MENA Telecoms Less about Footprint; More about Delivering Marise Ananian mananian@efg-hermes com [email protected] Nadine Ghobrial

One-on-One

[email protected]

February 2013

Omar Maher [email protected]

I

Performance YTD

4Q2012 Results So Far… Main Highlight is Positive Surprises in Dividend Distributions Across the Board.. Board Revenue: Variance between Actual & Estimated

EBITDA Margin: Percentage Points Variance Between Actual & Estimated

8%

6.5%

(Percentage points) 6

4 81 4.81

6% 4%

2.8%

3.2%

4

3.9%

2

2%

0.12 0

0% -0.7%

-2%

-0.2% 0 2%

( ) (2) (4)

-4% -6% -8%

(4.06)

-4.7% -7.2% Wataniya

Zain Gp

Mobily

Etisalat

Omantel

du

Zain KSA

Source: Companies, EFG Hermes estimates

Etisalat

Zain KSA

(0 86) (0.86)

(3.59)

(6.47) STC

Omantel Wataniya

Zain Gp

Mobily

du

Source: Companies, EFG Hermes estimates

Dividend: Variance Between Actual & Estimated 1.6

(1.40)

(6) (8)

STC

(1.84)

Takeaways

≡ du & Mobily ahead of estimates at almost all levels: Share prices

150.0%

reacted positively post results

1.4

≡ STC and Zain Gp disappointed at all levels ≡ Dividends: Almost all companies that reported surprised positively

1.2 1.0

on dividends distribution (Except Zain Group).

0.8

≡ The FY2012 average dividend yield for the companies that reported

0.6 28.6%

0.4

25.0%

20.0%

0.2

is currently 6.2%, Highest yield is du with 8.2%, Lowest is STC with 5.0%

15.0% 0.0%

0.0 (0.2)

-16.7%

(0.4) Wataniya

Etisalat

Omantel

Source: Companies, EFG Hermes estimates One on One – February 2013

du

Mobily

STC

Zain Gp Strictly Private and Confidential

3

Telcos Shares Performance – YTD A Good Year for Telcos Stocks so Far MENA Telecom Stocks Share Price Performance – YTD2013

Multiples for MENA Telecom Stocks – 13 February 2013

M&A no longer the driver (ex. Wataniya) P/E 2013e

20% % 18% %

10

6

1%

0%

5.9

4.9

4.4

Telcos

16%

39 3.9

Zain Group

Omantel

STC

Mobily

Takeaways

≡ OTMT sees the highest jump on rumors of another super dividend

distribution and possible tender offer, offer Qtel after the Asiacell listing, listing and OTH on rumors of VIP tender offer and more positive sentiment on Djezzy issue.

9% 8%

8% 6%

5%

5%

4%

3% 1%

2% Egypt

3.2

operational performance.

11%

10%

37 3.7

≡ Telco stocks performing positively since the beginning of the year. ≡ This is mostly on M&A news (Qtel, OTMT, OTH…) rather than

Mkt Index 13%

14%

37 3.7

0 Wa ataniya

Om mantel

oc Tel Maro

JT

Zain Gp

Wattaniya

du

Ba atelco

TE

VFQ

Zain n KSA

Na awras

Mobily M

Ettisalat

OTH

Qtel

OTMT O

STC

-7%

Telecom Share Price Performance vs. Market Index Performance YTD2013

0%

5.3

2

-3%

Qtel

-1%

-10%

6%

5.3

4

-5%

12%

7.9

8

OTH

5%

9.8

9.4

9.2

9.1

8.9

TE

4% 4% 4% 3% 3% 3% 3%

8.9

8.3

Etisalat E

6% 6%

8.3

du

8%

10%

12.3 11.0

12

13% 11%

15%

EV/EBITDA 2013e

14

Qatar

UAE

Kuwait

2%

Oman

3% 1%

≡ STC sees the largest drop on disappointing results. ≡ Qtel, Wataniya and the Saudis look cheapest on PE basis

KSA

Source: Bloomberg, EFG Hermes One on One – February 2013

Strictly Private and Confidential

4

Telcos Operational Performance FY2012 Positive and Negative Surprises during 2012 Change in EBITDA Margin Forecasts during FY2012

% Change in Revenue Forecasts during FY2012

Downgrades

Zain Group and Zain KSA see largest cuts

Upgrades

55%

10%

50%

5%

45%

0%

40% 35%

-5%

30% 25%

-10%

20%

-15%

15%

Expected Div Yield Start of Year vs. Actual DPS/Year End Forecast

du

OTH

Qtel

TE

Ettisalat

Za ain Gp

Mobily M

Wattaniya

Om mantel

10% Zain n KSA

Mobily M

STC

Om mantel

du

TE

Qtel

Etisalat E

OTH

Wa ataniya

Za ain Gp

Zaiin KSA

-20%

STC

15%

Takeaways

≡ Revenue: Largest revenue cuts/misses at Zain KSA still struggling

12%

in Saudi market and Zain Group on Sudan downgrade. Wataniya sees pressure in Kuwait (competitive pressures) and Tunisia (political instability persists).

10% 8%

≡ Mobily (and to lower extent STC) see largest revenue upgrades

on better than forecast operational performance in Saudi market.

6%

≡ EBITDA: Largest upgrade at du and OTH as Djezzy maintained

4%

positive performance (margins still at almost 60%). Zain KSA sees largest decline as market dynamics remain unfavorable for them.

2%

≡ DPS Forecast Changes: Positive surprises from du, Omantel,

Source: EFG Hermes One on One – February 2013

Wataniiya

ST TC

bily Mob

Qtel

Etisalat

du d

Omantel

Zain G Gp

Teleco om Egyp pt

0%

Wataniya, Etisalat. Bonus Shares announced for Mobily and Qtel (for FY2011). Qtel continues to focus M&A policy and hence DPO has been rather low. We reduce our TE forecast despite gov’t fiscal squeeze due to earnings cap.

Strictly Private and Confidential

5

Theme: Overview on M&A Evolution in MENA Region Greenfields,, Mega g Deals,, Exuberant Prices... Pace Slowing g Down;; Consolidation Phase Qatar (Qtel?) signals intent to buy Saudi Oger stake in Oger Telecom (STC holds 35%) – Possible battle? Saudi Oger in trouble

Deals Announced but Not Executed

Zain Group / Etisalat MTN / Djezzy (OT) Batelco/ Zain Saudi Arabia

Etisalat / Iran

2 more IPOs of Iraqi telecoms on Iraq Stock Exchange

FT/Mobinil

TE / VFE

Deals Executed

2005

Greenfield Licences

2006

Oman (2nd mobile)

Egypt (3rd mobile)

Saudi Arabia (2nd mobile)

UAE (2nd mobile & fixed)

Qtel / Wataniya STC / Maxis

2007

Qtel / Indosat STC / Oger Telecom Etisalat / Swan Zain Group / Wana OT / DPRK

2008

2009

FT / Meditel Bharti / Zain Africa Wataniya / Tunisiana OT / Vimpelcom

2010

Saudi Arabia (3rd mobile + 3 fixed-line)

Oman (6 MVNOs)

Oman (2nd fixed)

Kuwait (3rd mobile)

Qatar (2nd mobile & fixed)

Bahrain (3rd mobile)

Iraq (3 mobile)

2011

Tower-sharing Initiatives (announced, nothing concrete): Saudi, Bahrain UAE Bahrain, Qtel / Wataniya Qtel / Asiacell Qtel /Tunisiana

2012

Libya : Qtel and Etisalat best positioned.

2013

Tunisia (3rd mobile) South Sudan: Zain will likely bid. No details on the process.

3G: Algeria 4G (LTE): Gulf countries

Source: Bloomberg, EFG Hermes One on One – February 2013

Strictly Private and Confidential

6

Theme: Competitive Dynamics in Local Markets Competition intensifies as voice becomes saturated…

Country

Competition

Impact on Operators

Outlook

Saudi A bi Arabia

Aggressive (E (Especially i ll iin d data t and broadband)

Negative on Zain KSA (remains th least the l t invested i t d iin network t k capabilities)

Aggressive in data and corporate t /C ld see Z Zain i KSA segments/Could growing more desperate. MVNO entrance changes landscape.

Market Shares 2011 2012 Zain

13%

Zain

15% STC

47% Mobily

38%

38%

UAE

Duopoly

du continues to gain market and revenue share

Could be aggressive in FL & Data segments (with the launch of bitstream)

du,

41%

STC Mobily

Etisalat

du Etisalat,

49%

46%

54%

59%

Qatar

Kuwait

Duopoly

Aggressive (Initiated by Viva)

One on One – February 2013

More positive for Qtel, margins appear to have recovered. recovered

Viva managed to increase market share initially at expense of Zain Kuwait, but now Wataniya is under pressure (margins dropping)

Could turn more aggressive with VFQ addressing high-ARPU, high ARPU postpaid segments and FL (Qtel territory)

Depends on Zain Kuwait strategy and whether its performance is sustainable.

Strictly Private and Confidential

VFQ 28%

VFQ 29% Qtel 72%

Viva

21%

Qtel 71%

Viva Zain

23%

NMTC

38%

Zain

40%

41% NMTC

37%

7

Theme: From an M&A Story to Price-based Competition Snapshot of Competitive Environment in Key Markets

Country

Competition

Impact on Operators

Outlook

Oman

Duopoly (Role Reversal)

Omantel remains competitive in all segments (local mobile, mobile international, data, wholesale from MVNO). Negative impact on Nawras

Continuation of the trend

Negative on Mobinil Etisalat Misr and VFE benefited from Mobinil weakness over the last couple of years.

Regulatory issues (tax increases) could pressure industry to raise tariffs. Relation with distributors in focus.

Egypt

Algeria

Aggressive

Aggressive (Djezzy & Nedjma)

Nedjma benefiting from Djezzy problems with regulator and Gov. but still is not able to decrease the mkt shares gap

Market Shares 2011 2012 MVNO

MVNO

13%

9% Omantel

Nawras

44%

40%

Djezzy issue is key. When resolved we expect 3G licenses issuance and more aggressive competition.

