JAZIRA SECURITIES BROKERAGE MOBINIL

Sunday, May 16, 2010

Equity Research

Clash of the Titans: HOLD

A Story of Leverage & Paradigms Market Price (EGP/share) 172
Target (EGP/share) 193
The France Telecom /Orascom Telecom battle over acquiring Mobinil’s Upside (Downside) 12%
other counter party and free float stakes have now came to a peaceful set-
tlement. Bids went up to EGP245/share and still no seller caved to the bid.
However, we valued Mobinil at EGP193/share, but we still see the validity RIC EMOB.CA
of FT’s higher than our value bid and why OT haven't caved to it. Full Name: Egyptian Company for Mobile Services

Its all in the leveraging... Based on FT FY09 figures and a lot of assumptions Short Names Mobinil,
ECMS
from our side on how a transaction like this would have been financed, we see
that bidders could have gone up to EGP342/share, and still would have made Exchange Listing EGX
money based on our DCF value, which utilized a discounted rate of return of Index Inclusion EGX30
15.6%. This imply that although FT bid and its loss to grab appetite from OT
and consequently the other shareholders, were both valid, it doesn't imply that
the company’s insiders (whom should presumably be the best to assess the com- Number of shares (mn) 100
pany’s value) envision Mobinil to be valued at these prices. In our opinion, it Market cap (EGP bn) 17.2
was a game around the denominator (adjusted net of leverage acquisition price) EV (EGP bn) 20.7
as much as it was about the numerator (intrinsic value). (see page six for details)
52 Week Low-High (EGP) 172-241
Egyptians favor mobiles over land lines more than world trends Average Daily Volume (52 weeks) 100,855
On an Industry level, Egypt and global cellular penetration levels are converg- Stock Performance Absolute / Relative to index
ing, as levels stood at 66.6% and 67.1% at the end of 2009 respectively. How-
Three month -22% / -21%
ever, fixed line penetration in Egypt is trailing with a discount compared to the
world levels, which we expect to remain persistent and the gap to be filled Six month -13%/ -17%
through cellular uptake. We expect cellular and combined (Fixed + Mobile)
One year -11% / -24%
Egyptian penetration levels to reach 90.7% and 104.4% by 2015. The local cel-
lular penetration would be higher than world’s average of 86% in 2015, but
matching the world on a combined level. Shareholders Ownership stake

New subscriber additions entered ex-growth phase Mobinil Telecommunications (MT) 51.03%

As the Egyptian cellular industry entered the new subscriber uptake ex- France Telecom in MT 71.25%
growth phase. The next wave of growth, or at least momentum, will be more Orascom Telecom in MT 28.75%
dependant on broadband mobile services and expanding airtime usage. Al- Orascom Telecom 20.00%
though cellular subscriber uptake is relatively not cyclical, airtime con-
sumption can be. The expected economic recovery which will start to impact Free Float 28.97%
the general population by 2011, will have an impact on improving airtime along Analyst: Mohamed Fahmy
with mobile online usage expansion.
Email : mfahmy@jaziracapital.com

Mobinil margins squeezed Mobile: +202 2157312

Operationally, Mobinil ARPU took a hard hit, falling based on our calculations
250 Mobinil P r ic e Cha rt (EGP )
to EGP34.7/month in 1Q FY10 a decline of 11.5% qoq and 17.3% yoy. Compe- 240

tition is fierce, and Mobinil is still hoping for better termination rates. New sub- 230
220
scribers based on active subscribers came at 586k in the quarter, reflecting a 210
200
20% qoq and 48% yoy decline. 190
180
170
The aforementioned near convergence have been translated in figures in 1Q 160

