Qatar Telecommec.biz/term/uploads/Qtel_15102009.pdf · 2009. 10. 25. · Qtel Group’s EBITDA, and...

October 15, 2009

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Qatar TelecomQatar Drives Value

** Please refer to page 42 for recommendations and risk ratings.

• With a vision of becoming one of the top 20 telecommunications companies in the world by 2020, Qatar Telecom (Qtel) footprint today spans three regions—MENA, the Asian subcontinent, and Southeast Asia—with operations in three different lines of business—consumer mobile, consumer broadband, and corporate managed services.

• Through several acquisitions, Qtel is operating in different market dynamics, which include cash-generating mature markets such as Qatar and Kuwait, as well as growing markets such as Indonesia, Iraq, and Algeria.

• The majority of Qtel’s mobile operations are facing intense competition, with their respective markets approaching saturation. We envision mobile subscibers’ growth during the coming years will be slower compared to that of previous years. We forecast that the total number of Qtel’s subscribers will grow at a CAGR of 7% between 2008 and 2013.

• With Qtel’s expansion and in line with the company’s strategy of diversifying revenue, total revenue for the group witnessed a CAGR of 114% between 2006 and 2008, to reach QAR 20.3 billion in 2008. We expect fierce competition in the telecom market; thus, we forecast Qtel’s total revenue will grow at a CAGR of around 7% in the coming five years. We expect the EBITDA margin to decline marginally from 48.6% in 2008 to 47.7% by 2013. We believe that, going forward, Indosat’s operations will be the highest contributor to the Qtel Group’s EBITDA, and we forecast Indosat will account for 27.3% of the group’s total EBITDA in 2013.

• At the end of June 2009, the Qtel Group had a debt-to-equity ratio of 1.4x; a considerable portion of the total debt is on the Qatari operation level (71%).

• We arrived at a 12-month fair value for Qtel of QAR 180 per share based on a sum of the parts using the discounted cash flow for each major operation and a peer comparison based on forward PEG (price-to-earnings ratio to growth) and EV/EBITDA multiples. With an upside potential of 22% compared to the closing share price on October 14, 2009, we initiate coverage on Qtel with a “Buy” recommendation.

HighlightsKey Data

Key Ratios

Rebased Performance

* Price as of close on October 14, 2009. Sources: Reuters, MSM, and NBK Capital

Sources: MSCI, Reuters, and NBK Capital

a = actual, f = forecast. Sources: Reuters and NBK capital

12-Month Fair Value: QAR 180

Recommendation: Buy-Risk Level**: 4

Reason for Report: Initiation of Coverage

Analysts

Lisa FernandesT. +971-4-365 2856E. [email protected]

Diala HoteitT. +971-4-365 2855E. [email protected]

Closing Price* Avg. Value Traded per Day

QAR 147.40 QAR 6.193 mln

52-Week High Market Cap

QAR 151.80 QAR 21,619 mln

52-Week Low Current Number of Shares

QAR 90.30 QAR 147 mln

Reuters Bloomberg

QTEL.QA QTEL QD

State of Qatar: 55% Other Govt.:13% ADIA: 10% Others: 22%

Ownership Structure

60

70

80

90

100

110

120

130

140

150

160

Oct-08 Feb-09 Jun-09 Oct-09

Qatar Telecom MSCI Qatar

2008 a 2009 f 2010 f 2011 f 2012 f

P/E 9.5 6.9 6.5 6.3 6.2EPS Growth 36% 37% 6% 4% 2%

Adj.EV/ EBITDA 4.7 3.8 3.6 3.5 3.4Adj.EBITDA Margin 48.6% 48.6% 48.3% 48.1% 48.0%Adj.EBITDA Growth 95% 24% 4% 3% 2%

Dividend Yield 6.8% 9.4% 10.7% 11.9% 13.8%ROAE 23% 22% 21% 20% 20%

Adj. 1Q2009 EBITDA a Adj. 3Q2009 EBITDA fQAR 2,651 million QAR 3,369 million

Adj. 2Q2009 EBITDA a Adj. 4Q2009 EBITDA fQAR 2,847 million QAR 3,384 million

http://www.nbkcapital.com/BR/RESEARCH/MER/Pages/default.aspx

mailto:[email protected]


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Telecom Sector – Qatar Telecom October 15, 2009

COnTenTs

EXECUTIVE SUMMARY ....................................................................... 3

VALUATION ......................................................................................... 4

BULLS VS. BEARS .............................................................................. 7

QTEL’S FOOTPRINT ............................................................................ 8

WATANIYA TELECOM UPDATE ........................................................ 11

OVERVIEW OF QATARI TELECOM MARKET .....................................13

QTEL-QATAR OVERVIEW ...................................................................16

QTEL-QATAR FINANCIAL ANALYSIS AND FORECAST ...................17

OVERVIEW OF OMANI TELECOM MARKET ...................................... 20

NAWRAS OVERVIEW ......................................................................... 22

NAWRAS FINANCIAL ANALYSIS AND FORECAST ......................... 23

OVERVIEW OF INDONESIAN TELECOM MARKET ............................ 25

INDOSAT OVERVIEW ......................................................................... 27

INDOSAT FINANCIAL ANALYSIS AND FORECAST ......................... 28

OVERVIEW OF IRAQI TELECOM MARKET ........................................ 30

ASIACELL OVERVIEW ....................................................................... 32

ASIACELL FINANCIAL ANALYSIS AND FORECAST........................ 33

QTEL GROUP FINANCIAL ANALYSIS AND FORECAST .................. 35

FINANCIAL STATEMENTS ................................................................ 41

http://www.nbkcapital.com/Pages/Default.aspx

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Telecom Sector – Qatar Telecom October 15, 2009

exeCuTIVe suMMARy

With a vision of becoming one of the top 20 telecommunications companies in the world by 2020, Qtel is present today in three regions—MENA (Middle East and North Africa), the Asian subcontinent, and Southeast Asia—with operations in three different lines of business—consumer mobile, consumer broadband, and corporate managed services. Through several acquisitions, Qtel is operating in different market dynamics, which include cash-generating mature markets such as Qatar and Kuwait, as well as growing markets such as Indonesia, Iraq, and Algeria. The majority of Qtel’s operations are facing intense competition, with their respective markets approaching saturation. We envision the growth in the subscriber base during the coming years will be slower compared to that of previous years. We forecast that the total number of Qtel’s subscribers will grow at a CAGR of 7% between 2008 and 2013.

With Qtel’s expansion and in line with the company’s strategy of diversifying revenue, total revenue for the group witnessed a CAGR of 114% between 2006 and 2008 to reach QAR 20.3 billion in 2008. We expect fierce competition in the telecom market; thus, we forecast Qtel’s total revenue will grow at a CAGR of around 7% in the coming five years. We expect the earnings before interest, taxes, depreciation, and amortization (EBITDA) margin to decline marginally from 48.6% in 2008 to 47.7% by 2013. We believe that, going forward, Indosat’s operations will be the highest contributor to the Qtel Group’s EBITDA, and we forecast Indosat to account for 27.3% of the total group EBITDA in 2013.

At the end of June 2009, the Qtel Group had a debt-to-equity ratio of 1.4x; a considerable portion of the total debt is on the Qatari operation level. As mentioned in our Initiation of Coverage on Wataniya Telecom dated July 02, 2009, Qtel can benefit from Wataniya’s low level of debt; at the end of June 2009, Wataniya’s debt-to-equity ratio was at 0.3x. We believe that Wataniya has a strong and clean balance sheet, which will allow the company to increase its leverage if Wataniya wishes to grow through acquisitions.

We arrived at a 12-month fair value for Qtel of QAR 180 per share by using two valuation methods: discounted cash flow (DCF) based on a sum of the parts (SOTP) and a peer comparison based on forward PEG and EV/EBITDA multiples. With an upside potential of 22%, we are initiating coverage on Qtel with a “Buy” recommendation.

We have assigned a separate risk rating for each of the operations, which resulted in each operation having its own unique cost of equity. This follows our subjective criteria for risk, risks associated with the overall operating environment, market risk relating to the investment portfolio; and currency risk. The major risks we believe could have a material impact on the value of the company’s stock are:

• Qatar remains the most important operation in terms of value; hence, the expected competition in Qatar will put pressure on Qtel’s margins and will affect the value of the company.

• The effects of the global economic crisis on population growth, especially in the Gulf Cooperative Council (GCC) where expatriates constitute a large portion of the total population, and the slowdown in tourism that hit most countries will likely dampen subscriber growth and Qtel’s revenues.


Telecom Sector – Qatar TelecomOctober 15, 2009

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VALuATIOn

The purpose of this valuation exercise is to use fundamental analysis to arrive at a fair value estimate for the share price of Qtel. To arrive at this fair value, we used a combination of two valuation methods: DCF based on a SOTP and a peer comparison based on PEG and EV/EBITDA multiples. However, this does not represent a guarantee that this value is achievable within our time frame, as a wide range of variables and market dynamics can ultimately affect the market price of an asset.

Each investor must use his or her favorite mix of fundamental research, technical analysis, and market intelligence to arrive at an investment decision that matches his or her objectives and tolerance for risk.

We arrived at a fair value for Qtel of QAR 180 per share by allocating a greater weight (70%) to the SOTP DCF valuation, a methodology that examines the fundamentals of the company to determine its future cash-generating ability. This fair value is 22% above Qtel’s last price, hence our “Buy” recommendation.

Our 12-month fair value for

Qtel is QAR 180

SOTP DCF Valuation

Valuation of the Main Operations

To value Qtel using an SOTP DCF, we separately forecasted—through to 2014—the financial results for Qtel’s 10 consolidated operations. Accordingly, each operation received an individual valuation that incorporated the operation’s specific market dynamics.

From the forecast financial statements, we extracted free cash flows that were used in our valuation of each operation. We discounted the cash flows to the end of October 2010 (12 months from now) to obtain an estimate of the value of each of Qtel’s operations. We assigned a separate risk rating for each of the operations, which resulted in each having its own unique cost of equity. In addition, we assigned different debt and equity weightings for each operation depending on our outlook for the capital structure of each operation moving forward.

Our SOTP DCF model resulted in a fair value of QAR 186 for Qtel’s share price. The per-share valuation of each operation helps shed light on the source of the value. In Figure 2, we can see that, in terms of value, Qatar remains the single most important country for Qtel, accounting for 51% of its EV; while Indonesia is responsible for 20% of Qtel’s EV.