Etisalat

Mobinil

27%

34%

One on One – February 2013

Zain expanding in the North, Asiacell improving its market share nationwide, Korek still focusing on the Kurdish region and not aggressive i enough h

Could turn more aggressive with Zain Iraq’s expansion

Strictly Private and Confidential

Etisalat

29%

Mobinil

33%

VFE

VFE

39%

39%

AT

AT

16%

17%

Nedjma

Nedjma

Djezzy

56%

Aggressive (Zain Iraq & Asiacell)

47%

Nawras

28%

Iraq

Omantel

47%

Korek

12%

28%

Djezzy

55%

Korek Asiacell

12%

37%

Asiacell

38%

Zain

Zain

51%

50%

8

Key Themes & Impact on Coverage The Political, Political Macro and Regulatory Picture in Key Markets

Egypt - 2011 Revolution: ST impact, drop in subscriber adds due to SIM cards unavailability. LT impact felt in fuel shortages + thefts in parts of networks. - Regulatory: Higher corporate tax rates (25% from 20%), 20%) Stamp tax of EGP6.10/year now passed to prepaid subs. Potential new taxes: Now a certainty, only matter of time, sales tax upped to 18% from 15% and EGP25 per new SIM (instability felt at distributors) - Instability: Unrest among blue-collar workers was mostly felt in state-owned incumbent. We could foresee less strikes given measures taken by mgmt.

Winners and Losers Mobinil: Different strategy to pay off after getting hammered in 2011. Vodafone Egypt and Etisalat Misr capitalized on the boycott and pushed their market shares up (MNP offers...). Market was flooded with free minutes offers and Mobinil was forced to adopt a more aggressive strategy. Market calmer now. TE: Changes at top management level positive. Responded to emp strikes through salary measures (2011: 15% extra salary increase for FY2011, plus regular annual 7% increase, 2012: Two phases of salary restructuring, cEGP250 mn). Looking at more stable margins now.

Tunisia - 2011 Revolution impact reflected in: i) Lower roaming revenue on tourism hit, and ii) Higher inflows of Libyan refugees which increased traffic+ generally higher international traffic. Impact was mostly short term. No impact on network infrastructure, only minimal impact on distribution points. Strikes in incumbent on pay issues. - Political situation remains unstable, hence impacting economy (TND down 11% in FY2012) - 3G/FL combined license awarded to Tunisiana for USD132 mn (Tunisie Telecom 3G license USD80 mn).

Winners and Losers Tunisiana (Tunisiana is 75% owned by Wataniya (36% of valuation), Qtel bought additional 15% in Jan 13) Robust performance overall, benefitting from competitors weakness (4Q suggests non-operational one-offs). Tunisie Telecom (State-owned incumbent) saw a wave of strikes, ended only after board agreed to fire top executives. Orange Tunisie, Tunisie originally jointly owned by FT and former president son-in-law, son-in-law saw issues regarding its licence fee (due to its shareholding) and in network rollout. We do not foresee market share beyond 15% in 2017.

Algeria - Djezzy drama still unresolved. Developments: Establishing Optimum to hold the license (still owned by OTA) and sale of MedCable back to OTH. - 3G License process announced in Sept 11 then halted due to Djezzy. Do not expect it to resume till a resolution. 3 scenarios: i. direct award of 3 licenses at p + revenue share,, ii. Auction of one license to highest g bidder or minimal upfront iii. Award of 3 licenses at market prices. All issues are interdependent .

One on One – February 2013

Winners and Losers Djezzy (OTH): Sustained good operational performance (subs adds+margins) despite tough regulatory env. Equipment imports still not allowed. Capex/sales at worrying levels. j (Wataniya): ( y ) Improvement p in operational p p performance in 2H2012 ((revenue Nedjma and margins). If Algerian gov’t owns stakes in both competitors could be an issue.

Strictly Private and Confidential

9

Key Themes & Impact on Coverage The Political, Macro and Regulatory Picture in Key Markets

Iraq - Asiacell Share Sale on ISX: Started trading on 3 Feb 13, listing fully covered (help from Qatari investors), foreigners covered 70% of the float. c50% of total ISX Mkt Cap. - Upcoming Share Sales: More newsflow on Zain Iraq listing (CFO said by June). All three operators were subjected to fines due to delays in listing. Relations between operators and regulator are generally tense. - Fine on Zain Iraq (USD262 mn) for 5 mn illegal SIMs, operator did not pay, still appealing but had some bank accounts frozen.

Winners and Losers Zain Iraq expanded into the North (Kurdistan: pop 5 mn, 15% of total pop, ARPUs 20-30% higher than rest of Iraq), competing with Asiacell (Qtel) which provides services all over Iraq and Korek Telecom (Kurdish operator acquired by France Telecom in Mar 11, intends to expand into all of Iraq, largely irrelevant). Qtel increased its stake in Asiacell to 64% post share sale.

Oman - Competition: More aggressive than expected from incumbent. - MVNOs: Doing well in the market (Friendi and Renna, Renna largest two two, have a combined market share of 13%). - International gateway license: Granted to Samatel, an independent operator with only 40,000 subscribers (Both Omantel & Nawras have licenses already).

Winners and Losers Nawras: Performance was largely impacted by stronger-than-expected stronger than expected competition and FL network deployment costs. Reduction in SMS and on-net voice revenue appears to hit them hard (ARPUs). Trying to manage costs through a cost optimization program. Omantel: Healthy turnaround in performance & market share.

Saudi Arabia - MVNOs: Expected during this year. Omani MVNOs already expressed interest. p is not y yet clear,, however,, might g provide p additional wholesale revenue Impact streams to operators. Could be disruptive for tariffs.

One on One – February 2013

Winners and Losers Mobily y remains the most interesting g stock though g STC local operation p appears pp to be doing better. Significant top level management changes and portfolio revisiting (impairments on Indian and SA and rumors on possible divestments). Zain Saudi Arabia We are still bearish on the operator which has not invested significantly in network (financial troubles). Market turning bearish as loan repayment extended again. Could see a short rally if rumors that a refinancing is finalized prove to be true.

Strictly Private and Confidential

10

Key Themes & Impact on Coverage The Political, Political Macro and Regulatory Picture in Key Markets

Sudan / South Sudan - South Sudan Secession in July 2011 makes picture unclear for operators: Whether South Sudanese gov’t will issue new licenses or extend existing licenses. N clarity No l it on license li ffees. Penetration P t ti is i c20%, 20% 4 operators t (Z (Zain i S Sudan d second d largest market share at 38%). - Worsening Economic/Currency situation on Political standoff: Sales tax up to 30% from 20%, income tax 30% from 15%, high diesel prices (up 40% in North, 4x in South). Inflation at 44%. - SDG was devalued by 66% in July 12. Now at record lows as agreement with SS ) failed to resume oil flows ((Black market at 7 vs official rate at 4.4 to USD).

Winners and Losers -Lack of hard currency complicates funding of USD-denominated capex Z i Sudan: Zain S d spentt USD60 mn to t separate t operations, ti plans l to t expand d network t k in i South and issue new SIM cards. Good relations with both gov’ts. South Sudan contributed only 7% of Zain Sudan revenue and 20% of spending (2011). Zain Sudan is 16% of Zain Group valuation (slashed it by 44%) on currency devaluation. Etisalat should not be impacted since it has minimal exposure to Sudan through a small FL (negligible impact on valuation, took an impairment on the asset in 4Q ).

Kuwait - Telecom T l Regulator: R l t Still nott iin place. l - Govt fees: Government instated a new fee structure (KWD0.50 applies to all SIM cards – postpaid+prepaid, active+inactive, SIMs in inventory, voice+data). - ISPs: Dispute with govt on broadband pricing. Zain & Wataniya are interested in owning an ISP/applying for a license in case ministry announces process. - Handset subsidies introduced. g cut by y 30% early y 2012. - GCC roaming

Winners and Wi dL Losers All operators Zain, Wataniya and Viva (STC) saw pressure on margins (200-300 bps) from the gov’t fee structure change. Zain Kuwait regaining focus and was able to maintain stable margins despite fee. Viva lead the aggressive competition behavior. Wataniya under pressure. Tariffs remain on the high end of the region.

Qatar -Q.NBN: Independent initiative by gov to accelerate rollout of nation-wide highspeed broadband FTTH network. VFQ main beneficiary given the amount of investments Qtel already put in its own fiber network. Pricing not clear yet. Whole issue remains confusing to industry. - MNP: Materialized a couple of weeks ago. (Impact still not clear though Qtel appears to have benefitted initially with more PoS)

One on One – February 2013

Winners and Losers Vodafone Qatar: Was largely able to get network issue in place and slightly reduce focus on international tariffs (intl revenue down to 50% of total). Dividends payment linked to operational performance (expected after full year of distributable profits) Qtel: Sustaining competition well, we expect a trend of more competition as VFQ moves to its territory of high ARPU postpaid subscribers (VFQ product was launched in June).

Strictly Private and Confidential

11

An Ex-Growth Story Voice became a Commodity; Data Not Enough of a Substitute Till Now MENA Telcos Revenue Growth 2011a

MENA Telcos ROE

2012a/e

2011a

2013e

40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10%

2012a/e

2013e

60% 40% 20% 0% -20% -40%

Source: EFG Hermes estimates

Zain KSA

TE

Qtel

Zain Group

Etisalat

STC

du

Omantel

Mobily

OTH

Source: EFG Hermes estimates

MENA Telcos EBITDA Margin 2011a

Wataniya

Wataniya

du

Mobily

Qtel

Zain KSA

Omantel

STC

Etisalat

Zain Group

OTH

TE

-60%

Takeaways

2012a/e

≡ Revenue growth is slowing down, EBITDA margin erosion, along

2013e

with a decline in ROEs Æ Sector going ex-growth

60%

≡ Data presents a growth opportunity, though not yet at inflection

50%

point

40% 30% 20% 10% Zain n KSA

du

STC

Mobily M

Wattaniya

TE

Zain G Group

OTH

Om mantel

Qtel

Ettisalat

0%

Source: EFG Hermes estimates One on One – February 2013

Strictly Private and Confidential

12

The “Data” Potential The Next Big Thing – The Challenge before the Opportunity

2005

2011

Source: ITU

2005

12%

10%

6%

4%

UAE Qatar Saudi Arabia Bahrain Lebanon Tunisia Regional Avg Jordan l Algeria Egypt Kuwait Oman Morocco Libya Sudan Syria 2%

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Qatar Q UAE Oman Bahrain Morocco Saudi Arabia Kuwait Jordan Regional g Avg g Tunisia Lebanon Egypt Syria Libya Algeria Sudan Iraq

0%

2011

Fixed Broadband Penetration in MENA Region - 2011

8%

Internet penetration in MENA Region - 2011

Source: ITU

Takeaways

≡ Data an industry wide challenge: How to monetize the opportunity? Developed countries operators suffer from data commoditization (all you can eat bundles…). Possible solutions: Segmentation, sustainable growth

≡ A divide between GCC markets with advanced data ecosystem (networks, handsets…) & others MENA markets (3G licences not y yet auctioned/patchy /p y coverage) g )

≡ While data is the next big thing for the GCC market (Saudi Arabia, UAE, Bahrain…) we are still not at the data inflection point region-wide. Voice remains main value driver for now, at least ex-GCC.