FY10. Mobinil revenues grew by a mere 2.2%, while EBITDA margin fell to A-
09
M-
09
J-
09
J-
09
A-
09
S-
09
O-
09
N-
09
D-
09
J-
10
F-
10
M-
10
A-
10
40.1% from 48.8% in 1Q FY09. EBITDA and net income declined 16% yoy
each, based on consolidated figures.
FY ending Dec. 2009a 2010e 2011f 2012f
We expect FY10, to continue with those weak KPIs, ARPU to witness 19% Revenues (EGP mn) 10,807 10,488 10,985 11,707
decline to EGP33.8/month, new subscribers to reach 3.4 million reflecting 31% EBITDA Margin 46.9% 40.4% 39.5% 39.1%
decline over past year added figures. Revenues, EBITDA and net income are
EPS (EGP) 18.8 13.6 15.9 18.4
expected to decline by 3%, 16% and 27% yoy compared to FY09.
DPS (EGP) 9.5 9.5 10.0 12.0
Revenues and EBITDA are expected to remain at best in a single digit PER 9.2 12.6 10.8 9.3
growth until economic recovery reach full speed along with the sector stabi-
DY 5.5% 5.5% 5.8% 7.0%
lizing by 2013.
EV/EBITDA 4.3 4.9 4.7 4.2

Net Debt (EGP mn) 5,055 4,566 3,906 3,079

1
 JAZIRA SECURITIES BROKERAGE
May 16, 2010
Egypt is coming to a conver-
gence with global cellular
penetration levels
Combined penetration conver-
gence is expected in 2015
Cellular penetration stands at
65.4% and expected to close
year at 72%
Regulatory customer inquiry
card may see a lot of gray
economy subscribers shying
away
Depending more on usage
rather than subscribers uptake
for growth will make mobile
operators performance more
cyclical than in the past
If it’s all in the mobile, why go
fixed?
Price wars, and subscribers
rejoicing, but can it last?
How deep is Etisalat’s pock-
ets?
MOBINIL
Equity Research
Industry Assessment & Projections (see page 7 for industry key assumptions)
Egypt and global cellular penetration levels are converging, as levels stood at 66.6% 67.1% at
the end of 2009 respectively. However, Egypt is trailing at a discount for land line penetration
rates compared to global levels with 11.4% and 18.6% levels, respectively, also at the end of
2009. We don’t believe that the fixed line gap will be filled in Egypt, but rather Egypt’s com-
bined mobile and fixed penetration of 78.2% vs. 85.4% globally will be filled through higher
cellular uptake by time.
We project cellular and combined Egyptian penetration levels to reach 90.7% and 104.4% by
2015. The cellular penetration will be higher than world’s average of 86% but matching with
the world’s combined level.
Egypt cellular 1Q FY10, subscriber base have reached 57.7 mn based on NTRA figures. We
adjusted the whole market based on EMOB active to closing subscriber base ratio, thereby the
market active subscribers stood at 54.7 mn or 65.4% penetration rate. We project Egypt’s end of
year active cellular subscribers to reach 60.1 mn with a penetration of 71% and a combined
fixed-mobile penetration of 83% compared to a global combined penetration of 91%.
Several challenges are expected to face mobile operators this year with regards to subscribers
uptake. The first will be in the form of limited available numbers based on the current dial
seven number format, The regulator is expected to permit an eight digit for mobile dialing num-
bers soon. The second issue, is related to the unapproved handsets, which the market will even-
tually adjust to the regulator pressures, but may result in some loss of customers nationally, and
whoever, brings the best bundles from the operators would reap its benefit. Third, the regulator
request of mobile operators collecting customers information, may cause another hurdle, as a lot
of gray economy customers would avoid this procedure.
As the Egyptian cellular market has entered its subscriber uptake ex-growth phase. The next
wave of growth, or at least momentum, will be more toward broadband mobile services and
expanding airtime usage.
Although cellular subscriber uptake have used to be relatively not cyclical, airtime consumption
is. The expected economic recovery which will start to impact general population by 2011, will
have a double impact of surge in airtime along with mobile online usage expansion.
Mobinil acquisition of LinkdotNet Egyptian operations from one of its parent companies, Oras-
com Telecom, at a price tag of US$130 million (EGP720 mn) is expected to support its broad-
band and online services expansion strategy, inline with the aforementioned future market
driver factors.
A fixed line operator license, which may be offered soon, may not be attractive per se, but sav-
ings on the termination fees along with international gateway access may make mobile opera-
tors think about bidding on it.
Price war has been intensifying between Egypt’s incumbent mobile operators, with Etisalat at-
tempting to benefit from the unconditioned cross-net conversion, however, we believe that Mo-
binil and Vodafone will end the battle in their favor. There is no third place prize in this market
in the long term, the third will start shrinking by time. The idea of a forth network would only
disturb the market both for operators and consumers.
We don't have access to Etisalat Misr results, but on Etisalat FY09 annual report, the value of
Etisalat Misr as an investment, have dropped from AED3.7 billion to AED1.4 billion which
imply that Etisalat Misr lost big last year, while Mobinil and Vodafone made earnings growth
of 4% and 8% respectively. We couldn't identify or confirm Etisalat Misr loss figure, but in a
last August article in Meed, Mohamed Omran, Etisalat Chairman commented on Etisalat’s
Egypt’s operation that, they are targeting a minimum of 10 million customers by the end of
2010, and that when they do, they will be making a profit. But if the market leaders profits are
squeezed due to the price wars, we wonder how will it turn Etisalat’s net income from red to
black and ultimately for how long can Etisalat continue to lead in the roll out of cheaper pack-
ages.
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 JAZIRA SECURITIES BROKERAGE MOBINIL
May 16, 2010
Equity Research

