs
and operating expenses
The group recorded a profit decline of 58%YoY to LKR 621mn in 4QFY2015
compared to LKR 1.5bn reported in 4QFY2014.
The profit decline was led by the significant increase in finance costs of USD
borrowings due to the depreciation in LKR.
Top-line grew 16%YoY and 6% QoQ to LKR 20bn in 4QFY2015; underpinned
by notable growth reported in Dialog TV, Dialog broadband and mobile data.
The two associates of the group Digital Commerce Lanka (Pvt) Ltd (Wow.lk)
and Firstsource-Dialog Solutions (Pvt) Ltd posted positive earnings, with a
growth of 157%YoY to LKR 11.2mn in 4QFY2015 against the loss of LKR
19.5mn reported in the comparative year.
Operating profit declined by 27% YoY to LKR 1.6bn in 4QFY15; led by increase
in distribution expenses by 38%YoY and administration expenses by 42%YoY.
These significant increases were led by one-off charges on provision for
impairment on projects which are already embarked, thus included in
administration and distribution expenses.
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Gross margin improved from 44% to 46% during the quarter compared to the
comparative year. Both operating and net margin lost the stance as operating
margin declined from 13% to 8% driven by significant increase in operating
expenses, and net margin declined from 9% to 3% due to the FOREX losses on
borrowings.
The group‟s debt to equity ratio declined to 54% from 67%.
The company used to finance capital expenditure through USD borrowings in
the past, backed by its parent Axiata Company. However, due to expectations of
further depreciation of the LKR, DIAL is planning to retire some foreign debt and
refinance them using domestic debt.
Financial Performance – FY2015
Net earnings down by 15%YoY on forex losses
During FY15 topline of the group grew 10% YoY to reach LKR 73.9bn. This
growth was driven by strong performances across Mobile, Digital Pay
Television, Tele-infrastructure and Fixed Line businesses.
Net profit for the year declined by 15%YoY to LKR 5.2bn compared LKR 6.1bn
posted in FY2014.
Net earnings were affected by the weakening of the local currency against the
USD, which resulted in a forex loss of LKR2.2bn in FY15. However, excluding
the FOREX losses the group would have made reported a 18% YoY growth in
profits to reach LKR 7.4bn.
Group EBITDA improved by 14%YoY to LKR 23.8bn in FY2015 compared to
LKR 20.9bn reported in FY2014. Increase in revenue and improved cost
performance through cost management initiatives attributed towards growth in
EBITDA.
During FY15, gross margin improved from 42% to 45% while EBITDA margin
marginally improved form 31% to 32%. Net margin declined from 9% to 7% due
to the significant FOREX losses. Nonetheless, normalized PAT margin was up
in FY2015 from 9.4% to 10%.
Other Financial Ratios 2011 2012 2013 2014 2015
Capex (LKR bn) 8.7 17.3 20.8 15.2 19.6
Capex growth % 100% 99% 20% -27% 29%
Capex to revenue % 19.2% 30.8% 32.9% 22.6% 26.5%
Return on invested capital % 12.3% 14.2% 10.9% 10.3% 12.3%
Capex grew by 29%YoY to LKR 19.6bn in FY2015 compared to LKR 15.2bn in
the previous year.
Capex in FY2015 was mainly attributed towards high speed broadband
infrastructure, extension of Optical Fibre Network (OFN) and for Bay of Bengal
Gateway (BBG) sub-marine cable project.
The company has been able to manage their CAPEX between 30%-40% levels
in last five years, and maintain a healthy Capex to revenue ratio.
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Debt to equity ratio declined to 54% in the year compared to 67% reported in the
corresponding year.
Segmental performance
Dialog Mobile
Mobile voice revenue grew by 6%QoQ and 16%YoY to LKR 17bn underpinned
by healthy growth in subscriber base, strong growth in data, voice and value
added services pooled with the positive impact of the withdrawal of the 25%
bonus (dialog free talk time) on Mobile Prepaid Domestic Calls which was
effective from 20th Aug 2015.
Small scale screen data users have been the key driving force behind this
growth.
Revenue grew by 9%YoY to LKR 63bn in FY 2015 against LKR 58bn reported
in FY 2014.
Mobile data revenue improved significantly by 64%YoY and 10%QoQ backed
by higher subscriber additions and increased usage.
Average revenue per user (ARPU) grew marginally by 2%QoQ and 6%YoY to
LKR 378 in the quarter. This was fuelled by the strong contribution from data
revenue.
However, minutes of use (MOU) have been lower; 140 minutes recorded in
4QFY2015 compared to 149 minutes reported in 4QFY2014. The decline was
mainly led by the use of other applications like Viber, Skype and WhatsApp.
These applications also hurt the IDD revenue which declined 10%YoY.
During 4QFY2015, Pre-paid mobile segment witnessed a subscriber growth of
6%QoQ and 15%YoY, while Post-paid mobile segment recorded a subscriber
growth of 1%QoQ and 6%YoY. Total mobile subscriber base inclined by
5%QoQ and 14%YoY to 10.9mn in 4QFY2015.
Dialog Broadband
Dialog broadband revenue was up by 8%QoQ and 19%YoY to LKR 2bn in
4QFY2015 led by the notable improvements reported in LTE and leased line
and fiber sharing revenues.
Revenue grew by 19%YoY to LKR 7.3bn in FY2015 compared to LKR 6.2bn
turnover reported in FY 2014.