≡ A bit early for data-based communication (VoIP) cannibalizing voice ≡ Two main determinants of data game winners: 1. Capex Discipline: (capex/usage) and, 2. Timing of Investments: Operators who have invested early on in new technologies & networks (4G in Saudi Arabia)

One on One – February 2013

Strictly Private and Confidential

13

The “Data” Potential The Next Big Thing – The Challenge before the Opportunity Int’l Internet Bandwidth (bit/s) per Internet User - 2011 Major bottleneck: Low international bandwidth…

Smart Phones as % of Total Mobile Phones Sales -2011 (mn) Another bottleneck: Low Smartphone penetration…

90 000 90,000

Smart Phones

800

80,000

Feature Phones

700

70,000

600

60,000

500

50,000

603

400

40 000 40,000

300

30,000

149

200

20,000

100

10,000

145

153

37

0

0 Africa

Arab States

Asia & Pacific

CIS

Americas

World

172

Asia Pacific

Europe

Europe

63 109

Africa & Middle North America East

139 28 Latin America

Source: Gartner

Source: ITU

Bottlenecks

Data Contrib. to Total Revenue, Selected Operators - 2011 35%

≡ International Connectivity – Despite significant investments in submarine cables (Omantel, TE, Mobily..), MENA region remains one of the least connected to the outside world. world Outages due to submarine cuts recurring. recurring Impacts the usage experience.

≡ Networks and Spectrum (Case of Saudi, iPhone 5 Challenges…) ≡ Availability of End User Device – One of the lowest regions globally in

30% 25%

terms of smart phone penetration (18%). Pricing is key (handset subsidies not widespread widespread, very costly for operators, operators iPhone 5 in Egypt 4x price in the US). Significant room for growth particularly in GCC (high GDP per capita).

20% 15%

≡ Content: Arabic content remains rather limited. Operators are: 1)

10% 5% 0% Etisalat (UAE)

Zain (Kuwait)

Mobily Zain (Iraq)

Source: EFG Hermes One on One – February 2013

du

TE

Omantel

Zain (Sudan)

Supporting developers working on Arabic applications (Mobily) and forming JVs with content providers (STC/Mobily). Not a major area of competition for operators. Internet awareness increased significantly in the region post the Arab Spring (i.e. Internet traffic in Egypt per existing subscriber increased by c25% ex. subscriber growth, data transmitted over Blackberry in Saudi Arabia during Hajj increased 475% YoY).

Strictly Private and Confidential

14

Valuations

MENA Telcos Vs. CEEMEA Country

Mcap  (USD mn)

KSA UAE KSA Kuwait Morocco Qatar UAE Kuwait Egypt Egypt Oman KSA Jordan Bahrain

                21,493                21,112 21 112                 15,297                 12,307                 11,148                 10,331                   4,472                    4,320                    3,729                    3,402                    2,822                    2,376                   1,880 1 880                    1,576

2012a/e

P/E (x) 2013e

2014e

           11.0          11.5 11 5               9.5            12.3            12.8            10.1             8.3            15.9               9.0            10.7               9.2 N /M           14.4 14 4               7.9

              8.9             9.4 94               8.9            12.3            12.6               8.3             9.2               9.7               9.8            11.0               9.1 N /M           13.3 13 3               8.4

              8.2             9.0 90               8.6            11.5            12.9               7.8             9.5               9.0               9.4            10.1               8.7 N /M           12.7 12 7               7.0

EPS CAGR  EV/EBITDA (x) 2012a/e 2013e 2014e 12‐14

EBITDA  Div. Yield 2013e CAGR 12‐ 2012a/e

2014e

MENA Region STC Etisalat Mobily Zain Group  Maroc Telecom Qatar Telecom (Qtel) du Wataniya Telecom Telecom Egypt Orascom Telecom Holding  Omantel Zain Saudi Arabia Jordan Telecom Jordan Telecom Batelco

MENA Average CEEMEA Region MTN MTS Vimpelcom Vodacom Turk Telekom Turkcell Telefonica O2 Czech Bezeq TPSA Safaricom Magyar Telekom Telkom SA Partner Cellcom

Regional Average One on One – February 2013

        11.0         10.1           9.6 South Africa Russia Russia South Africa Turkey Turkey Czech Israel Poland Kenya Hungary South Africa Israel Israel

                38,523                20,840 ,                 19,978                 19,011                 14,216                 13,877                    5,230                   3,498                    3,020                    2,539                    1,885                       967                      887                       759

           15.3             5.9            12.2            15.7               9.4            12.2            13.5             7.2            10.1            17.3               9.5               4.9             7.0               5.6

           13.4             4.7            10.5            13.5               9.5            11.2            13.6             8.2            14.5            13.2               9.4               9.2             8.4               7.4

           12.3             4.3               9.1            12.7               9.5            10.5            14.1             8.6            16.3            11.5               9.7               9.6             8.5               8.3

        10.7         10.3         10.0

15.4% 13.1% 13 1% 5.5% 3.7% 1.1% 14.0% ‐6.5% 30.5% ‐2.0% 3.2% 2.8% N/M 6 5% 6.5% 6.1%

              4.7             3.5 35               5.5               7.5               6.6               5.1             3.4               4.4               3.2               3.9               4.3 N/M             6.3 63               4.6

4.7% 2.8% 2 8% 7.0% ‐0.4% 0.4% 4.4% 9.7% 9.8% ‐2.0% ‐2.0% 4.8% 29.2% 3 2% 3.2% 5.8%

5.0% 7.1% 7 1% 5.2% 6.3% 7.7% 3.7% 8.4% 5.2% 9.9% 0.0% 8.0% 0.0% 7 0% 7.0% 9.5%

5.0% 6.1% 6 1% 6.2% 7.5% 8.0% 4.1% 7.5% 2.6% 9.9% 0.0% 8.0% 0.0% 7 5% 7.5% 7.1%

5.3% 6.1% 6 1% 6.7% 8.1% 7.8% 4.4% 7.8% 3.2% 10.2% 3.0% 8.0% 0.0% 7 9% 7.9% 9.5%

7.2%           5.2           5.0           4.8

5.5%

5.9%

5.7%

6.3%

              5.3             4.4               4.5               6.7               5.5               5.5               4.8             5.1               3.4               4.5               3.8               2.2             5.3               5.3

3.3% 4.2% 2.9% 1.0% 3.7% 10.6% ‐2.4% ‐4.7% ‐8.2% 13.1% ‐0.2% ‐12.7% ‐6.2% 6.2% ‐8.4%

4.8% 10.7% 6.6% 5.2% 9.1% 10.3% 12.5% 22.7% 17.6% 4.0% 12.6% 9.3% 6.6% 9.0%

5.6% 11.9% 6.6% 7.0% 9.6% 7.5% 12.2% 18.6% 13.3% 5.0% 12.3% 5.3% 6.9% 8.3%

6.2% 13.8% 6.9% 7.3% 9.5% 4.8% 11.1% 11.5% 13.9% 6.0% 12.2% 5.6% 6.5% 4.3%

2.8%           5.0           4.9           4.8

2.6%

8.0%

7.5%

7.4%

9.0% 17.1% 15.8% 3.5% ‐0.4% 8.3% ‐1.7% ‐7.7% ‐21.9% 19.8% 0.0% ‐33.2% ‐8.4% 8.4% ‐17.1%

              5.2              3.9 39               6.3               7.5               6.5               5.4              4.0               5.4               3.1               3.7               4.7 N/M              6.7 67               5.1

              5.9              4.8               4.7               7.9               5.9               6.7               4.5              4.6               2.9               6.1               3.8               2.0              4.6               4.4

Strictly Private and Confidential

              4.9             3.7 37               5.9               7.9               6.6               5.3             3.7               4.6               3.2               3.9               4.4 N/M             6.5 65               5.0

              5.6             4.6               4.6               7.2               5.7               6.1               4.7             4.9               3.2               4.9               3.8               2.3             5.2               5.2

16

Value – Dividend Plays Dividend Yield – (2012e – 2014e) 2012

12%

Dividend Payout Ratio – (2012a/e – 2013e)

2013

2012a/e

2014

2013e

100%

10% 80% 8% 60% 6% 40%

4%

20%

2%

2013 P/E vs. 13-15 EPS CAGR

12

8

OTH TE

Omantel

VFQ

Zain KSA

Qtel

STC

Mobily

Nawras

du

Omantel

Zain Gp

≡ Stocks in our coverage universe in general offering earnings growth between 

Zain Gp

Qtel

Etisalat

Takeaways

14

10

Wataniya W

JT

Zain KSA Z

OTH

Qtel

STC

Wataniya W

Mobily

Zain

JT

Batelco

Nawras

Omantel O

du

Maroc Tel M

TE

Etisalat

Source: Bloomberg, EFG Hermes

Source: Bloomberg, EFG Hermes

du

TE

0%

0%

Wataniya

≡ Mobily and du: rising DPS with potential for positive surprises. TE one of the  Mobily and du: rising DPS with potential for positive surprises. TE one of the

Etisalat Mobily

flat and high single digits. OTH an exception due to margins expansion and  start‐up nature of Canada. du shows negative earnings growth due to the  gradual increase in royalty payments.  most attractive on yield (but EGP denominated). 

STC

≡ Qtel not attractive on dividend yield due to M&A action.