Source: NBK Capital

Discounted cash flow - SOTP 186 70%Peer comparison 164 30%

Weighted average fair value 180 100%

Valuation Method Value (QAR) Weight (%)

Figure 1 Fair Value per share



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Source: NBK Capital

We performed a sensitivity analysis (Figure 3) on two important inputs to our SOTP DCF valuation model: the cost of equity and the perpetual growth rate used in computing the terminal value.

Sensitivity Analysis

Peer Group Comparison

We performed a sensitivity

analysis on two major

inputs to our SOTP DCF

valuation model

Source: NBK Capital

We compared Qtel to five other telecom operators with considerable operations outside the operators’ home countries (Figure 4). We obtained the consensus forward earnings per share (EPS) for 2009 and the consensus earnings growth estimates for each of the peer group members for the next three years. The simple average PEG for the sample, excluding the highest and lowest values, was 1.39. Qtel, in contrast, currently trades at a higher PEG of 1.92, based on our 2009 forecast EPS and our five-year earnings growth rate.

We also valued Qtel relative to the EV/2009EBITDA for the same sample. The simple average EV/2009EBITDA for the sample, excluding the highest and lowest values, was 5.39. Qtel, in contrast, currently trades at an EV/ 2009EBITDA of 4.49, based on our 2009 forecast EBITDA and net debt levels.

Using a simple average of the two multiples, and excluding outliers among the five companies in the sample, we estimate the value of a Qtel share is QAR 164. This implies that Qtel is currently undervalued, considering Qtel’s current market price of QAR 147.40.

Qatar Oman Indonesia Iraq Kuwait Algeria Tunisia Others

DCF Value (QAR millions) 32,452 3,732 19,607 13,104 10,168 9,079 9,903 7,926 (36,927) 69,044 Ownership 100% 55.6% 65% 30% 52.5% 46.3% 26.3%

Value (QAR millions) 32,452 2,075 12,745 3,931 5,338 4,201 2,600 898 (36,927) 27,313 % of EV 51% 3% 20% 6% 8% 7% 4% 1%Per Share (QAR) 221 14 87 27 36 29 18 6 (252) 186

TotalNet

Liabilities

-1.00% -0.50% Base case +0.50% +1.00%-1.00% QAR 176 QAR 167 QAR 158 QAR 149 QAR 141-0.50% QAR 192 QAR 181 QAR 171 QAR 162 QAR 153

Base case QAR 209 QAR 197 QAR 186 QAR 176 QAR 1660.5% QAR 229 QAR 216 QAR 203 QAR 192 QAR 181+1% QAR 252 QAR 237 QAR 223 QAR 210 QAR 198

Cost of Equity Increments

Gro

wth

In

crem

ents

Figure 2 sum-of-the-Parts Valuation

Figure 3 sensitivity Analysis



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The average EV/EBITDA

for the sample, excluding

outliers, stands at 5.39

*prices as of last close. Sources: Reuters Knowledge and NBK Capital

Price* (Local Currency)

Market Cap (USD Millions)

Zain 1.4 18,977 7.31 0.1 1.39MTN Group Ltd 12,450 25,870 5.00 920 1.38Orascom 7 5,861 5.02 1 0.94Millicom Int. Cellular 73 7,888 6.14 5.07 1.40France Telecom SA 18 69,278 4.85 1.80 4.34

127,875Weighted average 5.33 2.97Simple average 5.66 1.89Simple average excluding outliers 5.39 1.39Median 5.02 1.39

Company

Market DataEV / 2009 EBITDA

2009 Forecast EPS

PEG

Figure 4 Forward PeG and eV/2009eBITDA Multiples Comparison



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• Around 68% of Qtel is owned by the government of Qatar; thus, the company is backed by a very wealthy government. Qatar is the world’s biggest liquefied natural gas (LNG) exporter and has the third-highest reserves of natural gas in the world.

• Qtel is a well-diversified company operating under different market dynamics: growing markets such as Indonesia, Algeria, and Iraq and mature markets such as Kuwait and Qatar.

• Expected synergies between Qtel’s different operations will lead to more cost efficiency.

• Backed by the government of Qatar, Qtel captured the trust of the corporate community: according to a Qtel press release, the company launched USD 5 billion senior unsecured notes issued by its wholly owned subsidiary, Qtel International Finance Limited, guaranteed by Qtel, representing the inaugural issuance under the Global Medium Term Note (GMTN) program. Recently, Qtel established a forward start facility amounting to QAR 6.74 billion.

• Qtel can benefit from Wataniya’s low level of debt; at the end of June 2009, Wataniya’s debt-to-equity ratio was at 0.3x. We believe that Wataniya has a strong and clean balance sheet, allowing the company to increase its leverage if Wataniya wishes to grow through acquisitions.

• We believe that Indosat’s new management, recently appointed by Qtel, will add value to the Indonesian operation.

BEAR STORY

• Qtel’s main operations in Qatar, Indonesia, and Kuwait are facing tough competition. In Qatar, Qtel lost its longstanding monopoly for Vodafone-Qatar; in Indonesia, competition moved from a price war to a value war, which will put more pressure on Qtel’s margin; and in Kuwait, the entry of Viva (STC’s subsidiary) as the third mobile operator in Kuwait will put more pressure on Wataniya’s margins and profitability.

• Qtel may be subject to currency fluctuations in Kuwait, Algeria, Tunisia, and Indonesia, affecting the net contribution to Qtel’s bottom line.

• The unstable situation in Iraq might affect Asiacell’s operation, and Indosat might face some capacity constraint.

• To be able to achieve the company’s 2020 strategy, Qtel should acquire another mobile operation. However, we believe that a new acquisition will put pressure on Qtel’s management (Qtel’s management is still in the process of consolidating all of Qtel’s operations) and Qtel’s balance sheet (the debt-to-equity ratio was at 1.4x as of June 2009).

BuLLs Vs. BeARs

BULL STORY



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State of Qatar55%

Others22%

Other Qatari government related entities

13%

Abu Dhabi Investment Authority

10%

Qatar Telecom Group

Tunisiana26.25%

Wataniya-Kuwait52.5%

Nedjma46.3%

Wataniya-Maldives52.5%

Bravo29.2%

Wataniya-Palestine29.9%

Qtel100%

Nawras55.6%

Indosat65%

Asiacell30%

Liberty Telecom40%

wi-tribe -Jordan78%

StarHub12%

Shinawatra12%

LTC6%

wi-tribe -Pakistan78%

Wataniya Group

wi-tribe

Asia Mobile HoldingsNavlink38%

Raywood

Qtel International

With a vision of becoming one of the top 20 telecommunications companies in the world by 2020, Qtel is present today in three regions—MENA, the Asian subcontinent, and Southeast Asia—with operations in three different lines of business—consumer mobile, consumer broadband, and corporate managed services.

The Qtel Group manages around 56 million subscribers with a total population under license of around 337 million and an average penetration rate of 17%. Through these acquisitions, Qtel is operating in different market dynamics that include cash-generating mature markets such as Kuwait and Qatar, as well as growing markets such as Indonesia, Iraq, and Algeria (Figure 5).

QTeL’s FOOTPRInT

Qtel is present in three

regions—MENA, the

Asian subcontinent, and

Southeast Asia

Source: Annual report

SO WhAT IS ThE STORY IN EACh COUNTRY, AND WhAT IS QTEL’S STRATEGY?

Qatar: Qtel lost its longstanding monopoly

In 2008, the Vodafone/Qatar Foundation Consortium was awarded the second mobile and fixed-line licenses in Qatar, putting an end to Qtel’s longstanding monopoly. Ahead of the commercial launch of Vodafone-Qatar, Qtel flooded the market with new offers and packages as a way to increase the company’s number of subscribers and to protect existing high-revenue-generating customers. We believe that the telecom sector in Qatar will witness severe competition in the coming years. Hence, we expect Qtel’s market share to drop to 65% in 2013, and ARPU will be diluted at a faster pace to USD 60 by 2013.

Indonesia: 2008–Price war; 2009–Value war on quality of services and network

During 2008, telecom operators in Indonesia started a price war and slashed prices by around 80%. In the beginning, Qtel’s operation, Indosat, resisted participating in the war, but later on,

Figure 5 Company structure



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the company was forced to follow the trend. We estimate that Indosat’s ARPU dropped from USD 6 in 2007 to USD 4 in 2008. As for 2009, operators are focusing more on enhancing the quality of the service and the network. We believe that Indosat’s EBITDA margin will be under more pressure because marketing and advertising expenses will increase.

Oman: Increased competition in the mobile market but access to new line of business

Since the telecom regulator awarded five mobile resellers’ licenses, competition in the mobile market is increasing. At the end of April 2009, Friendi Mobile launched its mobile reseller operations, followed in May 2009 by Majan Telecom branded as Renna. Both operators have signed a wholesale deal with Omantel and will provide mobile services through Omantel’s network. These two mobile resellers will be targeting segments not covered by Omantel. Hence, Nawras will be facing more pressure. However, the company now has access to a new line of business: Nawras won the second fixed-line license at the end of 2008. In addition, Nawras is entitled to operate its own international gateway. We believe that this new line of business will compensate for some of the losses in the mobile segment.

Iraq: Second player with a growing market

Asiacell is the second player in the Iraqi market after Zain’s acquisition of Orascom’s operations. The Iraqi market is characterized by its low penetration rate (average of 66% as of 1H2009) compared to other Gulf countries (average 117% as of 1H2009). Hence, with Asiacell’s nationwide coverage, we believe that Asiacell will be able to protect and grow further its market share.

Wataniya Group: Please refer to our Initiation of Coverage report dated July 2, 2009, and to Wataniya’s update section in this report (page 11).

Others:

Asia Mobile Holdings (AMH): AMH is an investment company that was formed to explore and invest in new mobile opportunities in the Asia-Pacific region. AMH was incorporated in Singapore and is owned by ST Telemedia (75%) and Qtel (25%). The companies held by AMH include the following:

• StarHub Ltd: StarHub is a fully integrated communication company; it was launched in 2000 and offers a range of services for consumer and corporate markets. AMH has a 49% stake in the company, which equates Qtel’s effective stake to 12%.

