18 Nisan 2012 Çarşamba

Turk Telekom (Hold, TRY 7.37)

TT reported 1Q12 net income of TRY 772mn (UCI: TRY 678mn; cons: TRY 687mn), up 27% yoy; EBITDA of TRY 1,232mn (UCI: TRY 1,190mn; cons: TRY 1,231mn), down 4% yoy, with an EBITDA margin of 41.6% (down 2.6pp yoy): TRY 2,960mn in revenues (in-line), up 2.5% yoy. Overall; operational results were in line with notable erosion in gross margins (down 3.9pp yoy) partially offset by cost control at fixed-line. Net income was boosted by FX gains (TRY 70mn impact).

   In-line fixed performance; revival of DSL sub growth thanks to Lokum. Fixed-line revenues were down 0.5% yoy (down 2% qoq) with the notable slowdown in DSL growth to 3% (15% yoy in 4Q11) due to flat yoy ARPU (down 1% qoq) with the dilution from Lokum package as the majority of the 238,000 DSL sub increase in 1Q12 was driven by the low-ARPU daily DSL package (Lokum). PSTN revenues were down 6% yoy (-7% yoy in 4Q11) with 250,000 qoq slide in total access lines (UCI: 220,000) partly offset by 1% yoy growth in ARPU (thanks to limiting free all-direction minutes in bundles). Fixed fee as a percentage of PSTN revenues was flat qoq at 71%. Management indicated a potential inflationary increase in PSTN bundle tariffs as TT needs further price increases to meet its revenue growth guidance of 6%-8% in 2012, in our view. Leased-line revenues were down by 17% yoy due to reduction in price cap set by Telecom Authority. Fixed-line EBITDA margin was down by 2.4pp at 51.1% while the qoq recovery was driven mainly by the ‘’other’’ item (1.9pp impact) and limiting commercial expenses (1.6pp impact).  
   No signs of mobile margin recovery. Mobile revenues grew 12% yoy to TRY 787mn (UCI: TRY 798mn, cons: TRY 792mn) on the back of 4% yoy growth in ARPUs at TRY 19.9 (UCI: TRY 20.3, cons: TRY 20.2) and 170,000 net adds in 4Q11 (UCI: 220,000) driven by post-paid adds (110,000) through MNP. Mobile margin was down 6pp qoq and flat yoy at 9.9% (UCI: 11.6%; cons: 12%) driven by higher interconnect (0.6pp impact); maintenance costs (2pp) with the expanded network and doubtful debt (2.5pp impact). APPM was down 7% qoq at TRY 0.062, suggesting continued deterioration in competitive landscape led by Avea. 
   Bottom line. TT posted operationally in-line figures with consensus but continued pressure on gross margins stemming from flattish pricing and lower total subscriber base in fixed-line. While the results do not warrant any material revision to our estimates; we upgrade the stock to HOLD given i) its underperformance of ISE by 7% (down by 6%) since our downgrade leaving no downside to our TP; ii) likely support from 7.3% dividend yield (ex-date 30 May) in S/T based on its historical performance.

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