6

4 -10%

-5%

One on One – February 2013

0%

5%

Source: EFG Hermes

10%

15%

20% Strictly Private and Confidential

17

Stocks under Coverage

Orascom Telecom Holding (OTH)

NEUTRAL

Wireless – Listing: EGX, LSE

Mkt Cap. Mkt. Cap / GDRs (mn)

≡ Assets: = = = = =

3M Avg. Daily Liqd. (mn)

96.91% of OT Algeria (Djezzy) 100% of Mobilink (Pakistan) 100% of Banglalink (Bangladesh) 100% of Telecel Africa 99% of Wind Canada – currently 65% and the rest is pending regulatory approvals

≡ Djezzy (Algeria), main value driver and largest contributor to

revenue and EBITDA, faced pressure from the Algerian government since i mid id 2009. 2009 Situation Sit ti developed d l d through th h the th formation f ti off Optimum (100% owned by OTA), and one of the scenarios is to sell 51% stake to the Government. International arbitration ongoing.

≡ Post demerger, OTH resumed trading on EGX on 22 Jan after being suspended since 27 Nov 2011. Trading on newsflow from Algeria.

≡ Wind Wi d C Canada: d increasing i i th the stake t k to t 99% (pending ( di approvals) l ) ffor

cUSD15 mn, 1Q2013 would start fully consolidation. 4Q2012 would include Canada accrued interest expenses.

Valuation and Risks DCF-based SOTP. Djezzy (60%), Mobilink (30%), Banglalink (11%). Djezzy: Capex to Sales ratio (FY11 &9M12) = 2% versus an industry average of 15-16%. Partial blackouts not so farfetched. We value operation at 3.2x 2013e EBITDA (USD3.87 bn). = Actual concrete developments to resolve the issue (new gov’t). = Acquiring Djezzy at fair price or lifting equipment & capital restrictions. One on One – February 2013

USD0.84 on 23 Aug 09 4.0 USD3 400/ 1 USD3,400/ 1,049 049 3.0 EGP20.8

52 Week High / Low

EGP4.64/2.65

Bloomberg / Reuters

OTLD LI / ORTEq.L

Est. Free Float

2.0

48.3%

USD mn

2011a

2012e

2013e

2014e

2015e

Revenue

3,636

3,635

3,747

3,875

4,024

Revenue Growth

-3.3%

0.0%

3.1%

3.4%

3.8%

EBITDA

1 647 1,647

1 762 1,762

1 675 1,675

1 691 1,691

1 739 1,739

45.3%

48.5%

44.7%

43.6%

43.2%

657

317

309

338

433

Net Profit Growth

-11.6%

-51.8%

-2.5%

9.3%

28.3%

Net Profit Margin

18.1%

8.7%

8.2%

8.7%

10.8%

0.63

0.30

0.29

0.32

0.41

-

-

-

0.10

0.12

EBITDA Margin Net Profit (Attrib.)

EPS (Attrib.) DPS BVPS

1.80

2.10

2.40

2.63

2.92

RoAIC

11.4%

16.5%

14.8%

13.9%

14.0%

RoAE

28 7% 28.7%

15 7% 15.7%

13 2% 13.2%

13 0% 13.0%

15 0% 15.0%

Net Debt/Equity (x)

1.55

1.10

0.95

0.82

0.69

Net Debt/EBITDA (x)

1.84

1.43

1.49

1.38

1.27

P/E (x)

5.17

10.73

11.01

10.07

7.85

0.0%

0.0%

0.0%

3.0%

3.9%

1.80

1.54

1.35

1.23

1.11

Dividend Yield

≡ Upside p Risks:

USD3.45 / EGP4.19

HFI (VWAP)

13-Feb-13

Last Div. / Ex. Date

OT

5.0

13-Nov-12

Fair Value (GDR/Local)

= 51.7% Vimpelcom = 48.3% 48 3% Free Float

6.0

13-Aug-12

≡ Shareholding Structure:

USD3.24 / EGP4.40

13-May-12

Price (13 Feb 2013)

13-Feb-12

Investment Thesis

P/BV (x) EV/EBITDA (x) FCF Yield

Strictly Private and Confidential

3.61

3.73

3.93

3.89

3.78

25.4%

15.3%

1.1%

4.7%

7.1%

19

Orascom Telecom Holding (OTH)

NEUTRAL

Wireless – Listing: EGX, LSE Our DCF-based SOTP Valuation for OTH Equity Value GSM Operations

Implied EV/EBITDA 12

OT Stake

Prop. Value

Prop. Value (EGP mn)

% of Total Value

Djezzy (Algeria)

3,870 3.0

96.8%

3,746

22,740

59.6%

Mobilink (Pakistan)

1,910 5.0

100.0%

1,910

11,591

30.4%

Banglalink (Bangladesh)

704

5.2

100.0%

704

4,276

11.2%

Globalive (Canada)

290

N/M

65.0%

189

1,145

3.0%

100.0%

(259)

(1,570)

-4.1%

6,290

38,182

OTH Holding

(259)

GSM Total Value OTH Holding Net Debt Total Equity Value Fair Value

(2,670)

(16,207)

3,620 3.45

21,975 4.19

Scenarios for Djezzy Valuation (Ex 1.3 bn fine and Capital Gains Tax) Market Implied Valuation for Djezzy:

≡ OTH at market price: USD3.24/GDR ≡ Assuming all other assets are fairly valued + holding net debt

≡ Implies an equity value for 100% of

Djezzy of USD3.6 bn (3.3x BV, 3.0x EV/EBITDA 2013e)

One on One – February 2013

51% of Djezzy

Implied Valuation for 100% of Djezzy

USD2.0 bn

USD3.9 bn

USD3.0 bn

USD5.9 bn

USD3.3 bn

USD6.5 bn

The valuation rumoured to be that of Shearman and Sterling g

USD5.88 bn

USD4.0 bn

USD7.8 bn

Same as price offered by MTN in 2010, best case scenario and largely unlikely

USD7.08 bn

Comment Less than 4.0x 4 0x EBITDA EBITDA, more or less along with our current conservative valuation 4.9x 2013e EBITDA

Strictly Private and Confidential

Implied FV for OTH (GDR)

USD3.48 bn USD5.32 bn

20

Orascom Telecom Media & Technology (OTMT) Wireless – Listing: EGX, LSE Investment Thesis

Price (13 Feb 2013)

≡ Shareholding Structure:

EGP0.51

Fair Value

= 51.7% Weather Investments II (Sawiris family) = 48.3% 48 3% Free Float

USD0.67/EGP0.82

Last Div. / Ex. Date

EGP1.05 on 17 July 12

Mkt. Cap. / Shares (mn)

≡ Assets: = = = = = = =

BUY

5% Economic Stake in Mobinil (28.75% Voting Rights, 3 members of board) 75% of Koryolink (North Korea) 95% of Orabank NK (North Korea) 100% MENA for Sea Cables (direct and indirect stakes) 51% of Trans World Associate Ltd. (Pakistan) 99.99% of OT Ventures (Link Development, ARPU+ , LINKonLINE & Alfa in Lebanon) 1% of ARPU for Telecommunication Services (Egypt)

USD535.1 / 5,246

3M Avg. Daily Liqd. (mn)

EGP18.96

52 Week High / Low

EGP0.65/0.33

Bloomberg / Reuters

OTMT EY / OTMT.CA

Est. Free Float

48.3% OTMT (EGP)

HFI (Rebased)

0.7 0.6 0.5

0.3

≡ Strategy: focus on GSM segment with both Cable and Media Technology assets targets for possible divestments (currently looking to increase its GSM portfolio with 2 or 3 medium-sized GSM assets/management contracts)

Valuation and Risks

Koryolink (North Korea) KPIs USD mn

≡ Upside U id risks: i k = A possible sale of assets and subsequent distribution of dividends = A tender offer by majority shareholder, Weather Investments

≡ Downside risks: = With a portfolio of inhomogeneous assets, the company’s strategy continues to be dependent on factors out of management control. = Risky assets, North Korea’s Koryolink, remain the core value driver (39% of value).

Revenue EBITDA

Strictly Private and Confidential

2010a 2011e 2012e 2014e 66

149

180

251

58

121

126

140

87.0%

81.0%

70.0%

56.0%

Earnings

49

106

105

84

C Capex

47

50

55

60

70.8%

33.6%

30.6%

23.9%

15

70

74

51

Margin

Capex/sales FCF

One on One – February 2013

13--Feb-13

and ii) Expectation of another dividend. dividend

13-N Nov-12

≡ Stock has been trading on rumors of: i) Possible tender offer by Weather Investments,

13-A Aug-12

0.2 13-M May-12

Cap Indices on size criteria post the distribution of the super dividend.

0.4

13--Feb-12

≡ Local Share: started on EGX on 22 January 2012, GDR: LSE’s main market on 26 June. ≡ Was dropped from the MSCI Standard Indices (Egypt and EM) and added to the Small

21

OTMT

BUY

Wireless – Listing: EGX, LSE Our DCF-based SOTP Valuation for OTMT

Equity Value (USD mn) Mobinil (ECMS) ‐ Valued @ 20% Floor of Put Option Cash (General Services Agreement with FT) Cash (Mobinil‐FT deal)  h( b l d l) GSM Operations Orascom North Korea (Koryolink) Management Contract in Lebanon ed a a d ec o ogy Seg e t Media and Technology Segment OT Ventures

OT Stake k

Prop. Value (EGP mn)

             2,527                  142                   81

5.0%                    126                       777 100.0%                    142                       876 100.0%                     81                      498

                 366                    25

75.0%                    275                    1,690 100.0%                      25                       151

                   54

100.0%                      54                       332

Total Value of Operations Fair Value (Per Share) Number of GDRs/Local Shares

Prop. Value (USD mn)

            703            0.67

            4,324               0.82

Nb shares                1,049                    5,246

Options Currently in Place  1. OTMT Put Option on the 5% Stake

2. OTMT Exit Rights in case FT involves another local partner 3. FT Call Option on the 5% Stake owned by OTMT

Reduce stake by 1.67% per annum over 3 years with the last exercise triggering sale of voting rights Exercisable in Jan‐Feb of 2015 to 2017 Starting at price EGP268 5/share in 2015 accreting to EGP296/share in 2017 Starting at price EGP268.5/share in 2015 accreting to EGP296/share in 2017 To acquire ALL the stake anytime in Jan‐Feb of 2013‐2017 OR in the event of change of control in OTMT Starting at price EGP243.5/share in 2015 accreting to EGP296/share in 2017

4. FT Right of First Refusal if it wishes to sell its 5% stake g

One on One – February 2013

Strictly Private and Confidential

22

Telecom Egypt (TE)

BUY

Integrated – Listing: EGX, LSE

≡ Considering a direct presence in the mobile market through an MVNO, then universal 4G license.