Mobinil Assessment & Projections (see page 8 for Mobinil’s key assumptions)

ARPU drops 17.3% yoy in 1Q
FY10 to EGP34.7/month
Better roaming in 2H 2010
will support relatively milder
year closing ARPU decline for
Mobinil
AMPU to continue downward
slide until 2013
EBITDA & bottom line to
witness higher decline levels
in full year FY10
Mobinil’s ARPU demonstrated 18% annual Income Statement (EGP mn) 1Q 2009 1Q 2010
drop in 1Q FY10 based on reported figures, Operating Revenues 2,490 2,546
while dropped 18.3% yoy in 1Q FY10 based on Change 10.1% 2.2%
our calculated service ARPU to EGP32.3/month COGS (457) (553)
(using service revenues and active subscribers in Operating Expenses (819) (972)
the calculation), and 17.3% yoy with regard to EBITDA 1,215 1,021
global ARPU to EGP34.7/month (using total Change 21% -16%
EBITDA Margin 48.8% 40.1%
revenues and active subscribers in the calcula-
Depreciation & Amortization (495) (482)
tion).
EBIT 720 539
We project Mobinil’s FY10 global ARPU to Net Interest (175) (130)
witness 19% decline to EGP33.8/month. The Other Non-Operating Income 3 0
relatively milder per annum drop expectations, FX Gains 18 53
NPBT 567 462
compared to these reported in 1Q FY10, is at-
Taxes (143) (106)
tributed to better roaming revenues and better
Net Profit 424 357
handset income. Furthermore, Mobinil had sus-
Minority Interest 0 (0)
pended the service of 650k customer during the Net Income 424 357
quarter, per the NTRA request for using unap- Change -6% -16%
proved handsets. Going forward, the economic Source: Mobinil Consolidated Financials
recovery although seems remote to some these
days given the current global conditions, is expected to kick in starting 2011, which will push
airtime and broadband consumption thereby assisting in reducing the price wars impact on
ARPU.
On the Average Margin per User (AMPU) level, we see opposing forces, competition and the
need of mobile operators to start by time to subsidies handsets for maintaining and growing
subscribers on one hand, while on the other hand the airtime expansions, added value services
along with broadband connectivity would work for improving the margins.
AMPU downward pressure factors are more related to competition which will always remain
persistent in this market if not intensify in the short to medium time frame. The upward forces,
on the other hand, are more cyclical by nature in addition to younger subscriber generations
whom are more accustomed or at least inclined toward using online mobile services. Negative
forces will prevail this year as the economy is still sluggish, AMPU to fall EGP13.7/month in
FY10 from EGP19.5/month in FY09. The positive forces may start just mitigating in 2011, but
will have real impact on AMPU by 2013, as the economy and the mobile market starts to stabi-
lize unless a fourth network is introduced, or Etisalat still continue to attempt to capture higher
market share through leading the market with regards to aggressive marketing campaigns.
Mobinil revenues dropped 9% qoq, while rose 2% yoy in 1Q FY10 to EGP2.6 bn. We expect a
continued downward pressure on revenues year round to culminate to 3% decline or EGP10.5
bn in FY10.
Mobinil’s 1Q FY10 EBITDA and net income fell by 16% each, while EBITDA margin fell
from 48.8% in 1Q FY09 to 40.1%. The decline in EBITDA and net income are expected to
extend and expand to the whole of FY10, with expectations are for EBITDA and net income
falling 16.4% and 27.3% to EGP4.2 bn and EGP1.4 bn, respectively. Furthermore, EBITDA
margin would end the year at 40.4% well below the 46.9% level Mobinil achieved in FY09.
Mobinil had commented in its 1Q FY10 quarterly earning release that in 1Q FY09, there was a
one off provision reversal which bloated the EBITDA, applying proforma basis and excluding
the figure, EBITDA annual decline would narrow to 12% rather than the one calculated based
on the consolidated results.
The larger decline in FY10 net income compared to the year’s first quarter decline is mainly
attributed that the quarter’s bottom line was lifted with an FX gain of EGP53 million, which
was assumed to grow to EGP60 million by year end.