• Shenington Investments: Shenington Investments is a holding company incorporated in Singapore to invest in international telecommunications. AMH has a 49% stake in Shenington, and Thaicom has the remaining 51% stake. Shenington currently has invested in two companies:

• Cambodia Shinawatra Company Limited (CamShin): CamShin is the second largest GSM operator in Cambodia. Shenington owns 100% of CamShin, which equates Qtel’s effective stake to 12%.

• Lao Telecommunications Company Limited (LTC): LTC is the largest telecom operator in Laos. Shenington owns a 49% stake in the company, which equates Qtel’s effective stake to 6%.

wi-tribe: In 2007, Qtel acquired 78% of wi-tribe Limited in the Cayman Islands. wi-tribe is engaged in providing wireless broadband services. In June 2008, wi-tribe launched its first wireless broadband service in Amman, Jordan.

Navlink: Navlink, incorporated in Delaware in the United States, is a managed service provider delivering technology solutions in the enterprise data market. In 2006, Qatar Telecom entered into an equity partnership in Navlink with AT&T; Qtel has a 38.16% stake in the company.


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QTEL’S STRATEGY

According to management, Qtel is well positioned for success in the challenging macro-economic environment. Qtel will focus on four objectives:

1. EBITDA Growth: maintaining a healthy EBITDA in mature markets and accelerating value capture in markets such as Algeria, Tunisia, Iraq, and Oman.

2. EBITDA Protection: protecting value from Vodafone-Qatar in Qatar, Viva in Kuwait, and the five mobile resellers in Oman.

3. Synergies: driving synergy capture though Qtel International, capitalizing on new scale, and leveraging group scale and “know how” to ramp up growth.

4. Prudent Expansion: raising capital to fuel growth and making value accretive acquisitions in areas of strategic focus.




The financial results posted by Wataniya Telecom for 2Q2009 were in line with our expectations. The company achieved revenues of KD 121.3 million, compared to our forecast of KD 121.8 million. The slow growth in revenue (1.2% YoY) is due mainly to increased competition in Kuwait. As we mentioned in our Initiation of Coverage, “Competition Heats Up,” published on July 2, 2009, the increased competition as well as the cancellation of the called-party-pays fee will have a negative impact on the profitability of mobile operators in Kuwait. The 2Q2009 results were a good indicator of the effect of the cancellation; revenue from Wataniya’s operation in Kuwait dropped by 11% YoY, and revenue from Zain’s operation in Kuwait decreased 8% YoY.

Based on Wataniya’s latest performance during 1H2009, we reviewed our previous forecast. Our new 12-month fair value estimate for Wataniya’s share price is KD 2.240. Since the fair value estimate is 47% higher than Wataniya’s latest market price, our new recommendation is “Buy.”

WATAnIyA TeLeCOM uPDATe

FINANCIAL PERFORMANCE DURING 2Q2009

• During 2Q2009, Wataniya Telecom’s total revenue witnessed almost flat growth due to the negative growth in the company’s operations in Kuwait and Tunisia. Total revenue grew by just 1% YoY and reached KD 121.3 million. Kuwait’s revenue declined by 11% YoY, and Kuwait’s contribution to total revenue declined from 48% in 2Q2008 to 43% in 2Q2009. The Algerian operation, Nedjma, witnessed revenue growth of 13% YoY, and continues to be the second-highest contributor to Wataniya’s group revenue (30%).

• At the end of 2Q2009, Wataniya’s consolidated EBITDA declined by 5% YoY and totaled KD 48.8 million, compared to KD 51.6 million in 2Q2008. The EBITDA margin declined from 43% in 2Q2008 to 40% in 2Q2009 mainly due to the slowdown in the Kuwaiti operation. The EBITDA of the Kuwaiti operation, which constitutes around 52% of the group EBITDA, dropped by 18% in 2Q2009 compared to the same period last year. This occurred despite the improvement in the cost of revenue as a percentage of total revenue from 36% in 2Q2008 to 29% in 2Q2009 mainly due to the cancellation of the Ministry of Communication (MOC) license charges after Wataniya won a court ruling against the ministry in June 2009.

• Accordingly, the company also reversed the provision Wataniya had been charging its income statement with (for MOC license charges) that totaled KD 58.4 million in 2Q2009. Hence, Wataniya Telecom’s bottom line surged to KD 63.5 million at the end of 2Q2009 compared to KD 26.5 million in 2Q2008.

Below is a summary of the most important changes we have made to our forecasts:

Kuwait

• During 2Q2009, the penetration rate crossed the 100% level and reached 106%, (a subscriber growth of 7% QoQ). This penetration rate level outpaced our anticipated rate for

Our 12-month fair value for

Wataniya is KD 2.240

Sources: NBK Capital

Weight Value (KD) Weight Value (KD)

Discounted cash flow - SOTP 70% 2.465 70% 2.581 4.7%

Peer comparison 30% 1.137 30% 1.435 26%

Weighted Average Fair Value 100% 2.060 100% 2.240 8.7%

Valuation MethodOld New

Change

Figure 6 Fair Value per share




2009. Hence, we increased our forecast for the five-year time frame. We believe that the penetration rate in Kuwait will reach 122% in 2013 and that the total number of mobile subscribers will grow at a CAGR of 9% between 2008 and 2013 rather than 7.6%.

• During 2Q2009, we noticed that Zain lost more market share than Wataniya to Viva. Hence, we revised our forecast. While we continue to believe that both players will lose market share to Viva, we believe that Zain will lose more; thus, we expect that Zain’s market share will drop from 55% at the end of 2008 to 46% at the end of 2013 and that Wataniya’s market share will drop from 41% at the end of 2008 to 33% at the end of 2013.

• Based on the 2Q2009 results, we now forecast revenue from the Kuwaiti operation to reach KD 208 million at the end of 2009, versus our previous forecast of KD 212 million.

Tunisia

• Even though a third mobile operator will enter the Tunisian market in 2010, subscriber growth is still slow compared to other countries awaiting a new operator. The number of mobile subscribers in Tunisia grew by just 1% during 2Q2009, and the penetration rate remained at 80%. Based on this slow growth, we now forecast the penetration rate will reach 82% in 2009, rather than 85%, and will grow to 94% by 2013.

• As for the total number of subscribers in Tunisia, we expect the number to grow at a CAGR of 4.7% between 2008 and 2013; we believe that Tunisiana’s market share will be around 51% in 2009 and will settle at 49% in 2013.

• As for Tunisiana’s revenue, we are more conservative; we believe revenue will gradually decline over the coming five-year period and will settle at around KD 190 million in 2013.

Algeria

• The telecom market and financial performance of Algeria were in line with our forecast; hence, the changes to our forecast are minimal.

Group Level

• Based on Wataniya’s latest performance in each country, we reviewed our previous forecast to incorporate these changes. Our new forecast slightly changed the growth of Wataniya’s revenues; we believe that total revenue will grow at a CAGR of 4.5% between 2008 and 2013 compared to our previous forecast of 4.8%.

• We believe that EBITDA will grow at a CAGR of 4.5% between 2008 and 2013, which translates into an EBITDA margin of 41% in 2009 and 42% in 2013.

• We expect net income to decline over the next five years and will reach around KD 76 million in 2013.

Source: NBK Capital

Old New 2008 Actual Old 2009 F

Revenue 476.0 489.4 480.6 1% -2%EBITDA 201.3 196.6 196.6 -2% 0%EBITDA margin 42% 41% 41%Net Profit 82.4 129.0 125.8 53% -2%Net Profit margin 17% 26% 26%

Figures in KD million 2008 Actual2009 F 2009 New Forecast Versus

Figure 7 new 2009 Forecasts Compared to Previous Forecasts




REGULATORY ENVIRONMENT

As a part of the liberalization wave in Qatar, the telecommunications regulator, ictQATAR, was established in May 2005. Its primary duties include creating and implementing the legal and regulatory framework for the communications sector, developing policy for the communications sector, and introducing competition into the telecom market in Qatar. After the telecom sector has been liberalized, ictQATAR’s role is to protect the rights of consumers, maintain fair competition, resolve disputes among operators, and ensure the installation of technologically advanced and safe networks.

In 2008, the Vodafone/Qatar Foundation Consortium was awarded the second mobile and fixed-line licenses in Qatar for QAR 7.7 billion and QAR 10 million, respectively. According to the regulator, the new company will have the following shareholder structure: Vodafone Group (22.95%), Qatar Foundation (27.05%), the government of Qatar (10%), and the public (40%).

On April 5, 2009, the telecom regulator revised the mobile license terms for Vodafone-Qatar. Under the terms of this revised license, by September 1, 2009, Vodafone-Qatar was required to achieve 98% coverage of the population.

With the recent market liberalization, the Telecommunications Regulatory Authority (TRA) decreased the royalty fees imposed on Qtel from 25% of the net profit on the group level to 12.5% of the net profit on the company’s operation in Qatar only, in addition to 1% of the revenue from the company’s operations in Qatar.

OVeRVIeW OF QATARI TeLeCOM MARKeT

MOBILE MARKET

List of Operators: Currently, the mobile market in Qatar is served by two GSM operators:

• Qatar Telecom is the incumbent operator that launched its GSM services in 1994.

• Vodafone-Qatar was awarded the second operator license in 2008 and launched operations in March 2009.

Penetration Rate and Subscriber Split: Qtel does not disclose the company’s number of active subscribers. Hence, to reflect the real penetration rate in the country, throughout our report we estimate the number of inactive subscribers for Qtel to be around 20% of the total subscribers.

Qatar is a duopoly market

with the entry of Vodafone-

Qatar

Sources: Company’s financials, Vodafone-Qatar website, and NBK Capital

Vodafone-Qatar wins

fixed-line license

Sept2008

Vodafone-Qatarawarded 2ndmobile license

June 2008

Qatar Telecom established1987

GSM operationlaunched

March2009

GSM operationlaunched1994

Figure 8 Liberalization of Telecom Market




The mobile market in Qatar has been characterized by Qtel’s longstanding monopoly. We estimate that the penetration rate based on the number of active subscribers reached 100% at the end of June 2009 compared to 52% in 2004, with the number of active mobile subscribers growing at a CAGR of 36% from 2004 to 2008. The reasons behind this high growth are as follows:

• Qatar has the third-highest gross domestic product (GDP) per capita in the world (IMF World Economic Outlook Database April 2009).