≡ Currently offers one of the highest FCF yields in our coverage,

translates into the highest dividend yield in our coverage. Stock known to be of defensive nature.

≡ Balance sheet is solid and underleveraged; net cash position. Valuation and Risks

EGP17.30

Last Div. / Ex. Date Mkt. Cap. / Shares (mn) 3M Avg. Daily Liqd. (mn)

≡ Upside Risks = Reversal of provisions related to mobile interconnect issue could result in dividend distribution = Higher-than-expected recognition of revenues from cable systems. Our cable revenue estimates starting 2013e are conservative. = Low broadband penetration in Egypt and expected fast growth support TE Data. = Higher dividend payout pushed by the government, given the country’s widening fiscal deficit.

≡ Downside Risks = More salary increases putting pressure on margins. TE recently approved a salary restructuring costing EGP243 mn (cutting margin by 200 bps).

EGP8.50 EGP16.97 / 11.78

Bloomberg / Reuters

ETEL EY / ETEL.CA

Est Free Float Est. EGP mn - IFRS

15 10 5

20 0% 20.0% 2011a

2012e

2013e

2014e

2015e

Revenue

9,895

10,215

9,916

10,180

10,397

Revenue Growth

-3.2%

3.2%

-2.9%

2.7%

2.1%

EBITDA

4 371 4,371

4 246 4,246

4 055 4,055

4 078 4,078

4 056 4,056

44.2%

41.6%

40.9%

40.1%

39.0%

2,441

2,789

2,551

2,680

2,788

Net Profit Growth

-13.0%

14.2%

-8.5%

5.1%

4.0%

Net Profit Margin

24.7%

27.3%

25.7%

26.3%

26.8%

EPS (Attrib.)

1.43

1.63

1.49

1.57

1.63

DPS

1.40

1.45

1.45

1.50

1.55

Net Profit (Attrib.)

BVPS

16.0

16.2

16.2

16.3

16.4

RoAIC

7.7%

7.1%

6.7%

7.2%

7.7%

RoAE

9 4% 9.4%

10 2% 10.2%

9 2% 9.2%

9 7% 9.7%

10 0% 10.0%

Net Debt/Equity (x)

(0.18)

(0.20)

(0.25)

(0.30)

(0.35)

Net Debt/EBITDA (x)

(0.71)

(0.81)

(1.05)

(1.25)

(1.45)

P/E (x)

10.28

9.00

9.84

9.36

9.00

Dividend Yield

9.5%

9.9%

9.9%

10.2%

10.5%

0.92

0.91

0.91

0.90

0.90

P/BV (x) EV/EBITDA (x) FCF Yield

One on One – February 2013

USD3,729/ 1,707

52 Week High / Low

EBITDA Margin

We use a DCF-based SOTP methodology. Fixed-line operation 56% of value, VFE (33%) and TE Data (11%).

EGP1.10 on 9 Apr 12

HFI (Rebased) 20

13-Feb-13

debts and increased FCF generation.

Fair Value

TE (EGP)

13 3-Nov-12

≡ Government owns 80% of TE. ≡ Privatization brought in management from private sector, who repaid

EGP14.70 25

13 3-Aug-12

mobile operator by market share, Vodafone Egypt (VFE), and owns the country’s largest ISP, TE Data.

Price (13 Feb 2013)

3-May-12 13

≡ Egypt’s sole fixed-line operator; owns 45% of the country’s largest

13-Feb-12

Investment Thesis

Strictly Private and Confidential

3.10

3.13

3.18

3.17

3.16

13.6%

13.7%

16.8%

16.6%

16.7%

23

Saudi Telecom Company (STC)

NEUTRAL

Integrated – Listing: Saudi Tadawul Stock Exchange SAR46.0

≡ Local Operation: Main value driver. driver Mobile market share 45%, 45% ARPU at

Mkt Cap Mkt. Cap. / Shares (mn)

government ownership. USD27.

Last Div. / Ex. Date

3M Avg. Daily Liqd. (mn)

≡ International Ops: 25% of Malaysia’s Maxis and 84% of its Indonesian subsidiary (Axis). 35% of Oger Telecom (Turk Telekom + Cell C). Third operator in Kuwait and Bahrain (Viva).

≡ Rumors on possible divestments (SA, (SA India India, Indonesia) and that Axis (Indonesia) already offered itself for sale. Already took a SAR641 impairment on SA and India.

≡ New management after a number of top level executives resignations. ≡ International ops 32% of revenue. Oger Telecom biggest contributor. ≡ Mobily b l llooking k more interesting on d dividend d d yield ld b basis with h llower risks k and a better growth profile.

52 Week High / Low Bloomberg / Reuters Est. Free Float

We use a DCF-based SOTP methodology. Local operation 85% of value, Oger Telecom (5%) and Maxis (7%). (7%)

≡ Upside Risks = Sustained improved operational performance in Saudi operation.

≡ Downside Risks = Dividends: Further cuts to DPS; quarterly interim DPS was cut to SAR0.50 since 1Q2011, down from a consistent SAR0.75 before. = Competitive Pressures: Further deterioration in margins on more aggressive competition in local/international ops. = FX Pressure: Exposure to highly volatile currencies (TRY, ZAR). = Noise surrounding Oger Telecom, could be forced to buy at higher valuation.

STC AB / 7010.SE 16.4% 2011a

2012e

2013e

2014e

2015e

Revenue

55,662

59,373

62,267

64,673

67,254

7.5%

6.7%

4.9%

3.9%

4.0%

EBITDA

20,025

20,305

21,591

22,242

22,892

EBITDA Margin

36.0%

34.2%

34.7%

34.4%

34.0%

7,729

7,351

9,038

9,788

10,614

Net Profit Growth

-18.1%

-4.9%

22.9%

8.3%

8.4%

Net Profit Margin

13.9%

12.4%

14.5%

15.1%

15.8%

EPS (Attrib (Attrib.)) (SAR)

3 86 3.86

3 68 3.68

4 52 4.52

4 89 4.89

5 31 5.31

DPS (SAR)

2.00

2.00

2.00

2.15

2.50

23.45

25.70

28.68

31.43

34.23

RoAIC

13.9%

13.2%

15.7%

16.7%

18.1%

RoAE

Revenue Growth

BVPS (SAR)

16.8%

15.0%

16.5%

16.3%

16.2%

Net Debt/Equity (x)

0.45

0.33

0.12

(0.03)

(0.16)

Net Debt/EBITDA (x)

1.04

0.84

0.32

(0.08)

(0.47)

P/E (x)

10.43

10.96

8.92

8.23

7.59

Dividend Yield

5.0%

5.0%

5.0%

5.3%

6.2%

P/BV (x)

1 72 1.72

1 57 1.57

1 40 1.40

1 28 1.28

1 18 1.18

EV/EBITDA (x)

5.43

5.18

4.87

4.73

4.60

10.8%

4.1%

13.0%

14.4%

15.6%

FCF Yield One on One – February 2013

50.0 SAR0.50 on 3 Nov 12 45.0 40.0 USD21 493 / 2,000 USD21,493 2 000 35.0 30.0 SAR32.9 25.0 20.0 SAR46.1/36.0

TASI (Rebased)

SAR mn

Net Profit (Attrib.)

Valuation and Risks

STC (SAR)

13-Feb-13

≡ Incumbent operator, largest MENA operator by revenue, 70% direct

Fair Value

13-Oct-12

SAR40.3

13-Jun-12

Price (13 Feb 2013)

13-Feb-12

Investment Thesis

Strictly Private and Confidential

24

Etihad Etisalat (Mobily)

BUY

Wireless – Listing: Saudi Tadawul Stock Exchange SAR89.6

to data markets through g data p provider Bayanat y Al Oula.

Mkt Cap Mkt. Cap. / Shares (mn)

≡ Best positioned to benefit from growth in data & broadband segments (30% of total 4Q revenue).

≡ Plans to expand in: i) Underserved corporate segment (Size cSAR30 billion, voice & broadband). Market share still in teens, and ii) Wholesale: Int’l wholesale or carrier-to-carrier services.

≡ Commercially savvy management. ≡ Significant spending on new networks/technologies: Cumulative

capex spending of SAR14.5 billion for the next 3 years. Launched LTE network in Sept 2011 in several cities (advertised speeds of up to 100 Mbps, p , more efficiency y in spectrum p use…). )

≡ Growth + dividend distribution (Good FCF yield 6-8%, supports

declared progressive div policy). Dividend now distributed quarterly.

Valuation and Risks We use a DCF-based model. 9.6% WACC.

≡ Upside U id Risks Ri k = Surge in data traffic (smart phones penetration still in early teens). = Better operational margins on better cost efficiencies.

≡ Downside Risks = Competitive p Pressures – If Zain KSA adopts p a more desperate p strategy (international /roaming pricing) / STC becomes more commercially savvy. More pressure on margins. = Data revenue does not compensate for stagnating voice revenue. = Regulatory (?): Temp 2-week ban on new prepaid SIMs Pending g Issues: MVNO impact p not y yet clear. Potentially y disruptive, p , however, also a source of wholesale revenue stream. Tower sharing agreement will probably not materialize. LTE Spectrum issue. One on One – February 2013

3M Avg. Daily Liqd. (mn)

SAR1.15 on 20 Feb 13 USD15 297/ 770 USD15,297/ SAR49.3

52 Week High / Low

SAR75.25/53.41

Bloomberg / Reuters

EEC AB / 7020.SE

Est. Free Float

Mobily (SAR)

TASI (rebased)

80.0 70.0 60.0 50 0 50.0 40.0 30.0 20.0

40%

13-Feb-13

Fair Value ≡ Our Top Pick in both Saudi & MENA telecom coverage. nd ≡ 2 operator in Saudi Arabia by subs market share (38%), with exposure Last Div. / Ex. Date

13-Oct-12

SAR74.5

13-Jun-12

Price (13 Feb 2013)

13-Feb-12

Investment Thesis

SAR mn

2011a

2012a

2013e

2014e

2015e

Revenue

20,052

23,642

25,591

27,298

28,498

Revenue Growth

25.2%

17.9%

8.2%

6.7%

4.4%

7,453

8,591

9,227

9,829

10,262

EBITDA EBITDA Margin

37.2%

36.3%

36.1%

36.0%

36.0%

Net Profit (Attrib.)

