Dialog Telekom (DIAL), Sri Lanka's leader in mobile telephony, has recorded an impressive 138% YoY increase in earnings to LKR705 mn in 1Q2010 on the back of increased subscriber base and strategic cost rationalization efforts.
EBITDA has increased by 170% YoY to LKR3.3 bn in 1Q2010 on the back of other operating costs being reduced by a significant 64% YoY following a successful cost rescaling exercise. Further the EBITDA margin has improved by circa 20% YoY to 34% in 1Q2010.
DIAL's better performance particularly in 1Q2010 is broadly in line with our forecasts and thereby we maintain our forecast 2010E net profit at LKR2,477.4 mn and 2011E net profit at LKR2,812.9 mn.
On a fundamental viewpoint trading on 28.8x forecast 2010E net profits and 25.3X forecast 2011E earnings, we believe the cost savings are not yet sufficiently tangible (the ability for per minute tariff to absorb the per minute cost is still questionable).
Further the financial position of the company should be further strengthened to combat stiff competition from the new entrant Etisalat. Nonetheless the share has gained circa 21% vs. the broad market gain of circa 25% YTD. Thus we revise down our recommendation to HOLD
Sri Lanka Equity Analytics
World Trade Centre
Colombo, Sri Lanka
Email: info@srilankaequity.com
Web: www.srilankaequity.com
Monday, May 10, 2010
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