• The economic growth in Qatar is mainly based on the development of the LNG sector where Qatar has the third-highest reserves of natural gas in the world.

• At the end of 2008, the total population of Qatar stood at 1.4 million, out of which 85% are expatriates.

• Around 22% of the population in Qatar is under the age of 14.

• When considering the countries comparable to Qatar on a GDP per-capital level, we find that the active penetration rate in Qatar (100%) was lower than the average of the peer group, which stood at 127% at the end of June 2009 (Figure 9).

The majority of Qtel customers (81%) are prepaid subscribers. The large proportion of prepaid subscribers reflects the high number of foreign, blue-collar, low-income workers residing in Qatar. Prepaid subscribers are the main contributors to the Qatari market growth; in the last four years, the number grew at a CAGR of 41% while the number of postpaid subscribers grew at a CAGR of only 19% .

ARPU: Due to the monopoly status of the Qatari mobile market, total blended ARPU in Qatar at the end of 2008 stood at USD 76, which is 76% higher than the peer-group average, and is the highest in the GCC.

Qatar’s penetration rate is

below the average in peer

countries

*Based on the number of active subscribers. Sources: Annual reports, IMF, Informa database, ITU, and NBK Capital

Country 2005 2006 2007 2008 1H2009

Denmark 99% 106% 117% 124% 131%

Ireland 100% 108% 117% 122% 119%

Luxembourg 133% 139% 142% 147% 147%

Norway 105% 106% 112% 119% 119%

Sweden 109% 115% 115% 126% 128%

Switzerland 91% 99% 108% 115% 119%

Average 106% 112% 118% 125% 127%

Qatar* 65% 71% 82% 93% 100%

Figure 9 Mobile Penetration Rate in Countries Comparable to Qatar




ARPU in Qatar is 76%

higher than the peer-group

average, and is the highest

in the GCC

Sources: Annual reports, IMF, Informa database, ITU, and NBK Capital

Country 2004 2005 2006 2007 2008(All figures in USD)

Denmark 35 35 36 40 42

Ireland 59 61 57 61 62

Luxembourg na 10 10 12 12

Norway 50 48 52 55 58

Sweden 33 22 28 33 33

Switzerland 64 60 53 50 52

Average 48 40 40 42 43

Qatar 163 87 90 82 76

Figure 10 Qatar’s Monthly Blended ARPu vs. Peer Countries




QTeL–QATAR OVeRVIeW

BASIC INFORMATION

In June 1987, the Qatar Public Telecommunications Corporation was established to provide domestic and international telecommunication services in Qatar. This corporation was transformed into a Qatari shareholding company under the name of Qatar Telecom (Qtel) in November 1998. Qtel is the incumbent mobile, fixed-line, cable, and Internet services provider. By awarding the second mobile and fixed-line licenses to Vodafone, the telecom regulator in Qatar broke Qtel’s longstanding monopoly of the telecom sector.

The company was listed on the Doha Stock Market (DSM) in 1998. Qtel was also listed on the London Stock Exchange in 1999, the Bahrain Stock Exchange in 2001 (but delisted in 2009), and the Abu Dhabi Stock Market (ADSM) in 2002.

Mobile Services: Since 1994, Qtel has enjoyed its monopoly of the mobile sector in Qatar. Over the past four years, Qtel’s subscriber rate grew at a CAGR of 36%. We estimate that Qtel had around 1.3 million active mobile subscribers at the end of 2008. As a preemptive step before the commercial launch of Vodafone, Qtel offered attractive packages with free credit, off-peak rates, additional free SMS, and discounts on international calls.

Qtel has partnered with Samsung to offer Qatar-based subscribers mobile phones bundled with prepaid Qtel mobile service. We estimate that Qtel’s active mobile subscriber base reached around 1.5 million at the end of June 2009.

Fixed-line and Internet Services: IctQATAR also ended Qtel’s fixed-line monopoly by granting the Vodafone/Qatar Foundation Consortium the second fixed-line license. As per the terms of the license, the service can carry the Vodafone brand name, and Vodafone will have access to the new developments in Qatar, as well as to existing residential and business areas. The license also includes authorization to operate an international gateway. Since the majority of the population in Qatar is concentrated in two areas, Doha and Al Rayaan, Vodafone should be able to expand its network without much dependence on Qtel. The fixed-line penetration rate in Qatar is still low, as in other GCC countries; the rate reached 18% in 2008. The fixed-line rate grew at a CAGR of 8% between 2004 and 2008. Qtel also offers Internet services through dial-up and broadband connections.

The State of Qatar is the

majority shareholder of Qtel

Source: Qtel 1H2009 factsheet

State of Qatar55%

Other Qatari government related

entities13%

ADIA10%

Others22%

Figure 11 Ownership structure




QTeL–QATAR FInAnCIAL AnALysIs AnD FOReCAsT

MOBILE MARKET FORECAST

Although the Qatari mobile market was served by only one operator, the market was distinguished by its high penetration rate compared to other GCC countries. Since the announcement of a second license, Qtel started to flood the market with attractive offers and packages. As we expect Vodafone’s entry to further stimulate the market, we forecast the active penetration rate in Qatar to reach 122% by 2013 and the number of mobile subscribers to grow at a CAGR of 13% between 2008 and 2013.

We expect the active

penetration rate to reach

122% in 2013

*Based on the estimated number of active subscribers. Sources: Annual reports, IMF, Informa database, and NBK Capital

We believe that Qtel’s market share will decline to 65% by 2013 and that Qtel will continue to provide special offers and price reductions to its subscribers, especially since the current ARPU is relatively high compared to the average ARPU in peer countries. Thus, we forecast that Qtel’s total blended ARPU will drop from USD 76 in 2008 to USD 60 by 2013.

FIXED-LINE MARKET FORECAST

With the opening up of the fixed-line market in Qatar, we forecast that the fixed-line penetration rate in Qatar will reach 25% by 2013, with the total number of fixed-line subscribers growing at a CAGR of 14% in the coming five years. We forecast Qtel’s market share will decrease to 93% by 2013.

We expect the fixed-line

penetration rate in Qatar to

reach 25% in 2013

Sources: Annual reports, IMF, and NBK Capital

(000's) 2008a 2009f 2010f 2011f 2012f 2013f

Penetration Rate* 93% 106% 112% 116% 119% 122%

Peers' Penetration Rate 125% 130% 134% 136% 137% 138%

Total Active Subscribers 1,346 1,732 1,996 2,164 2,319 2,485

Market Share:

Qtel 100% 92% 84% 76% 71% 65%

Others 0% 8% 16% 24% 29% 35%

Qtel's ARPU (USD)

Total Blended* 76 69 65 62 61 60

Figure 12 Mobile Market in Qatar

Figure 13 Fixed-line Market in Qatar

(000's) 2008a 2009f 2010f 2011f 2012f 2013f

Penetration Rate 18% 18% 21% 23% 24% 25%

Total Fixed-lines 263 295 375 429 468 498

Market Share:

Qtel 100% 98% 97% 95% 94% 93%

Others 0% 2% 3% 5% 6% 7%

Qtel's ARPL (USD)

Total Blended 81 79 76 72 67 62




We believe that Vodafone-Qatar’s access to the international gateway will put more pressure on Qtel’s margins. The ARPL per month was approximately USD 81 in 2008, and we forecast the ARPL per month will decrease to USD 62 by 2013, primarily because of the competitive environment in which this business will find itself.

REVENUE

Qtel’s revenue in Qatar witnessed a CAGR of 23% from 2004 to 2008. The operation in Qatar remains the highest contributor to Qtel’s total revenue; the Qatari operation represented 27% of the total revenue and reached QAR 5.4 billion in 2008 compared to QAR 4.4 billion in 2007, an increase of 23%. The majority of the revenue is generated by the mobile segment, which contributed to 72% of the total revenue in 2008. In 1H2009, revenues increased by 11% compared to the same period last year, reaching QAR 2.9 billion. According to management, the growth in revenue is backed by growth in the number of customers and the focus on new products, service offerings, and customer retention.

In March 2009, Qtel and Vodafone-Qatar signed two agreements:

• Outdoor site sharing in which the operators will share their respective mobile towers

• An interconnection agreement that will allow Qtel and Vodafone-Qatar subscribers to communicate

We forecast Qtel’s revenue from its Qatari operations through 2013 by separately projecting the revenues from the different segments. Figure 14 presents a summary of our revenue forecast, which is projected at a CAGR of 3% from 2008 through 2013. We believe that market liberalization and the intensification of competition will lead to slow growth in Qtel’s operations in Qatar:

• We estimate that the mobile revenue will grow at a CAGR of 1% between 2008 and 2013. We believe that mobile revenue will peak at around 72% of the total revenue from Qatar in 2009 and then gradually decline and settle at 66% of the total revenue in 2013.

• Based on our forecast, the contribution of fixed-line services to total revenues will increase from 16% in 2008 to 19% by 2013.

• As for the revenue generated from Internet and cable services, we believe it will increase from 12% in 2008 to 15% in 2013.

We forecast revenue from

Qtel-Qatar to grow at a

CAGR of 3% from 2008

through 2013

Sources: Annual reports and NBK Capital

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2007 2008 2009f 2010f 2011f 2012f 2013f

QA

R b

illio

n

Figure 14 Qtel–Qatar Actual and Forecasted Revenue




PROFITABILITY

By the end of 2008, EBITDA reached QAR 3.4 billion compared to QAR 2.9 billion in 2007, implying an EBITDA margin of 62%. In 1H2009, the EBITDA margin declined from 66% in 1H2008 to 63%. According to management, this decline is due to the inflationary environment in Qatar, which obliged the company to increase staff costs, and the competitive environment, which pushed the company to increase its marketing and advertising expenses.

We believe that competition in Qatar will put more pressure on the top line of Qtel’s operation in Qatar. As in any market with only two players, we expect Qtel to increase its marketing and advertising expenses over the next few years; the company needs to come up with differentiated products and services to attract new subscribers as well as retain existing ones. As per Qtel’s strategy, the company will focus on revenue market share rather than adding subscribers. Hence, we forecast that EBITDA will grow at a CAGR of 2% over the next five-year period and expect the EBITDA margin to decrease to 58% by 2013.