5,083

6,018

6,426

6,700

6,977

Net Profit Growth

20.7%

18.4%

6.8%

4.3%

4.1%

Net Profit Margin

25.4%

25.5%

25.1%

24.5%

24.5%

EPS (Attrib (Attrib.)) (SAR)

6 60 6.60

7 82 7.82

8 35 8.35

8 70 8.70

9 06 9.06

DPS (SAR)

2.95

3.88

4.60

5.00

5.40

23.88

27.15

31.56

35.27

38.93

RoAIC

23%

24%

24%

23%

22%

RoAE

30%

31%

28%

26%

24%

Net Debt/Equity

0.29

0.33

0.16

0.11

0.07

Net Debt/EBITDA

0.72

0.81

0.43

0.31

0.19

P/E (x)

11.28

9.53

8.93

8.56

8.22

Dividend Yield

BVPS (SAR)

4.0%

5.2%

6.2%

6.7%

7.2%

P/BV (x)

3 12 3.12

2 74 2.74

2 36 2.36

2 11 2.11

1 91 1.91

EV/EBITDA (x)

7.13

6.32

5.88

5.51

5.27

5.0%

3.1%

5.8%

8.0%

8.8%

FCF Yield Strictly Private and Confidential

25

Zain Saudi Arabia (Zain KSA)

NEUTRAL

Wireless – Listing: Saudi Tadawul Stock Exchange

licence/pop basis)

≡ Market share 13%, ARPU at USD18 (lags Mobily & STC) ≡ Overstretched balance sheet, high leverage --- capital restructuring ≡ Very high interest and amortization expenses (SAR1 billion annually each), earnings breakeven not before 2016.

≡ Capital restructuring plan already kicked off in July 12 (capital

decrease to wipe off accumulated losses then rights issue where founding shareholders participate on pro-rata basis through capitalising shareholder loans), Zain Group increased stake to 37% on low turnout from investors.

Valuation and Risks

Last Div. / Ex. Date Mkt Cap Mkt. Cap. / Shares (mn)

≡ Upside Risks = New management appointed i db by Zain i G Group could ld turn operation i around (full backing of parent) = Could use availability of 1800 MHz spectrum to its advantage (though not likely to translate into significant subs migration)

TASI (Rebased)

N/R 20.0 USD2 376 / 1,080 USD2,376 1 080 15.0 10.0

52 Week High / Low

SAR23.1/7.60

5.0

Bloomberg / Reuters

ZAINKSA AB / 7030.SE

Est. Free Float

45%

SAR mn

2011a

2012a

2013e

2014e

2015e

Revenue

6,699

6,404

7,022

7,908

8,944

12.9%

-4.4%

9.6%

12.6%

13.1%

899

878

1 043 1,043

1 466 1,466

2 015 2,015

13.4%

13.7%

14.9%

18.5%

22.5%

(1,925)

(1,750)

(1,492)

(1,110)

(526)

Revenue Growth EBITDA EBITDA Margin

Net Profit Growth

N/M

N/M

N/M

N/M

N/M

Net Profit Margin

-28.7%

-27.3%

-21.3%

-14.0%

-5.9%

(1.37)

(1.41)

(1.38)

(1.03)

(0.49)

-

-

-

-

-

EPS (Attrib.) (SAR) DPS (SAR)

3.07

7.83

6.57

5.54

5.06

RoAIC

-4.0%

-4.6%

-4.7%

-2.6%

0.2%

RoAE

-37% 37%

-27% 27%

-19% 19%

-17% 17%

-9% 9%

3.54

1.45

1.56

1.95

1.67

BVPS (SAR)

= Competitive Pressures - Zain KSA already lags STC and Mobily in data and broadband, could resort to disruptive strategy which would Net Debt/Equity (x) Net Debt/EBITDA (x) be value destructive to the whole market. = Entrance of 3 MVNOs to the market in 2013 could be a risk - lower P/E (x) market share and margin erosion. Dividend Yield = Financial St Structure ct e – Zain KSA continues contin es to face dela delays s in securing sec ing P/BV (x) long term refinancing (rumors it will be signed within days, could EV/EBITDA (x) create a short rally). USD231 mn vendor financing to Motorola was FCF Yield repaid by Zain Gp on its behalf. One on One – February 2013

Zain KSA (SAR) 25.0

SAR77.5

3M Avg. Daily Liqd. (mn)

Net Profit (Attrib.)

DCF-based model (10% WACC). Negative on company prospects.

≡ Downside Risks

SAR8.30

13-Feb-13 1

≡ Paid USD6.1 billion for licence (one of the highest in region on

Fair Value

13-Oct-12 1

Group (management control + full backing).

SAR8.25

13-Jun-12

≡ Third entrant to Saudi mobile market, 37% owned by Kuwait’s Zain

Price (13 Feb 2013)

13-Feb-12 1

Investment Thesis

Strictly Private and Confidential

16.9

13.9

10.6

7.9

4.5

N /M

N /M

N /M

N /M

N /M

0.0%

0.0%

0.0%

0.0%

0.0%

2.69

1.05

1.26

1.49

1.63

23.51

24.09

20.28

14.42

10.50

-13.6%

18.0%

-10.4%

-6.9%

27.6%

26

Emirates Telecom. Corp. (Etisalat)

NEUTRAL

Integrated – Listing: Abu Dhabi Exchange ADX

≡ Large cash position (net cash USD1.97 bn) and solid balance sheet. ≡ Well positioned for potential M&A activity in the region. Most likely opportunity at the moment is 53% stake in Maroc Telecom ; Libya.

≡ Home market (UAE) has become tight, tight mobile penetration rate over 200%, and competition is tough from second entrant, du.

≡ Recently reduced minority stake in Indonesia after failing to take

control, indicating a good strategy of focusing more on core assets.

≡ New royalty structure benefited Etisalat: lower effective fees. Valuation and Risks We use a DCF-based SOTP methodology. Local operation 73% of value, Mobily (17%) and Etisalat Misr (4%). Other operations jointly contribute c6% of the total value.

≡ Upside risks = Company’s internal restructuring programme may result in operational efficiency and improvement of UAE unit performance. = Further reduction in royalty fees charged by the Government, however we believe this is unlikely in the short-term. = Stock ownership opening up to foreigners, foreigners with recent news flow about a law amendment being drafted to change the company’s status.

≡ Downside risks = Further Competitive Pressures in the UAE from du which would negatively impact group performance due to the UAE’s UAE s large contribution to consolidated accounts.

Mkt Cap Mkt. Cap. / Shares (mn)

USD21 112 / 7,906 USD21,112 7 906

3M Avg. Daily Liqd. (mn)

AED17.4

52 Week High / Low

AED10.10 / 8.57

Bloomberg / Reuters

ETISALAT UH / ETEL.AD

Est. Free Float

8.0 6.0

40%

AED mn

2011a

2012a

2013e

2014e

2015e

Revenue

32,242

32,946

33,610

34,434

35,208

1.2%

2.2%

2.0%

2.5%

2.2%

EBITDA

, 15,882

16,855 ,

17,296 ,

17,797 ,

18,267 ,

EBITDA Margin

49.3%

51.2%

51.5%

51.7%

51.9%

Revenue Growth

5,839

6,742

8,238

8,621

9,016

Net Profit Growth

-23.5%

15.5%

22.2%

4.7%

4.6%

Net Profit Margin

18.1%

20.5%

24.5%

25.0%

25.6%

EPS (Attrib.) (Attrib )

0 74 0.74

0 85 0.85

1 04 1.04

1 09 1.09

1 14 1.14

DPS

0.60

0.70

0.60

0.60

0.60

Net Profit (Attrib.)

BVPS

5.0

5.9

5.9

6.4

7.0

RoAIC

17.7%

15.1%

15.2%

14.3%

13.6%

RoAE

15.0%

20.3%

18.3%

17.7%

17.1%

Net Debt/Equity (x)

(0.1)

(0.2)

(0.2)

(0.2)

(0.2)

Net Debt/EBITDA (x)

(0.3)

(0.5)

(0.5)

(0.6)

(0.7)

P/E (x)

13.3

11.5

9.4

9.0

8.6

6.1%

7.1%

6.1%

6.1%

6.1%

2.0

1.7

1.7

1.5

1.4

Dividend Yield P/BV (x) EV/EBITDA (x) FCF Yield

One on One – February 2013

AED0.25 on 06 Aug 12

ADX (Rebased)

10.0

13-Feb-13

growth (Egypt; Africa); major value is from UAE and KSA (Mobily).

Last Div. / Ex. Date

Etisalat (AED)

12.0

13-Nov-12

subscribers (total subscriber base of over 150 million in 17 markets).

≡ Portfolio of int int’ll investments in emerging economies provides

AED12.30

13-Aug-12

≡ One of the largest telecom groups among MENA operators by

Fair Value

AED9.80

13-May-12

Price (13 Feb 2013)

13-Feb-12

Investment Thesis

Strictly Private and Confidential

4.1

3.9

3.7

3.5

3.3

7.2%

8.6%

7.5%

8.5%

8.9%

27

Emirates Integrated Telecom. Company (du)

NEUTRAL

Integrated – Listing: DFM

operational efficiency in 2012, specifically EBITDA margin improvement, resulting in a better balance between growth and value. We expect this to positively impact FCF generation, and ultimately dividends.

≡ First dividend distribution (2011) was one year ahead of expected and at 4% yield, sending a positive message to the market.

≡ Growth still healthy in the coming two years. (2012e – 2014e

Revenue CAGR 9%, EBITDA CAGR 11%, and EPS CAGR 12%).

≡ Valuation negatively impacted by new royalty structure that resulted in higher effective royalty for du in the long term.

Valuation and Risks We use a DCF-based model with a WACC of 10.95%.

≡ Upside Risks = Any announcement from the government regarding the reduction of royalty fees. The recently-announced royalty structure had hurt valuations as it will negatively impact du in the long term. = du is well positioned to benefit from the imminent implementation of infrastructure sharing (bit stream), which we expect to be delayed to 2H2013.