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 JAZIRA SECURITIES BROKERAGE MOBINIL
May 16, 2010
Equity Research

Mobinil Assessment & Projections (continued)

Capex expected to reach
EGP2.9 bn this year
Capex levels are expected to continue its downward trend with conventional capex to reach
EGP2.2 bn in FY10, reflecting a 14% decline to FY09 levels of EGP2.6 bn . However, with the
Linkdotnet acquisition this year, capex would increase to around EGP2.9 bn. In 1Q FY10,
capex came at EGP332 million down from EGP420 million in 1Q FY09.
At the end of FY09, Mobinil had a total interest bearing debt of EGP5.0 bn which is expected to
increase to EGP5.8 bn by the end of FY10 driven by the issuance of EGP1.5 billion five year
bond in January 2010 with an interest rate of 12.25% per annum, the bond will extend the ma-
turity term of Mobinil’s debt and will be utilized in conventional capex, Linkdotnet acquisition.
The third installment of Mobinil’s 3G license amounting to EGP750 million was paid in Janu-
ary 2010. One last 3G license installment remain to be paid at the end of the year amounting to
around EGP1.1 billion. A 2G EGP750 million installment can emerge anytime pending an
agreement on the bandwidth with the NTRA.

Valuation
We have utilized a cost of equity of 16.8%, composed of a risk free rate of 8.27% and market
DCF value came at EGP193/
risk premium of 8.5%, moreover, Mobinil trades at a mere systematic pattern to the market,
share
resulting in a beta of 1x. All this brought the WACC to 15.6%.

Using a discounted cash flow model, to discount the operating cash flows based on our assump-
tions, along with assuming FY15 is the perpetual year, with a perpetual growth rate of 4%, we
have concluded Mobinil’s value at EGP19.3 billion or EGP193/share.

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 JAZIRA SECURITIES BROKERAGE MOBINIL
May 16, 2010
Equity Research

Shareholders Dispute Resolved

OT and FT to remain partners
after the settlement
Following months of court hearings and appeals, France Telecom attempting to acquire Oras-
com stake in Mobinil Telecommunications (MT) with a price of EGP273/share, along with a
tender offer to buy the remaining shares in Mobinil at a price of EGP245/share, a relatively tax
adjusted price of the MT bid price, the major holders , Orascom Telecom and France Telecom
have finally reached an agreement to remain partners and settle all disputes.

The new or amended agreement outlined the following points:

• Both parties will remain partners based on their current ownership stakes in Mobinil Tele-
communications based on their current stakes.
• France Telecom will pay Orascom Telecom US$300 mn in a settlement for disputes and its
approval of the new agreement,
• Mobinil will acquire Orascom’s LINKdotNET Egypt operations for US$130 mn.
• OT will not be able to transfer or sell its shares in Mobinil to any other parties or increase
its direct or indirect stake to more than 20% of ECMS Shares.
• OT was given a put option to sell its shares in Mobinil Telecommunications and Mobinil
starting September 2012 with the selling price increasing from EGP221.7/ECMS share at
the time of signing this agreement and increasing to EGP248.5/ECMS share in November
2013 when this sell option expire.
• OT also can exercise its put options prior to these dates if certain conditions apply.
• Regarding ECMS management fees, it will be split with each of FT and OT receiving
0.75% of ECMS's net revenues,
• On another revealed but not confirmed detail of the new agreement, that if OT sells its
stake to the FT, in addition to the agreed price, it will receive €110 million in compensation
for its 0.75% stake of Mobinil’s revenues that it receives each year as compensation for its
share in Mobinil management.