Qtel’s operation in Qatar remains the highest contributor to total net profit; the operation contributed 60% of the total net profit in 2008. Net profit reached QAR 1.7 billion at the end of 2008, an increase of 27% compared to 2007. In 1H2009, net profit witnessed growth of 8% YoY.

The market

liberalization will

put pressure on

Qtel–Qatar’s top

line


0%

10%

20%

30%

40%

50%

60%

70%

2007 2008 2009f 2010f 2011f 2012f 2013f

Figure 15 Qtel–Qatar Actual and Forecasted eBITDA Margin





In compliance with the World Trade Organization (WTO) agreements, the Omani government has started to put its liberalization strategy into action. In 2002, the TRA was established to regulate the telecommunications sector and introduce competition. In 2005, the TRA opened the mobile market by granting the second GSM license to Nawras, a joint venture between Danish TDC and Qatar Telecom. The exclusivity enjoyed by Oman Mobile and Nawras ended in February 2008, and in June 2008, the TRA awarded Class II licenses to five companies as resellers of basic mobile services. In 2007, the government reduced the royalty fees for mobile and fixed-line services to 7% from 12% for mobile services and 10% for fixed-line services. The TRA further liberalized the sector by issuing a new fixed-line license to Nawras. The company will be able to provide fixed, data, and international services in Oman, in addition to offering services such as WIMAX and HSDPA.

OVeRVIeW OF THe OMAnI TeLeCOM MARKeT

In 2008, five companies

received Class II licenses

as resellers of basic mobile

services

Source: NBK Capital

MOBILE MARKET

List of Operators: Currently, the mobile market in Oman is served by two GSM companies:

1. Oman Mobile is Omantel’s mobile subsidiary. It received its formal mobile license in February 2004.

2. Nawras Telecom is a joint venture between Danish TDC and Qtel. Qtel owns 55% of Nawras. It received its mobile license in February 2005.

Penetration Rate and Subscriber Split: Omantel and Nawras do not disclose their active subscriber numbers. The companies use different definitions for active subscribers. Hence, to reflect the real penetration rate in the country, we estimate the number of inactive subscribers in Oman to be around 24% of the total number of subscribers. In 2004, before the introduction of competition, the penetration rate (based on the number of active subscribers) was around 26%; it grew to 42% with the entry of Nawras in 2005. We estimate that, at the end of December 2008, the total number of active subscribers in Oman stood at 2.4 million, which translates into a penetration rate based on active subscribers of 93%. The active subscriber base witnessed a CAGR of 39% from 2003 to 2008. This swift growth was due primarily to the introduction of competition, which helped in developing the telecom sector in Oman, in improving customer services, and in introducing new technologies.

When considering countries comparable to Oman on a GDP per-capita level, we find that, at the end of 1H2009, the active penetration rate in Oman (100%) was lower than the prevailing average for the peer group, which stood at 111% at the end of 1H2009 (Figure 17).

Oman Mobile received formal mobile license

2004 Nawras awarded 2nd mobile license

20055 Basic Mobile

Resellers licenses awarded

2008

Figure 16 Liberalization of Mobile Market in Oman




Omantel is the market leader in Oman, with 51.7% of the market at the end of June 2009. Similar to other MENA markets, the Omani market is dominated by prepaid subscribers, which represent 90% of the total market. Omantel’s prepaid subscribers represent 88% of total subscribers, whereas, for Nawras, prepaid subscribers represent 93%.

ARPU: The ARPU calculation was based on the average estimated number of active subscribers in Oman. We estimated the total monthly blended ARPU in Oman as of December 2008 at USD 40, which is 33% higher than the peer-group average (Figure 18).

Mobile penetration in Oman

is below the peer-group

average

* Based on the estimated number of active subscribers. Sources: Annual reports, IMF, ITU, Informa database, and NBK Capital

Country 2005 2006 2007 2008 1H2009

Czech Republic 113% 122% 130% 131% 133%

Estonia 105% 117% 119% 124% 119%

Hungary 87% 93% 101% 110% 107%

Malta 81% 85% 91% 94% 99%

Slovakia 84% 91% 102% 104% 102%

Taiwan 93% 95% 99% 103% 106%

Average 94% 101% 107% 111% 111%

Oman* 42% 55% 74% 93% 100%

The ARPU is still relatively high in Oman compared to its peers, due to favorable economic conditions. However, with further liberalization, operators will face more pressure to maintain the same level of ARPU. We believe operators will offer customers more competitive packages at lower prices.

Oman’s monthly blended

ARPU is 33% higher than

the peer-group average

* Based on the estimated number of active subscribers. Sources: Annual reports, IMF, ITU, Informa database, and NBK Capital


Czech Republic 21 21 24 26 31 Estonia 30 22 24 26 24 Hungary 25 25 24 26 25 Malta 40 41 41 44 47 Slovakia 19 21 23 26 30 Taiwan 22 25 24 23 23 Average 26 26 27 28 30 Oman* 57 52 49 46 40

Figure 17 Oman’s Mobile Penetration Rate vs. Peer Countries

Figure 18 Oman’s Monthly Blended ARPu vs. Peer Countries




nAWRAs OVeRVIeW

BASIC INFORMATION

The Omani Qatari Telecommunications Company was awarded the second GSM license in Oman. The company, branded as Nawras, is a joint venture between Qtel and Danish TDC. In March 2005, Nawras was launched as the second mobile operator in Oman, breaking the incumbent Omantel’s 20-year monopoly. Qtel is the largest shareholder in the company with a 55.6% stake. Nawras was awarded Oman’s second fixed-line license in November 2008.

Source: Zawya

We estimate the number of Nawras’s active mobile subscribers to be around 1.06 million at the end of 2008; it grew at a CAGR of 84% from 2005 to 2008. In 1H2009, the number of Nawras’s active subscribers reached around 1.2 million, with prepaid subscribers accounting for 93% of Nawras’s total subscribers.

The Qtel Group is the

majority shareholder in

Nawras Qtel Group55.6%

TDC14.4%

Omani Investors30.0%





nAWRAs FInAnCIAL AnALysIs AnD FOReCAsT


The introduction of competition shook the Omani mobile market, with the number of mobile subscribers witnessing swift growth in the last two years. Based on peer group analysis, we forecast that the active penetration rate in Oman will reach 113% by 2013 and the total number of mobile subscribers will grow at a CAGR of 5% between 2008 and 2013 (Figure 20).

According to Qtel’s management, the company will keep on focusing on attracting the incumbent’s high-end users and ARPU base. We forecast that the number of Nawras’s active mobile subscribers will grow at a CAGR of 6% in the next five years and that Nawras will attain a market share of around 46% over the coming five years. With increased competition, Nawras will have to provide subscribers with attractive packages at lower rates; thus, we forecast that Nawras’s ARPU will drop from USD 34 in 2008 to USD 30 by 2013.

FIXED-LINE MARKET FORECAST

We have excluded the fixed-line operation from our valuation and analysis due to limited available information. Recently, Nawras announced that it will launch fixed-line services by the end of 2009.

REVENUE

As a start-up, Nawras’s revenue has been growing rapidly; the company’s revenue witnessed a CAGR of 112% between 2005 and 2008, mainly due to the surge in Nawras’s subscriber base. At the end of 2008, revenue reached around QAR 1.3 billion compared to QAR 0.9 billion in 2007, an increase of 48%. In 1H2009, revenue reached QAR 0.75 billion, an increase of 23% compared to 1H2008.

We believe that Nawras has become a more mature company since its commercial launch in 2005. Thus, we expect that revenue growth will stabilize. Figure 21 presents a summary of our revenue forecast, which projects a CAGR of 7% from 2008 through 2013.

We believe that Omantel

will remain the market

leader

Source: Annual reports, IMF, Informa database, and NBK Capital

(000's) 2008a 2009f 2010f 2011f 2012f 2013f

Penetration Rate* 93% 104% 107% 109% 111% 113%


Market Share:

Nawras 44% 45% 45% 46% 46% 46%

Others 56% 55% 55% 54% 54% 54%


Nawras's ARPU (USD)

Total Blended* 34 33 32 31 31 30

Figure 20 Mobile Market in Oman




PROFITABILITY

By the end of 2008, EBITDA totaled QAR 508 million compared to QAR 241 million in 2007, and the EBITDA margin improved from 27% in 2007 to 38.6% in 2008. Based on the available information, we estimate that operating expenses as a percentage of revenue declined from 73% in 2007 to 61% in 2008; this improved efficiency led to an increase in the EBITDA margin in 2008. In 1H2009, EBITDA grew by 41% compared to the same period in the previous year, with the EBITDA margin improving from 40% in 1H2008 to 45% in 1H2009. Going forward, we believe that Nawras’s EBITDA margin will reach 40.7% by 2013 (Figure 22).

Net profit increased 1.5 times in 2008 and reached QAR 185.5 million, contributing to around 6.5% of Qtel’s total net profit. In 1H2009, the bottom line grew 72% from QAR 88.1 million in 1H2008 to QAR 151.5 million in 1H2009.

We forecast revenue to

grow at a CAGR of 7% from

2008 through 2013

Sources: Financial statements and NBK Capital

We forecast the EBITDA

margin to reach 40.7% at

the end of 2013


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0.5

1.0

1.5

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2007 2008 2009f 2010f 2011f 2012f 2013f

QA

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0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2007 2008 2009f 2010f 2011f 2012f 2013f

Figure 21 nawras’s Actual and Forecasted Revenue

Figure 22 nawras’s Actual and Forecasted eBITDA Margin





In keeping up with the global trend of deregulation of telecom markets, the government of Indonesia decided to deregulate the national telecom sector. In 2001, the government ended cross-ownership arrangements between its two operators, PT Telkom and PT Indosat; the government also ended the monopoly situation pertaining to services. In July 2003, the Indonesian government established the Indonesian telecommunications regulatory body, Badan Regulasi Telekomunikasi Indonesia (BRTI). The basic task of the regulator is to organize and lay down provisions for the telecommunications network and the implementation of services.

MOBILE MARKET

List of Operators: Currently, the mobile market in Indonesia is served by eight mobile companies through GSM and CDMA technology. The three main operators are as follows:

• Indosat: Indosat was established in 1967 as a foreign investment company providing international telecom services in Indonesia; the company commenced operations in 1969. Indosat had a 21% market share at the end of June 2009.