≡ Downside Risks

30 3.0

AED6.4

2.5

52 Week High / Low

AED3.90 / 2.95

2.0

Bloomberg / Reuters

DU UH / DU.DU

3M Avg. Daily Liqd. (mn)

Est. Free Float

21.3%

AED mn

2011a

2012a

2013e

2014e

2015e

Revenue

8,855

10,157

10,967

11,777

12,523

25.2%

14.7%

8.0%

7.4%

6.3%

2 916 2,916

4 002 4,002

4 329 4,329

4 819 4,819

5 207 5,207

32.9%

39.4%

39.5%

40.9%

41.6%

1,098

1,980

1,792

1,732

1,568

Net Profit Growth

-16.3%

80.4%

-9.5%

-3.4%

-9.5%

Net Profit Margin

12.4%

19.5%

16.3%

14.7%

12.5%

EPS (Attrib.)

0.24

0.43

0.39

0.38

0.34

DPS

0.15

0.30

0.27

0.28

0.27

Revenue Growth EBITDA EBITDA Margin Net Profit (Attrib.)

BVPS

1.21

1.65

1.47

1.57

1.64

9.20%

30.20%

14.20%

14.20%

13.20%

RoAE

9 0% 9.0%

28 8% 28.8%

14 1% 14.1%

14 2% 14.2%

13 3% 13.3%

Net Debt/Equity (x)

(0.0)

(0.1)

(0.1)

(0.1)

(0.0)

Net Debt/EBITDA (x)

(0.0)

(0.1)

(0.1)

(0.1)

(0.1)

P/E (x)

15.0

8.3

9.2

9.5

10.5

4.2%

8.4%

7.5%

7.8%

7.5%

3.0

2.2

2.4

2.3

2.2

RoAIC

Dividend Yield

= We believe competition is the main downside risk for du as the market is already tight, and any aggressive pressure would destroy value. One on One – February 2013

3.5

USD4 472 / 4,571 USD4,472 4 571

Mkt Cap Mkt. Cap. / Shares (mn)

13-Feb-13

≡ Earnings and EBITDA broke even in 2008; FCF positive in 2010. ≡ Strategy currently focusing less on market share and more on

4.0

AED0.15 on 05 Apr 12

13-Nov-12 1

market share since launch in 2007. (current mobile market share 46%, FL 34%).

Last Div. / Ex. Date

AED3.26

13-Aug-12

Fair Value

≡ Second integrated operator in the UAE, has aggressively gained

DFMGI (Rebased)

4.5

13-Feb-12

Investment Thesis

du (AED)

AED3.59

13-May-12

Price (13 Feb 2013)

P/BV (x) EV/EBITDA (x) FCF Yield

Strictly Private and Confidential

5.5

4.0

3.7

3.4

3.1

8.9%

10.5%

9.0%

8.5%

7.7%

28

Qatar Telecom (Qtel)

BUY

Integrated – Listing: QE, LSE, ADX

investment scope large targets with majority control/minority with operational influence (i.e. Asiacell in Iraq before stake increase)

≡ Recent M&A: Done with existing assets consolidation (Asiacell, NMTC,

Tunisiana), have shown discipline as usual (multiples in the range of 45x EBITDA) but gov’t ambitions a factor nonetheless. Should now start looking outward for expansion

≡ Significant backing from State of Qatar (direct stake 55%, indirect c13%). Joint investment fund with QIA.

≡ High financial leverage no longer a major issue (Net debt/EBITDA dropped to 1.4x in 9M12, prop net debt/EBITDA at 1.75x). GMTN Program + Rights Issue Issue.

≡ Catalyst higher than forecast dividends, we recently cut our DPS assumptions as Qtel focuses on M&A

Valuation and Risks DCF-based SOTP, and apply 10% liquidity discount. Local operation contributes only 34% (contrary to other GCC telcos).

≡ Upside Risks = Improvement in share liquidity. Main shareholders not willing to sell (Qatari state + 10% held by ADIA)

≡ Downside Risks = M&A Overstretch - Involvement in a major transformational deal could overstretch Group (Qatar-Turk Telekom, Maroc Telecom (?)) = Competitive Pressures - Stronger-than-expected competition and pricing pressures (home market, Qatar, but also in Kuwait, Algeria and Indonesia) = Regulatory/Political Issues - Kuwait, Tunisia & Iraq = Earnings forecasts could be impacted by FX movements.

Last Div. / Ex. Date Mkt Cap Mkt. Cap. / Shares (mn) 3M Avg. Daily Liqd. (mn)

120.0

USD10 331 / 320.3 USD10,331 320 3 QAR7.29

52 Week High / Low

QAR123.3/100.0

Bloomberg / Reuters

QTEL QD/ QTEL.QA

Est. Free Float

100.0 80.0 60.0

12.5%

QAR mn

2011a

2012e

2013e

2014e

2015e

Revenue

31,765

33,963

35,787

37,714

39,118

Revenue Growth

16.0%

6.9%

5.4%

5.4%

3.7%

Reported EBITDA

14 791 14,791

15 683 15,683

16 377 16,377

17 082 17,082

17 564 17,564

EBITDA Margin

46.6%

46.2%

45.8%

45.3%

44.9%

Net Profit (Attrib.)

2,605

3,239

3,972

4,207

4,488

Net Profit Growth

-9.8%

24.4%

22.6%

5.9%

6.7%

Net Profit Margin

8.2%

9.5%

11.1%

11.2%

11.5%

EPS (Attrib.) (QAR)

8.13

10.11

12.40

13.13

14.01

DPS (QAR)

1.65

3.75

4.25

4.50

5.00

BVPS (QAR)

65.7

87.0

95.1

103.8

112.8

RoAIC

11.0%

10.5%

11.3%

11.9%

12.1%

RoAE

13 0% 13.0%

13 2% 13.2%

13 6% 13.6%

13 2% 13.2%

12 9% 12.9%

1.16

0.84

0.62

0.43

0.24

Net Debt/Equity (x) Net Debt/EBITDA (x)

1.7

1.5

1.2

0.8

0.5

P/E (x)

14.44

11.61

9.47

8.94

8.38

Dividend Yield

1.4%

3.2%

3.6%

3.8%

4.3%

1.79

1.35

1.23

1.13

1.04

P/BV (x) EV/EBITDA (x) FCF Yield

One on One – February 2013

QAR1.65 on 26 Mar 12

Qtel (QAR) QI (Rebased)

13 Feb 13

≡ Footprint in 17 markets, geographic focus MENA and Asia Pacific,

QAR143.4

140.0

13-Oct-12

2009 when Vodafone Qatar launched ops. (postpaid product June 12)

QAR117.4

13-Jun-12

Price (13 Feb 2013)

≡ Incumbent operator in Qatar, competition in the local market since July Fair Value

13-Feb-12

Investment Thesis

Strictly Private and Confidential

6.99

5.82

5.64

5.43

5.28

-0.9%

-14.5%

14.7%

16.0%

17.5%

29

Wataniya Telecom (NMTC)

NEUTRAL

Wireless – Listing: Kuwait Stock Exchange

at KWD2.60/share (USD2.2 bn for 47.5% stake). Multiples on the low side (15% below our FV, 21% premium to avg price, 4.0x 2012e EBITDA).

≡ KIA agreed to sell (setting a precedent, Zain Gp implications, strategic asset). Qtel now owns 92.1% stake.

KWD2.45

3.00

KWD0.05 on 22 Mar 12

2.50

USD4,344 / 504.0

2 00 2.00

Last Div. / Ex. Date Mkt. Cap. / Shares (mn) 3M Avg. Daily Liqd. (mn) 52 Week High / Low

KWD2.58/1.98

Bloomberg / Reuters

NMTC KK/ NMTC.KW

Est Free Float Est. KWD mn

liquidity discount factor.

≡ Upside Risks = Data markets still largely untapped in both Tunisia and Algeria. Algeria = Higher than forecast dividend distribution (already happened as board recommended 125 fils for FY2012, div yield 5.3%)

≡ Downside Risks = Competitive Pressures – Historically benefitted from trouble at competitors in main markets (Change of strategy & mgmt at Zain Gp, Gp drawn-out drama bw Djezzy and Algerian gov’t, strikes at Tunisie Telecom). That is over now (performance in highly aggressive Kuwaiti market). = Regulatory Issues – Main value driver Kuwait, which still has no telecom regulator/worst g / regulatory g y environment in the region. g Algeria g 3G license continues to drag. = FX Pressures

7 9% 7.9%

2014e

2015e

727

742

817

870

913

34.8%

2.2%

10.1%

6.5%

4.9%

299

300

341

361

379

41.2%

40.3%

41.7%

41.5%

41.5%

362

75

119

129

136

Net Profit Growth

362.6%

-79.2%

58.0%

7.8%

5.6%

Net Profit Margin

49.8%

10.2%

14.6%

14.8%

14.9%

0.22

0.15

0.24

0.26

0.27

0.050

0.125

0.060

0.075

0.075

Revenue Growth

Net Profit (Attrib.)

EPS (Attrib.) DPS BVPS

1.6

1.6

1.9

2.1

2.3

RoAIC

19.1%

13.9%

16.6%

17.8%

19.0%

RoAE

55 4% 55.4%

9 3% 9.3%

17 1% 17.1%

16 4% 16.4%

15 4% 15.4%

0.00

(0.05)

(0.20)

(0.31)

(0.42)

Net Debt/Equity (x)

0.01

(0.15)

(0.55)

(0.90)

(1.27)

P/E (x)

11.13

15.93

10.09

9.35

8.86

Dividend Yield

2.1%

5.2%

2.5%

3.1%

3.1%

1.49

1.47

1.26

1.15

1.05

Net Debt/EBITDA (x)

P/BV (x) EV/EBITDA (x) FCF Yield

One on One – February 2013

1.00

2013e

EBITDA Margin

DCF-based SOTP methodology. Kuwait 47%, Tunisia 36%, Algeria 20%.

1.50

2012a

EBITDA

Valuation and Risks

KSE (Rebased)

2011a

Revenue

≡ Share liquidity is a main issue, especially post tender. We use a 25%

KWD0.03

NMTC (KWD)

13-Feb-13 1

≡ Qtel launched tender offer from in Sept 2012 to acquire remaining stake

KWD2.40

Fair Value

13-Oct-12 1

for KWD4.6/share, turned the company around. KIA used to be other major strategic investor (23.96%).

Price (13 Feb 2013)

13-Jun-12

≡ Footprint across 6 markets, mostly in MENA ≡ Main Valuation Drivers: Kuwait, Algeria & Tunisia ≡ Qtel has management control since it acquired a 51% stake in 2007

13-Feb-12 1

Investment Thesis

Strictly Private and Confidential

5.04

5.38

4.72

4.47

4.28

-1.9%

6.1%

12.7%

14.8%

16.3%

30

Zain Group

NEUTRAL

Wireless– Listing: Kuwait Stock Exchange Wireless

≡ Share price dipped to the KWD0.7/share KWD0 7/share level after a c66% Sudanese currency devaluation in June 2012 which we expect will negatively impact financial and performance in KWD terms, mostly in 2012e and 2013e.