Fixed revenue inclined by 13%YoY and 10%QoQ underpinned by growth in
fixed LTE subscriptions and enterprise revenue
Broadband subscriber base improved from 28,000 in FY2014 to 100,000 in
FY2015 due to large volume of data usage.
EBITDA grew by 88%YoY and 24%QoQ to LKR 814mn in 4QFY2015 backed
by strong growth in revenue and cost managements. EBITDA for FY2015
improved by 87%YoY to LKR 2.9bn compared to LKR 1.5bn reported in
FY2014.
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EBITDA margin improved from 24.8% to 39.9% in FY2015. For the quarter it
improved from 37.5% to 41.4% on YoY basis.
Net loss narrowed significantly by 86%YoY to LKR 80mn supported by strong
growth witnessed in EBITDA.
Dialog Television
Television revenue increased by 4%QoQ and 16%YoY to LKR 1.5bn supported
by strong subscriber growth in 4QFY2015. Revenue inclined by 23%YoY to LKR
5.8bn in FY 2015 against LKR 4.7bn reported in FY 2014.
DTV Revenue increased led by significant growth (158%YoY) in pre-paid
subscribers as a result of the new pre-paid offer featuring higher rental and
discounted connection fee. Total subscribers grew by 8%QoQ and 44%YoY to
650,000 in 4QFY2015
DTV cost increase was mainly led by the aggressive customer acquisition
alongside service and product expansion activities resulted in a medium term
reduction of EBITDA. EBITDA of the segment declined by 67%QoQ and
87%YoY to LKR 23mn in 4QFY2015. EBITDA margin declined from 13.3% to
1.5% on YoY basis.
Segment narrowed the net loss by 24%QoQ from LKR 243mn in 3QFY2015 to
LKR 184mn in the fourth quarter.
Earning decreased significantly (>100%) on YoY basis in 4QFY2015
subsequent to the decline in EBITDA, higher depreciation and forex losses.
Aggressive subscriber growths were witnessed in mobile segment where the
mobile subscriber base improved to 10.3mn, +10%YoY and in Dialog TV
segment as the TV subscriber base improved to 600,000 with over 66,000
subscribers added during the September quarter 2015.
Future Outlook
We expect DIAL to record a profit growth of 20%YoY to LKR 6.2mn in FY2016
compared to LKR 5.2mn reported in FY2015 backed by increase in revenue.
Revenue may increase by 10%YoY to LKR 80.9bn in FY2016 and LKR 88.2bn,
+9%YoY in FY2017, supported by television and broadband segments.
Television segment may continue the positive momentum with a growth of
23%YoY to LKR 7mn in FY2016 while the fixed telephony & broadband
segments may report revenue of LKR 6.9bn with a growth of 13%YoY. Dialog
mobile operations may witness a growth of 8%YoY to LKR 67bn in FY2016.
Aggressive promotions on Dialog broadband and the 4G-LTE technology may
enable the segment to post healthy revenue. New innovative products such as
easy TV and per day TV packages will give added advantage over competitors.
The Telecommunications Regulatory Commission enforced a common minimum
retail voice call rate for on-net and off-net domestic voice calls, to support
competition between large and small network operators. This may positively
impact DIAL as other operators cannot not compete on price.
Capital TRUST Securities (Pvt) Ltd
DIAL Page | 14
However, dialog voice segment had witnessed a slowdown last few years. The
company expects that the main segments will saturate after 4-5 years as most
of the innovative products get generalized thereafter.
In order penetrate the market in the future, DIAL is investing and testing on new
mobile products such as mobile advertising, mobile commerce, and mobile
payments, further improved mobile TV etc.
Dialog successfully launched their mobile payment facility through Easy cash.
Currently 2.2mn subscribers have registered for this service, and 250,000
subscribers actively use the service. The company plans to further add features
to this service to make the product more popular in the country.
Dialog used SLTL cable system where the company paid USD 45 for a port.
However, DIAL invested in an optical fiber network which enables them to
reduce the costs.
The exemptions for import or local purchase of any machinery or high tech
equipment for telecom industry which was previously held was totally removed
from March 2016 and the VAT rate increased from 11% to 15% which will
adversely affect the margins of the group.
Gross margin may slightly decline during FY2016 from 45% to 44% while
operating margin may remain unchanged at 13%. Gross profits may hurt by the
expansion on direct costs following to the macro economic factors. Net margin
may slightly increase from 7% to 8%.
Return on equity may improve from 11% to 13% in FY2016 while return on
assets may improve from 4% to 5%.
Debt to equity ratio may decline further to 51% in FY2016 compared to 54% in
FY2015.
Valuation
The counter is currently trading at a PE of 15.7x which is a 6% discount to the
telecommunication sector PE of 16.7x while the PBV of 1.7x is trading at a
premium to the sector PBV of 1.3x. DIAL is currently trading near to its 52wk low
price of LKR 9.80.
DIAL is an attractive dividend payer with a good dividend payout. The company
declared a dividend of LKR 0.32 per share for FY 2015 which translated to a
dividend payout of 50%.
Based on a reasonable historical (3-year) price earnings ratio, the medium to
long term target price for the share is LKR 12.40 which is an upside of 24% to
the current market price.
Capital TRUST Securities (Pvt) Ltd
DIAL Page | 15
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