• Excelcomindo: Excelcomindo commenced its commercial operations in 1996, by providing GSM-based cellular services. It currently has the third-highest market share, 18%, as of the end of June 2009. The United Arab Emirates’ Etisalat has a 16% stake in the company.

• Telkomsel: Telkomsel started operations in Indonesia with post-paid services on May 26, 1995. This company is currently the market leader, with a 49% market share at the end of June 2009. Telkomsel’s shareholders are Telkom, the largest integrated telecommunications operator in Indonesia, and Singapore Telecom Mobile (SingTel Mobile).

• The other operators are very small, with a combined market share of 13% at the end of June 2009.

Penetration Rate: With eight mobile operators, the number of mobile subscribers in Indonesia has been growing tremendously at a CAGR of 50% between 2003 and 2008. However, the Indonesian market is characterized by multiple SIMs, which pushed our estimated penetration rate to 61% at the end of June 2009.

When considering countries comparable to Indonesia on a GDP per-capita level, we find that, at the end of June 2009, the penetration rate in Indonesia (61%) was lower than the prevailing peer-group average, which stood at 75% at the end of June 2009.

OVeRVIeW OF THe InDOnesIAn TeLeCOM MARKeT

The mobile penetration rate

in Indonesia is below the

peer-group average

Sources: IMF, Informa database, and NBK Capital

Country 2005 2006 2007 2008 1H2009

Egypt 16% 22% 36% 49% 57%

Georgia 32% 45% 61% 79% 85%

Morocco 42% 51% 63% 71% 74%

Paraguay 31% 53% 72% 84% 84%

Philippines 41% 49% 62% 75% 81%

Sri Lanka 18% 28% 41% 57% 66%

Average 30% 41% 56% 69% 75%

Indonesia 18% 26% 38% 58% 61%

Figure 23 Indonesia’s Penetration Rate vs. Peer Countries




ARPU: The mobile market in Indonesia has been witnessing a price war among operators. Tariffs went down by around 80% last year. Thus, blended ARPU for the country went down from USD 7 in 2007 to USD 5 in 2008, which is 37% below the peer-group average at the end of the same period.

Indonesia’s monthly

blended ARPU is 37%

below the peer-group

average



Egypt 15 15 14 11 9

Georgia 14 15 13 14 16

Morocco 12 13 12 12 11

Paraguay 11 10 10 8 6

Philippines 6 5 6 5 5

Sri Lanka 7 7 6 4 3

Average 11 11 10 9 8

Indonesia 11 8 8 7 5

Figure 24 Indonesia’s ARPu vs. Peer Countries




Source: Indosat financial statement

Qtel Group65%

Others20.71%

Government14.29%

InDOsAT OVeRVIeW

BASIC INFORMATION

Indosat was established in 1967 as a foreign investment company to provide international telecom services in Indonesia. In 1994, Indosat listed its shares on the two Indonesian stock exchanges, the Jakarta Stock Exchange and the Surabaya Stock Exchange; Indosat is also listed on the New York Stock Exchange.

In 2001, Indosat Multi Media Mobile (IM3) was established, which was followed by the acquisition of full control of Satelit Palapa Indonesia, making Indosat Group the second-largest cellular operator in Indonesia. In 2002, the Indonesian government divested 41.94% of its shares in Indosat to Singapore Technologies Telemedia (Singtel) through the holding company Indonesia Communications Limited. With this divestment, Indosat is once again a foreign investment company, offering fully fledged, integrated network and services in information and communication solutions. In November 2003, three telecom operators, Satelindo, IM3, and Bimagraha, merged into Indosat, forming a cellular-focused full network service provider (FNSP). In June 2008, Qtel acquired Indonesia Communications Limited and Indonesia Communications Pte. Ltd. from Singtel; the two companies together held a 40.81% stake in Indosat for a total of USD 1.7 billion. In 2009, the company further increased its stake to 65%, and Qtel is now Indosat’s majority shareholder.

Figure 25 Indosat’s Ownership structure




InDOsAT FInAnCIAL AnALysIs AnD FOReCAsT


The mobile market in Indonesia is highly competitive with eight mobile operators. In addition, the Indonesian market is characterized by multiple SIMs, which pushed our estimated penetration rate to 61% at the end of June 2009. We believe that, since Indonesia has a population of around 229 million, there is still room for growth in the mobile segment; thus, we forecast that the total number of subscribers will grow at a CAGR of 8% between 2008 and 2013, pushing the penetration rate to 78% by 2013.

As per Indosat’s strategy to focus on revenue-generating subscribers, the company started cleaning inactive subscribers from its mobile subscribers’ base in 1Q2009. Thus, the total number of mobile subscribers dropped from around 36 million in December 2008 to 29 million at the end of June 2009, reflecting a market share of 21%. We believe that, in 2013, Telkomsel will remain the market leader, and Indosat will maintain its position as the second player in the Indonesian mobile market, with a market share of around 25.5%.

REVENUE

Indosat saw its revenue increase at a CAGR of 20% from 2006 to 2008. As of year-end 2008, revenue had reached QAR 7 billion, compared to QAR 6.6 billion in 2007, a growth rate of 7.5%. The majority of revenue is generated from the mobile segment, which contributed 76% of the total revenue in 2008.

We forecast Indosat’s revenue through 2014 by separately projecting the revenues from its different segments. Figure 27 presents a summary of our revenue forecast, which is projected at a CAGR of 2.5% from 2008 through 2013. We believe that, as the mobile market in Indonesia approaches maturity, the total revenue growth will slow down.

• We estimate that, over the coming five-year period, since revenue from the mobile segment reached its peak in 2008 at 76%, the mobile segment’s share of revenue will start to gradually decline and will settle at 73% of the total revenue by 2013.

• Based on our forecast, we believe growth in the fixed-line voice services segment will be relatively flat, and we estimate that its contribution to total revenue will settle at 11% by 2013.

• As for Indosat’s third line of business, the fixed data services segment (multimedia, data communication, and Internet) has been growing. At the end of 2008, this segment accounted for 15% of the total revenue; we believe that this segment will settle at 17% of the total revenue by 2013.

We expect the penetration

rate to reach 78% in 2013

Sources: Annual reports, IMF, Informa database, and NBK Capital

(000's) 2008a 2009f 2010f 2011f 2012f 2013f



Market Share:

Indosat 28% 25% 25% 25% 25% 26%

Others 72% 76% 75% 75% 75% 75%

Total Subscribers 131,599 152,344 161,339 170,543 179,958 189,589

Indosat's ARPU (USD)

Total Blended* 4 3 3 3 3 3

Figure 26 Mobile Market in Indonesia




0

1

2

3

4

5

6

7

8

9

2007 2008 2009f 2010f 2011f 2012f 2013f

QA

R b

illio

nWe forecast revenue to grow

at a CAGR of 2.5% from

2008 through 2013

Source: Financial statements and NBK Capital

PROFITABILITY

By the end of 2008, EBITDA totaled QAR 3.5 billion, an increase of 1.6% compared to the same period in 2007. The EBITDA margin decreased from 53% to 50%. According to management, this slower growth in EBITDA is due to increased competition, coupled with global economic pressure. In 1H2009, Indosat’s EBITDA margin inched up from to 49% from 46% in 1H2008.

Going forward, we believe that Indosat’s EBITDA margin will decline to 46.5% by 2013 (Figure 28).

We forecast the EBITDA

margin to reach 46.5% in

2013

Source: Financial statements and NBK Capita

0%

10%

20%

30%

40%

50%

60%

2006 2007 2008 2009e 2010e 2011e 2012e

Figure 27 Indosat’s Actual vs. Forecasted Revenue

Figure 28 Indosat’s Actual vs. Forecasted eBITDA Margin

Indosat generated a net income of QAR 724 million at the end of 2008, a decline of 8% compared to 2007. According to management, this decline is mainly due to the depreciation in the Indonesian rupiah versus the USD: from Rp 9,393 in December 2007 to Rp 10,950 in December 2008. In 1H2009, the bottom line reached QAR 392 million.




OVeRVIeW OF IRAQI TeLeCOM MARKeT


In June 2004, the Iraq Communications and Media Commission (CMC) was established as an independent telecom regulator in Iraq, with the sole responsibility of licensing and regulating telecoms in Iraq. The Iraqi law governing the telecom sector gave the CMC the right to grant licenses for telecom operations, receive fees and tariffs, and manage spectrum frequencies and other resources.

The CMC’s main objective is to work on the development and promotion of the infrastructure of the telecom sector by encouraging the private sector to contribute to this vital area via adopting a competitive and just framework that would encourage investors to enter the market.

In 2004, the CMC issued three two-year mobile licenses in Iraq: Asiacell covered the northern region of Iraq, Iraqna (a subsidiary of Orascom Telecom-Egypt) covered central Iraq, and MTC-Atheer covered southern Iraq. However, in 2006, when their licenses were due for renewal, only Iraqna and MTC-Atheer were awarded temporary extensions.

In 2007, three nationwide licenses were sold for USD 1.25 billion to Asiacell, Korek Telecom, and Zain Iraq. In December 2007, Zain acquired Iraqna from Orascom Telecom for USD 1.2 billion and merged Iraqna with Zain’s existing operation MTC-Atheer. In 2008, the newly merged company was rebranded as Zain Iraq.

MOBILE MARKET

There are currently three mobile companies in Iraq:

• Zain Iraq – In December 2007, Zain Iraq was formed after Zain acquired Iraqna from Orascom Telecom for USD 1.2 billion and merged Iraqna with Zain’s existing operation in Iraq, MTC-Atheer. The company now is the largest operator in the country with a 52% market share at the end of June 2009.

• Asiacell – Qtel owns 30% of Asiacell. At the end of June 2009, the company had the second-largest market share in Iraq, 36%.

• Korek Telecom – At the end of June 2009, the company had a market share in Iraq of around 12.3%. Etisalat has expressed interest in acquiring a stake in this company.

Source: NBK Capital

Three national-levellicenses awarded2007Three two-year

licenses awarded2004Telecom regulatorestablished2004

AsiacellNorthern Iraq

IraqnaCentral Iraq

MTC-AtheerSouthern Iraq

Asiacell

Korek Telecom

MTC-Atheer

Figure 29 Liberalization of the Iraqi Telecom Market




Penetration Rate and Market Share: Back in 2004, the three mobile operators did not fully compete with each other as each was licensed to cover separate parts of the country. It was not until 2007 that real competition started after the regulator awarded nationwide licenses. The number of mobile subscribers grew at a CAGR of 86% between 2004 and 2008, and the penetration rate reached 66% at the end of June 2009. Zain Iraq is the market leader, commanding a market share of 52% at the end of June 2009.