Now that the dust have settled, a question emerged, what does all this imply to Mobinil’s
value?
Transactions have a lot of details that we can’t claim to have knowledge of. We believe that
both Orascom Telecom and France Telecom are more equipped to assess the value of Mobinil
more than most of the research analysts. So the question emerged: are we too strict on Mobinil
with regards to assumptions and DCF value?

Comparable Valuation
Following the failure of our DCF to justify the bid or the sizable final settlement., we ap-
Comparable valuation doesn't proached our question from a comparable multiple approach selecting some telecom favorites
justify the bid but rather con- with regards to multiples and added France Telecom to assess why is our DCF coming short.
firms our valuation
However, Mobinil proved expensive on FY10 multiples, with the expected decline in EBITDA
and earnings not helping to justify the expensive bid price of EGP245/share.
EV/EBITDA PER DY
Comparables
2009a 2010e 2009a 2010e 2009a 2010e
KPN 5.8 5.5 11.6 9.5 6.5% 7.5%
Telecom Italia 4.3 4.0 10.7 8.9 4.7% 10.3%
MTN 4.4 4.0 13.2 9.9 1.8% 2.5%
MTS 12.4 10.0 7.9 3.8 7.6% 15.8%
Zain 2.0 -0.8 27.2 15.1 12.5% 11.8%
Qtel 4.4 4.0 8.5 11.4 1.4% 1.0%
France Telecom 5.1 5.0 16.0 15.5 - -
Average 5.5 4.5 13.6 10.6 4.9% 7.0%
Mobinil (Current Price) 4.3 4.9 9.2 12.6 5.5% 5.5%
Mobinil Premium (Discount) vs. peers -21% 9% -33% 19% -11% 27%
Mobinil (@ Bid Price) 5.7 6.6 13.1 18.0 3.9% 3.9%
Mobinil Premium (Discount) vs. peers 3% 45% -4% 70% 27% 80%

Source: Reuters, Bloomberg, Companies financials & Jazira estimates

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 JAZIRA SECURITIES BROKERAGE MOBINIL
May 16, 2010
Equity Research

But then comes the beauty of leveraging,

Just by financing 50% of the
transaction the EGP245/share
seems very appealing from
FT’s side
Then we decided to put Mobinil financials aside, and look it more from a transaction impacting
France Telecom balance sheet. FT reported an operating income of €7.8 billion, and had a net
financial cost of €2.3 billion, in FY09, which imply the ability to cover the interest burden from
the acquisition of the 64% it doesn’t own in Mobinil. Based on FT’s FY09 interest rate of 7.3%
would add €79 million to the interest burden in the first year assuming leveraging 50% of the
acquisition value. The leveraging at the EGP245/share acquistion price for all of Mobinil’s
share would cost FT around €1.1 billion of cash, or EGP122/Mobinil share.

Under our assumptions that Mobinil would continue to distribute dividends and once this trans-
action was concluded all of Mobinil’s dividend would flow to FT, we assumed that through a
gradual declining interest burden for FT from repaying annual installments on the related debt
and Mobinil dividends improving, Mobinil will be able to create a net cash surplus for FT in the
fourth year of such a transaction.
EGP245/share would create
79% upside over the EGP193/ The combined effect of lower equity participation with FT initially paying €1.1 billion and the
share valuation discounted value of the cash surplus assuming it is discounted with FT’s 7.3% interest expense
rate, FT would have generated a 79% return over the acquisition price utilizing our EGP193/
Mobinil share. On the other hand, there is currency exposure risk which can either narrow or
widen the upside.
FT current Stake in Mobinil 36%
Remaining Stake 64%
Bidding Price (EGP / Share) 245
Transaction Value (EGP mn) 15,592
Transaction Value (€ mn) 2,166
FT can afford a cheaper dis- Leveraged Portion 50%
count rate Leveraged Value (€ mn) 1,083
FY09 FT Net Debt (€ mn) 27,534
FY09 FT Net Debt /Equity 0.96
Adjusted Net Debt after EMOB transac-
29,700
tion (€ mn)
Adjusted FT Net Debt /Equity 1.03
FT FY09 Interest Expense Rate 7.3%
Assumed Payment Period (years) 6
2010f 2011f 2012f 2013f 2014f 2015f
Mobinil Dividends (EGP mn) 950.00 1348.78 1566.57 2173.18 2884.23 3799.47
EMOB Dividend (€ mn) 131.94 187.33 217.58 301.83 400.59 527.70