Valuation and Risks DCF-based DCF b d SOTP. SOTP Local L l operation ti Kuwait K it contributes t ib t 36%, 36% IIraq 21% and Sudan 16%.

≡ Upside risks: = Getting an official license in South Sudan, and improvement in economic and political outlook in Sudan. = Valuation V l i rerating i off Z Zain i Iraq I post listing. li i

≡ Downside risks: = Intensified competition in Iraq, and possible regulatory risks in the country. = Further Sudanese currency devaluation, and bleak outlook on economies of both Sudans, with lack of clarity due to political tension.

Last Div. / Ex. Date

08 0.8

KWD1.5

0.6

52 Week High / Low

KWD0.88 / 0.66

0.4

Bloomberg / Reuters

ZAIN KK / ZAIN.KW

3M Avg. Daily Liqd. (mn)

Est. Free Float KWD mn

54.0%

KSE (Rebased)

1.0

USD11,384 / 4,308

Mkt. Cap. / Shares (mn)

2011a

2012a

2013e

2014e

2015e

Revenue

1,322

1,280

1,222

1,267

1,310

Revenue Growth

-2.2%

-3.2%

-4.5%

3.7%

3.3%

600

571

549

566

587

EBITDA EBITDA Margin

45.4%

44.6%

44.9%

44.7%

44.8%

Net Profit (Attrib.)

285

252

253

271

293

Net Profit Growth

N/M

-11.5%

0.2%

7.4%

7.9%

Net Profit Margin

21.5%

19.7%

20.7%

21.4%

22.3%

EPS (Attrib.) (Attrib )

0 07 0.07

0 06 0.06

0 06 0.06

0 07 0.07

0 08 0.08

DPS

0.07

0.05

0.06

0.07

0.07

0.5

N/A

0.5

0.6

0.6

RoAIC

15.9%

N/A

16.1%

17.0%

17.9%

RoAE

BVPS

12.1%

N/A

11.9%

12.7%

13.6%

Net Debt/Equity (x)

0.06

N/A

(0.22)

(0.27)

(0.31)

Net Debt/EBITDA (x)

0.23

N/A

(0.87)

(1.02)

(1.14)

P/E (x)

10.82

12.34

12.31

11.46

10.63

Dividend Yield

8.1%

6.3%

7.5%

8.1%

8.8%

P/BV (x)

1 48 1.48

N/A

1 46 1.46

1 45 1.45

1 43 1.43

EV/EBITDA (x)

6.63

7.51

7.88

7.47

7.07

17.2%

N/A

16.0%

15.2%

15.8%

FCF Yield One on One – February 2013

KWD0.065 on 1 Apr 12

Zain (KWD)

1.2

13-Feb-13

lack of a clear strategy at the Group level. However, it seems that Zain’s strategy is starting to take shape, reflecting on better operational results at the subsidiaries’ level.

KWD0.82

13-Nov-12

≡ Since the sale of the African assets, we have been concerned about the

KWD0.80

Fair Value

13-Aug-12 1

Bahrain), some growth operators (Sudan, Iraq), and Zain Saudi Arabia, following African assets sale in 2009 to India’s Bharti Airtel Group for USD10 7 billion. USD10.7 billion

Price (13 Feb 2013)

13-May-12 1

≡ Mostly mature/non-growing cash-cow operations (Kuwait, Jordan,

13-Feb-12

Investment Thesis

Strictly Private and Confidential

31

Oman Telecom. Company (Omantel)

NEUTRAL

Integrated – Listing: MSM introduction of competition in 2005 with Qtel’s Nawras.

Last Div. / Ex. Date

≡ Saw pressure on wholesale revenue after Nawras won second fixed license along with an international gateway license (in 2009).

≡ Government’s ambitious 2008 sector liberalization plan resulted in award of six MVNO licenses.

≡ Balance sheet is healthy and is cash-loaded. ≡ Defensive Defensi e stock by b nature, nat e popular pop la for fo its stable and relatively elati el high dividend yield, but low share liquidity deters investors.

≡ Offers one of the highest FCF yields among peers; EBITDA growth and earnings growth almost flat.

Mkt Cap Mkt. Cap. / Shares (mn) 3M Avg. Daily Liqd. (mn)

Bloomberg / Reuters

OTEL OM / OTL.OM

Est. Free Float OMR mn Revenue

≡ Recent increase in dividend is first since 2007, positively surprised

EBITDA Margin

We value Omantel using a balanced combination of a discounted cash flow (DCF) model (fair value (FV): OMR1.911/share, WACC 10.5%) and a dividend discount model (DDM) (FV: OMR1.149/share) to yield a combined FV of OMR1.530/share.

≡ Upside Risks = Further increase in dividend distribution. = Booking revenues from the cable systems, which we do not include in our forecasts due to the non-recurring nature and due to the absence of guidance from management on this segment. = Share Price Catalyst: Sale of a stake by the Government.

≡ Downside Risks

MSM (Rebased)

1.5 1.4 1.3 1.2

19.0% 2011a

2012a

2013e

2014e

2015e

453

459

468

480

489

8.7%

1.4%

2.1%

2.5%

1.8%

209

203

217

223

222

46.3%

44.2%

46.4%

46.4%

45.4%

112

116

118

123

123

Net Profit Growth

-0.3%

4.1%

1.7%

4.0%

0.4%

Net Profit Margin

24.7%

25.3%

25.2%

25.6%

25.2%

EPS (Attrib.)

0.149

0.155

0.158

0.164

0.164

DPS

0.100

0.115

0.115

0.115

0.115

BVPS

0.658

N/A

0.741

0.789

0.839

RoAIC

21.5%

N/A

20.8%

21.5%

21.4%

RoAE

22 7% 22.7%

N/A

21 2% 21.2%

20 8% 20.8%

19 6% 19.6%

Net Debt/Equity (x)

0.03

N/A

(0.10)

(0.18)

(0.28)

Net Debt/EBITDA (x)

0.05

N/A

(0.18)

(0.35)

(0.57)

9.6

9.2

9.1

8.7

8.7

7.0%

8.0%

8.0%

8.0%

8.0%

2.2

N/A

1.9

1.8

1.7

P/E (x) Dividend Yield P/BV (x)

= More competitive pressure on Omantel in any business segment. = Further sector liberalization from the government (less likely). One on One – February 2013

EBITDA

Net Profit (Attrib.)

Valuation and Risks

OMR0.206 OMR1.500 / 1.280

Revenue Growth

the market.

USD2 822 / 750 USD2,822

52 Week High / Low

≡ Operational turnaround since 2011 has helped Omantel switch positions in the market to become the “winner”. “winner”

OMR0.04 on 5 Aug 12

Omantel (OMR)

13-Feb-13

OMR1.53

13-Nov-12 1

≡ Benefited from being monopoly over the market until the

Fair Value

13-Aug-12 1

OMR1.43

13-May-12 1

Price (2 Oct 2012)

13-Feb-12

Investment Thesis

EV/EBITDA (x) FCF Yield

Strictly Private and Confidential

4.6

4.7

4.4

4.3

4.3

4.2%

N/A

11.2%

12.2%

13.1%

32

Disclaimer

Research

DISCLOSURES We, Marise Ananian, Nadine Ghobrial and Omar Maher, hereby certify that the views expressed in this document accurately reflect our personal views about the securities and companies that are the subject of this report. We also certify that neither we or our spouse[s] or dependants (if relevant) hold a beneficial interest in the securities that are subject of this report. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. Funds managed by EFG Hermes Holding SAE and its subsidiaries (together and separately, "EFG Hermes") for third parties may own the securities that are the subject of this report. EFG Hermes may own shares in one or more of the aforementioned funds or in funds managed by third parties parties. The authors of this report may own shares in funds open to the public that invest in the securities mentioned in this report as part of a diversified portfolio over which they have no discretion discretion. The Investment Banking division of EFG Hermes may be in the process of soliciting or executing fee earning mandates for companies that are either the subject of this report or are mentioned in this report. DISCLAIMER This Research has been sent to you as a client of one of the entities in the EFG Hermes group. This Research must not be considered as advice nor be acted upon by you unless you have considered it in conjunction with additional advice from an EFG Hermes entity with which you have a client agreement. Our investment recommendations take into account both risk and expected return. We base our long-term fair value estimate on a fundamental analysis of the company's future prospects, after having taken perceived risk into consideration. We have conducted extensive research to arrive at our investment recommendations and fair value estimates for the company or companies mentioned in this report. Although the information in this report has been obtained from sources that EFG Hermes believes to be reliable, we have not independently p y verified such information and it may y not be accurate or complete. p EFG Hermes does not represent p or warrant,, either expressly p y or implied, p , the accuracyy or completeness p of the information or opinions p contained within this report p and no liabilityy whatsoever is accepted by EFG Hermes or any other person for any loss howsoever arising, directly or indirectly, from any use of such information or opinions or otherwise arising in connection therewith. Readers should understand that financial projections, fair value estimates and statements regarding future prospects may not be realized. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This research report is prepared for general circulation to the clients of EFG Hermes and is intended for general information purposes only. It is not intended as an offer or solicitation or advice with respect to the purchase or sale of any security. It is not tailored to the specific investment objectives, financial situation or needs of any specific person that may receive this report. We strongly advise potential investors to seek financial guidance when determining whether an investment is appropriate to their needs. GUIDE TO ANALYSIS EFG Hermes investment research is based on fundamental analysis of companies and stocks, the sectors that they are exposed to, as well as the country and regional economic environment. Effective 16 December 2009, EFG Hermes changed its investment rating approach to a three-tier, long-term rating approach, taking total return potential together with any applicable dividend yield into consideration. IIn special i l situations, it ti EFG Hermes H may assign i a rating ti ffor a stock t k that th t is i different diff t from f the th one indicated i di t d b by th the 12-month 12 th expected t d return t relative l ti to t the th corresponding di ffair i value. l For the 12-month long-term ratings for any investment covered in our research, the ratings are defined by the following ranges in percentage terms: Rating

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One on One – February 2013

Strictly Private and Confidential

33