When considering countries comparable to Iraq on a GDP per-capita level, we find that, at the end of 1H2009, the penetration rate in Iraq (66%) was lower than the prevailing average for the peer group, which stood at 69% at the end of the same period (Figure 30).

ARPU: We estimate that the total monthly blended ARPU for Iraq as of December 2008 was USD 13, which was 7% lower than the average peer group (Figure 31).

The mobile penetration rate

in Iraq is below the peer-

group average


Figure 30 Iraq’s Mobile Penetration Rate vs. Peer Countries

Country 2005 2006 2007 2008 1H2009

Congo 16% 26% 35% 61% 69%

Ecuador 48% 64% 74% 84% 89%

El Salvador 34% 52% 79% 93% 96%

Mongolia 20% 29% 42% 63% 68%

Swaziland 19% 24% 33% 45% 51%

Syria 16% 23% 32% 38% 41%

Average 25% 36% 49% 64% 69%

Iraq 17% 33% 43% 60% 66%

Iraq’s monthly blended

ARPU is 7% lower than the

average peer-group


Figure 31 Iraq’s Monthly Blended ARPu vs. Peer Countries

ARPU levels have been decreasing; we expect that the downtrend will continue as operators are now competing against each other on the national level.


Congo 24 24 23 19 17

Ecuador 13 12 11 9 10

El Salvador na 14 9 11 9

Mongolia 10 11 11 12 11

Swaziland 33 24 20 18 14

Syria 33 31 24 21 20

Average 23 19 16 15 14

Iraq 54 22 16 13 13




AsIACeLL OVeRVIeW

BASIC INFORMATION

Asiacell Telecom is an Iraqi-Kurdish company that was established in 1999. In 2003, Asiacell, a consortium of Kuwait’s Wataniya Telecom, Asiacell Telecom, and the United Gulf Bank of Bahrain, was awarded a GSM license in northern Iraq. However, in 2006, the license was not renewed for this consortium. In August 2007, a joint partnership between Qtel, Asiacell, and local Iraqi investors, won a nationwide 15-year GSM license for USD 1.25 billion. In May 2008, Asiacell expanded its operations into Erbil and Dohuk. This expansion is part of a strategy to cover more than a third of Iraqi mobile customers by the end of 2009. In April 2009, the company partnered with the two other mobile operators in Iraq to provide national roaming services.

Source: Informa database


Qtel Group30%

Asiacell Iraq51%

Merchant Bridge19%




AsIACeLL FInAnCIAL AnALysIs AnD FOReCAsT


Asiacell started operations in Iraq in 2004; the company’s subscriber base grew at a CAGR of 90% until 2008. At the end of June 2009, the number of subscribers reached around 7 million, which translates into a market share of 36%. As competition will keep on increasing in the Iraqi market, we forecast that, over the coming five-year period, the total number of mobile subscribers in Iraq will grow at a CAGR of 9% between 2008 and 2013, pushing penetration to 85% by 2013. We believe that Zain-Iraq and Asiacell will hold on to their market leader positions. We forecast Asiacell’s market share to reach 37% by 2013 (Figure 33).

We expect the penetration

rate to reach 85% in 2013

Sources: Annual reports, IMF, Informa database, and NBK Capita

Figure 33 Mobile Market in Iraq

(000's) 2008a 2009f 2010f 2011f 2012f 2013f



Market Share:

Asiacell 34% 35% 35% 36% 36% 37%

Others 66% 65% 65% 64% 64% 63%


Asiacell's ARPU (USD)

Total Blended* 13 12 11 11 10 10

REVENUE

Qtel’s operation in Iraq through Asiacell saw its revenue increase at a CAGR of 51% from 2005 to 2008. As of year-end 2008, revenue reached QAR 2.8 billion, compared to QAR 1.7 billion in 2007. In 1H2009, revenue increased 48% compared to 1H2008 to reach QAR 1.8 billion, fueled by subscriber growth. With a nationwide license, Asiacell will have to expand its network to be able to accommodate the potential growth in the company’s number of subscribers. We forecast Asiacell’s revenue for the coming five years. Figure 34 presents a summary of our revenue forecast; we project revenue will grow at a CAGR of 8% from 2008 through 2013. We believe that competition will affect Asiacell’s top line, especially since each operator has nationwide access. Operators now will have to decrease their prices and provide subscribers with new packages.




PROFITABILITY

By the end of 2008, EBITDA reached QAR 1.4 billion; the EBITDA margin declined from 58% in 2006 to 50% in 2008. In 1H2009, EBITDA increased 53% compared to 1H2008, to reach QAR 941 million, with an improved EBITDA margin of 51% at the end of the first half of 2009.

The competitive environment in Iraq will continue to put pressure on Asiacell’s operations. We believe that Asiacell will need to attract new subscribers as it continues to expand its operations all over Iraq; this will put pressure on margins. Hence, we forecast the EBITDA margin to decline to 48% by 2013.

We forecast revenue will

grow at a CAGR of 8% from

2008 through 2013


Figure 34 Asiacell’s Actual vs. Forecasted Revenue

-

1.0

2.0

3.0

4.0

5.0

6.0

2007 2008 2009f 2010f 2011f 2012f 2013f

QA

R b

illio

n




Qatar27%

Oman6%

Indonesia*20%

Iraq14%

Kuwait15%

Algeria 9%

Others8%

FY2008

Qatar25%

Oman7%

Indonesia26%

Iraq16%

Kuwait11%

Algeria 8%

Others8%

1H2009

QTeL GROuP FInAnCIAL AnALysIs AnD FOReCAsTs


The majority of Qtel’s operations are facing intense competition, with their respective markets approaching saturation. We envision the growth in the number of subscribers during the coming years will be slower compared to previous years, mainly due to the effects of the global economic storm on population growth (especially in the GCC where expatriates constitute a big portion of the total population), the potential slowdown in tourism activity that hit most countries, and the intense competition that surrounds Qtel’s operations. We forecast that the total number of Qtel’s subscribers will grow at a CAGR of 7% between 2008 and 2013, which will result in the following penetration rate in each country (Figure 35).

REVENUE

With Qtel’s expansion plan mode, and in line with the company’s strategy of a diversified revenue scheme, total revenue for the group witnessed a growth in CAGR of 114% between 2006 and 2008 with total revenues reaching QAR 20.3 billion. In 1H2009, total revenue grew by 42% YoY to QAR 11.5 billion, mainly due to the full consolidation of Indosat. Looking at the breakdown per operation, Qatar and Indonesia had a similar percentage of contribution to total revenue, and combined, these operations contributed to 51%, followed by Iraq and Kuwait, which contributed to around 16% and 11%, respectively.

Qatar Telecom’s markets

are approaching saturation


Figure 35 summary of Mobile Markets

In 1H2009, Qatar and

Indonesia had a similar

percentage of contribution

to total revenue

*Indonesia’s results post-acquisition. Sources: Annual reports and NBK Capital

Figure 36 Dissection of Revenues by Country of Operation

2008a 2013f 2008a 2013f 2008a 2013f 2008a 2013f

Qtel-Qatar Qatar 93% 122% 100% 65% 1.3 1.6 76 60

Nawras Oman 93% 113% 44% 46% 1.1 1.4 34 30

Indosat Indonesia 58% 78% 28% 26% 36.3 48.3 4 3

Asiacell Iraq 60% 85% 34% 37% 6.1 10.2 13 10

Wataniya Kuwait Kuwait 94% 122% 41% 33% 1.3 1.6 52 37

Nedjma Algeria 62% 90% 23% 33% 5.1 11.2 8 7

Tunisiana Tunisia 80% 94% 51% 49% 4.3 5.1 14 11

Operation Penetration Rate Market Share No. of subs. in

millionsARPU in USD Country of

Operation




We forecast the Qtel Group’s total revenue for the coming five years by separately projecting the revenue from the company’s different operations. Figure 37 presents a summary of our revenue forecast by country, which projects a group CAGR of 7% from 2008 through 2013.

• We believe that Qtel’s newest addition, Indosat, will be the highest contributor to total revenue over the coming five-year period; we believe that the top line of Indosat’s operations will grow at a CAGR of around 2٫5% between 2008 and 2013.

• The entry of Vodafone-Qatar will dampen future revenue growth prospects for Qtel’s operation in the company’s home market; hence, we do not believe Qtel will be able to grow its revenue base much between 2008 and 2013. We forecast it will grow at a CAGR of 3% over the next five years. However, we believe that Qtel will remain the second-highest contributor to total revenue until 2013 (22%).

• Assuming that Asiacell will be able to further expand its network, we forecast revenue from this operation will grow at a CAGR of around 8.5% over the coming five years and will be the third-highest contributor (15%) to the total group by 2013.

• As competition is intensifying in Kuwait, we believe that revenue from the Kuwaiti operation will decline over the coming five-year period, and this operation will be the fifth-highest contributor to the group’s total revenue.

We forecast revenue for

the Qtel Group to grow at

a CAGR of 7% from 2008

through 2013


Figure 37 Qatar Telecom Group’s Actual and Forecasted Revenue

PROFITABILITY

EBITDA for the group grew at a CAGR of 93% between 2006 and 2008 and reached QAR 9.9 billion, which translates into an EBITDA margin of 48.6% in 2008 versus 48% in 2007. In 1H2009, EBITDA grew by 36% YoY mainly due to the full consolidation of Indosat with the EBITDA margin dropping from 49.8% in 1H2008 to 47.7% in 1H2009. This drop in the EBITDA margin is mainly due to increased competition in Qtel’s main markets and the consolidation of Indosat. The operations in Indonesia, Qatar, Kuwait, and Iraq remained the main contributors to the group’s EBITDA.

0

5

10

15

20

25

30

2006 2007 2008 2009f 2010f 2011f 2012f 2013f

QA

R b

illio

n

Qatar Oman Indonesia Iraq Kuwait Algeria Others




We expect the EBITDA margin to decline marginally from 48.6% in 2008 to 47.7% by 2013. Going forward, Indosat’s operation will continue to be the highest contributor to the Qtel Group’s EBITDA, and we forecast Indosat to account for 27.3% of the total group EBITDA by 2013.