Loan Interest (€ mn) 79.04 65.72 52.57 39.43 26.29 13.14

Loan Re-Payment (€ mn) 180.46 180.46 180.46 180.46 180.46 180.46
Total Debt Burden (€ mn) 259.51 246.18 233.04 219.89 206.75 193.61
Net Cash from EMOB (€ mn) (127.56) (58.85) (15.46) 81.93 193.84 334.10
Surplus (deficit) Discounted Value (€
(118.90) (51.13) (12.52) 61.85 136.39 219.12
mn) (with Int. rate)
Net Cash Flow (€ mn) 235

Non Leveraged Portion (€ mn) 1,083

Net Interest Income (€ mn) 235
Acquired Portion of EMOB DCF Value
1,704
(€ mn)
Net Cash Flow Adjusted Value (€ mn) 1,939
Upside 79%

Source: FT FY09 financials and Jazira assumptions & estimates

Having a fierce and strategic
partner like OT was the main
reason for FT to risk biding
over valuation and into the
margin cushion area
A final question: Why would FT pay more than intrinsic value rather than enhance its
IRR? The simple answer is: A titan wouldn't go near its margins except if another titan with
relatively similar means of access to funds can match them and have the same aspirations and
strategy to maintain ownership of a company.

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 JAZIRA SECURITIES BROKERAGE MOBINIL
May 16, 2010
Equity Research

Key Assumptions 2008a 2009a 2010e 2011f 2012f 2013f 2014f

Global Picture
World Population (bn) 6.76 6.86 6.96 7.06 7.17 7.28 7.38
Growth 1.0% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Mobile Subscribers (bn) 4.05 4.60 5.02 5.37 5.66 5.97 6.20
Penetration Rate 59.8% 67.1% 72.0% 76.0% 79.0% 82.0% 84.0%
Growth 19.2% 12.1% 7.4% 5.5% 3.9% 3.8% 2.4%
Fixed Line Subscribers (bn) 1.25 1.26 1.29 1.33 1.35 1.38 1.41
Penetration Rate 18.5% 18.4% 18.6% 18.8% 18.9% 19.0% 19.1%
Growth -2.7% -0.7% 1.2% 0.9% 0.7% 0.6% 0.4%
Combined Subscribers (bn) 5.30 5.86 6.31 6.70 7.02 7.35 7.61
Combined Penetration 78.3% 85.4% 90.6% 94.8% 97.9% 101.0% 103.1%
Growth 13.2% 9.1% 6.1% 4.6% 3.3% 3.2% 2.1%
Egypt Macro Factors
Population (mn) 81.50 83.10 84.70 86.30 87.93 89.59 91.28
Population Growth 1.7% 2.0% 1.9% 1.9% 1.9% 1.9% 1.9%
GDP (EGP bn) 862 1,049 1,242 1,412 1,598 1,809 2,048
Real GDP Growth 7.2% 4.7% 5.4% 5.5% 5.0% 5.0% 5.0%
Inflation 10.7% 17.0% 13.0% 8.2% 8.2% 8.2% 8.2%
Unemployment 9% 9% 8% 8% 8% 7% 7%
Exchange Rate / 1 USD 5.49 5.48 5.59 5.68 5.76 5.85 5.94
GDP per Capita USD k 1.93 2.30 2.62 2.88 3.15 3.45 3.78
Egypt Telecom Statistics
Fixed Phone Lines (mn) 11.71 9.60 10.06 10.54 11.04 11.56 12.11
Penetration Rate 14% 12% 12% 12% 13% 13% 13%
Internet Users (mn) 11.42 14.25 16.78 19.23 21.55 23.61 25.86
Penetration Rate 14% 17% 20% 22% 25% 26% 28%
DSL Subscribers (mn) 0.72 1.02 1.32 1.67 2.18 2.79 3.49
Penetration Rate 1% 1% 2% 2% 2% 3% 4%
Egypt Mobile Market
Closing Cellular Subscribers (mn) 42.55 55.35 63.19 70.18 76.51 81.85 85.90
Churn Subscribers (mn) 1.96 2.66 3.03 3.37 3.67 3.93 4.12
Active Subscribers (mn) 40.59 52.70 60.16 66.81 72.84 77.92 81.78
Penetration Rate 50% 63% 71% 77% 83% 87% 90%
Net Additions 11.44 12.11 7.46 6.65 6.03 5.09 3.85
Change 0.10 0.06 -0.38 -0.11 -0.09 -0.16 -0.24
Combined Subscribers (bn) 52.30 62.30 70.22 77.35 83.87 89.48 93.88
Penetration Rate 64% 75% 83% 90% 95% 100% 103%
Players Adjusted Subscribers
Mobinil (mn) 19.19 24.14 27.55 30.68 33.53 35.96 37.83
Vodafone (mn) 16.79 22.18 25.32 28.19 30.81 33.05 34.77
Etisalat (mn) 4.61 6.38 7.28 7.94 8.50 8.92 9.18
Market Share
Mobinil 47.3% 45.8% 45.8% 45.9% 46.0% 46.1% 46.3%
Vodafone 41.4% 42.1% 42.1% 42.2% 42.3% 42.4% 42.5%
Etisalat 11.4% 12.1% 12.1% 11.9% 11.7% 11.4% 11.2%