As data on Qtel’s small loss-making subsidiaries is scarce, we prefer to focus on net income before minority interest. With the consolidation of Indosat, Qtel’s net income before minority interest increased by 51% and reached QAR 2.8 billion in 2008. The main contributor to total profit was the Qatari operation (60%). In the 1H2009 results, the company’s net profit grew by 61% due to the full consolidation of Indosat. With the current financial crisis, Qtel’s operations in Kuwait, Algeria, Tunisia, and Indonesia were affected by the depreciation in the local exchange rates versus the USD. We expect net income before minority interest to reach around QAR 5 billion by 2013, a CAGR of 12% between 2008 and 2013 (Figure 39).

We forecast the EBTIDA

margin to reach 47.7% by

2013


Figure 38 Qatar Telecom Group’s Actual and Forecasted eBITDA Margin

0%

10%

20%

30%

40%

50%

2007 2008 2009f 2010f 2011f 2012f 2013f




CAPITAL EXPENDITURE

Qtel is operating in many growing markets; thus, investing in its CAPEX is a must in order to grow the company’s business. According to management, the company is expected to spend between QAR 6.5 billion and QAR 7.3 billion on CAPEX in 2009. Based on the requirement of each operation, we expect CAPEX to be around 30% of the total revenue in 2009 and to reach 17% of the total revenue by 2013.

We forecast net profit to

grow at a CAGR of 12%

between 2008 and 2013


Figure 39 Qtel’s Actual and Forecasted net Profit before Minority Interest

We estimate that CAPEX

will reach 17% of total

revenue by 2013


Figure 40 Capital expenditure % of Total Revenue

34%

30%

25%

21%18% 17%

2008 2009f 2010f 2011f 2012f 2013f

-

1.0

2.0

3.0

4.0

5.0

6.0

2007 2008 2009f 2010f 2011f 2012f 2013f

QA

R b

illio

n




FINANCIAL hEALTh

At the end of June 2009, the Qtel Group had a debt-to-equity ratio of 1.14x, in which a considerable portion of the total debt was at the Qtel-Qatar level (Figure 41). As mentioned earlier, Qtel can benefit from Wataniya’s low level of debt; at the end of 1H2009, the debt-to-equity ratio was at 0.3x. We believe that Wataniya has a strong and clean balance sheet, allowing the company to increase its leverage if Wataniya wishes to grow through acquisitions.

On May 27, 2009, Qtel established a USD 5 billion Global Medium Term Note Program and was officially listed on the London Stock Exchange. Following the listing, the group issued two series of notes and received the proceeds of the notes on June 10, 2009. These notes have a total face value of USD 1.5 billion. The notes issued were allocated as follows:

• USD 900 million, 6.5% 5-year notes due on June 10, 2014

• USD 600 million, 7.875% 10-year notes due on June 10, 2019

According to management, the net proceeds of the sale of the notes will be used for general corporate purposes, including refinancing existing indebtedness. As of June 2009, the company presented net financial debt maturity (Figure 42).

A considerable portion of

the total debt sits at the

Qtel-Qatar level

Source: Qtel’s 1H2009 presentation

Figure 41 Total Debt by Country as of June 2009

Qatar71%

Indonesia22%

Others7%




* USD 600 million term loan fully repaid in July 2009; USD 1.85 billion 2 year Forward Start Facility due in November 2011, will repay USD 2 billion Revolving Credit Facility due November 2009; USD 125 million cancelled in June 2009. Source: Qtel’s 1H2009 presentation

Figure 42 Debt Maturity Profile as of June 2009 in QAR billions

On October 1, 2009, Qtel announced the signing of a syndicated revolving credit facility, following the closing of the general syndication phase of a USD 1.5 billion facility in March. The facility was oversubscribed by more than 100%, and the final facility size was increased to USD 2 billion.

3.5

-

6.7

10.9

-

3.3

2009 2010 2011 2012 2013 2014

*




FInAnCIAL sTATeMenTs

Sources: Company’s financial statements and NBK Capital

Balance Sheet (QAR Thousands)

Fiscal Year Ends December 2007 2008 2009 2010 2011 2012 2013

ASSETSCash and Short-Term Investments 3,250,092 7,845,307 3,445,064 7,311,863 7,059,963 8,516,180 10,125,720 Total Receivables, Net 1,733,312 2,053,600 3,023,400 3,175,566 3,269,635 3,354,106 3,433,488 Total Inventory 127,616 272,257 319,686 339,880 352,574 363,734 376,030 Prepaid Expenses 761,512 1,808,668 1,918,119 2,039,277 2,115,442 2,182,403 2,256,182 Total Current Assets 5,872,532 11,979,832 8,706,269 12,866,586 12,797,613 14,416,423 16,191,421

Property/Plant/Equipment, Total - Net 9,010,865 23,480,143 28,254,623 31,549,566 33,597,175 34,334,506 34,788,842 Intangibles, Net 27,009,365 33,819,101 32,500,150 31,183,249 29,864,974 28,544,770 27,222,283 Long-Term Investments 4,857,344 3,790,839 3,790,839 3,790,839 3,790,839 3,790,839 3,790,839 Other-Long Term Assets 524,450 1,227,831 1,227,831 1,227,831 1,227,831 1,227,831 1,227,831 TOTAL ASSETS 47,274,556 74,297,746 74,479,712 80,618,071 81,278,432 82,314,368 83,221,215

LIABILITIES & EQUITYAccounts Payable 4,822,902 6,428,193 7,033,101 7,477,351 7,756,619 8,002,144 8,272,668 Accrued Expenses 2,339,411 3,281,204 3,953,896 4,152,893 4,275,914 4,386,381 4,490,194 Other Current Liabilities 1,712,971 3,235,269 4,035,807 4,238,927 4,364,496 4,477,252 4,583,216 Total Current Liabilities 8,875,284 12,944,666 15,022,804 15,869,171 16,397,029 16,865,778 17,346,078

Total Debt 21,625,177 27,975,283 23,778,991 27,345,839 25,978,547 25,199,191 24,695,207 Other Liabilities, Total 9,874,199 20,094,090 20,732,031 21,184,198 21,574,284 21,982,330 22,332,796 Total Liabilities 40,374,660 61,014,039 59,533,826 64,399,208 63,949,860 64,047,299 64,374,081

Total Equity 6,899,896 13,283,707 14,945,886 16,218,863 17,328,572 18,267,069 18,847,134

TOTAL LIABILITIES AND EQUITY 47,274,556 74,297,746 74,479,712 80,618,071 81,278,432 82,314,368 83,221,215

ForecastHistorical

Cash Flow (QAR Thousands)


Cash from Operating Activities 6,521,880 5,620,488 11,731,601 11,885,087 12,063,010 12,299,825 12,488,402 Cash from Investing Activities (22,439,778) (9,022,511) (8,264,925) (7,290,461) (6,358,402) (5,288,898) (5,029,609) Cash from Financing Activities 16,933,790 8,460,254 (7,866,919) (727,828) (5,956,507) (5,554,710) (5,849,254) Foreign Exchange Effect 817,517 (463,016) - - - - - Net Change in Cash 1,833,409 4,595,215 (4,400,243) 3,866,799 (251,900) 1,456,218 1,609,540

Forecast

Income Statement (QAR Thousands)


Total Revenue 10,543,235 20,318,927 25,194,999 26,463,050 27,246,959 27,950,882 28,612,398 Cost of Revenue 2,802,552 5,239,747 6,393,728 6,797,592 7,051,472 7,274,677 7,520,608 Gross Profit 7,740,683 15,079,180 18,801,271 19,665,459 20,195,487 20,676,205 21,091,791 Selling/General/Admin. Expenses 2,666,645 5,203,473 6,550,700 6,880,393 7,084,209 7,267,229 7,439,224 Depreciation/Amortization 1,844,878 4,022,068 4,732,484 5,028,403 5,500,437 5,742,211 5,835,467 Other Operating Expenses 148,602 241,775 251,950 264,631 272,470 279,509 286,124 Operating Income 3,080,558 5,611,864 7,266,136 7,492,032 7,338,371 7,387,256 7,530,976 Interest Income (Exp), Net Non-Operating (822,632) (1,055,430) (1,535,453) (1,916,477) (1,622,492) (1,451,816) (1,344,782) Others (434,169) (1,457,608) (467,725) (493,005) (487,193) (475,921) (463,966) Net Income before Taxes 1,823,757 3,098,826 5,262,959 5,082,550 5,228,685 5,459,520 5,722,228 Provision for Income Taxes (54,236) 256,339 742,871 687,351 693,490 732,910 791,061 Net Income after Taxes 1,877,993 2,842,487 4,520,088 4,395,199 4,535,195 4,726,610 4,931,167 Minority Interest (203,683) (565,275) (1,391,242) (1,088,472) (1,110,777) (1,219,800) (1,370,313) Net Income 1,674,310 2,277,212 3,128,846 3,306,727 3,424,418 3,506,811 3,560,854

ForecastHistorical


DIsCLAIMeR

This document and its contents are prepared for your personal information purposes only and do not constitute

an offer, or the solicitation of an offer, to buy or sell a security or enter into any other agreement. Projections of

potential risk or return are illustrative, and should not be taken as limitations of the maximum possible loss or gain.

The information and any views expressed are given as of the date of writing and are subject to change. While

the information has been obtained from sources believed to be reliable, we do not represent that it is accurate

or complete and it should not be relied on as such. Watani Investment Company (nBK Capital), its affiliates and

subsidiaries accept no liability for any direct, indirect or consequential loss arising from use of this document or

its contents. At any time, the employees of nBK Capital and its affiliates and subsidiaries may, at their discretion,

hold a position, subject to change, in any securities or instruments referred to, or provide services to the issuer

of those securities or instruments.

RIsK AnD ReCOMMenDATIOn GuIDe

Recommendation upside (Downside) Potential

Buy more than 20%

Accumulate between 10% and 20%

Hold between -5% and 10%

Reduce between -10% and -5%

sell less than -10%

RIsK LeVeL

Low Risk High Risk

1 2 3 4

© COPyRIGHT nOTICe

This is a publication of nBK Capital. no part of this publication may be reproduced or duplicated without the prior consent of

nBK Capital.




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