Source: EIU, ITU, NTRA, mentioned companies KPIs, Euromonitor, BMI, Jazira Capital estimates

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 JAZIRA SECURITIES BROKERAGE MOBINIL
May 16, 2010
Equity Research

Mobinil Key Assumptions 2008a 2009a 2010e 2011f 2012f 2013f 2014f
Net Additions (mn) 4.98 4.95 3.42 3.12 2.85 2.43 1.87
Growth 2% -1% -31% -9% -9% -15% -23%
Subscriber Breakdown
Postpaid (mn) 0.64 0.69 0.72 0.76 0.79 0.83 0.88
Adjusted Prepaid (mn) 18.55 23.45 26.83 29.91 32.73 35.12 36.95

Calculated Service Active Base ARPU

Calculated ARPU (US$) 8.46 7.14 5.78 5.34 5.11 5.25 5.48
Calculated ARPU (EGP) 46.35 39.11 31.69 29.26 27.98 28.76 30.04
Postpaid ARPU (adjusted) (EGP) 266.83 220.42 202.79 202.79 208.87 219.32 236.86
Growth -7.2% -17.4% -8.0% 0.0% 3.0% 5.0% 8.0%
Postpaid Revenues (EGP mn) 1.91 1.75 1.71 1.80 1.94 2.14 2.43
Prepaid ARPU (Adjusted) (EGP) 38.17 33.39 26.72 24.58 23.35 24.05 25.01
Growth -3.0% -12.5% -20.0% -8.0% -5.0% 3.0% 4.0%
Prepaid Revenues (EGP mn) 7.38 8.42 8.06 8.37 8.78 9.79 10.81
Service Revenues (EGP mn) 9,287 10,168 9,830 10,224 10,778 11,991 13,303
Change 25.3% 9.5% -3.3% 4.0% 5.4% 11.3% 10.9%
Roaming Revenue (EGP mn) 0.52 0.39 0.42 0.49 0.58 0.64 0.69
Change 4% -25% 10% 15% 20% 10% 8%
Connection fees (EGP mn) 0.13 0.16 0.11 0.11 0.10 0.09 0.07
Growth 9% 17% 5% 5% 5% 5% 5%
Handset &others (EGP mn) 0.08 0.10 0.12 0.17 0.24 0.28 0.32
Growth -54% 27% 25% 35% 45% 15% 15%
Consolidated Revenues (EGP mn) 10,014 10,807 10,488 10,985 11,707 13,004 14,388
Change 22% 8% -3% 5% 7% 11% 11%
Global ARPU (EGP) 49.97 41.57 33.82 31.44 30.39 31.19 32.50
Change -14% -17% -19% -7% -3% 3% 4%

AMPU (EGP) 23.13 19.50 13.66 12.42 11.87 12.95 14.33

EBITDA (EGP mn) 4,634 5,070 4,236 4,339 4,571 5,399 6,346
Change 24.8% 9.4% -16.4% 2.4% 5.4% 18.1% 17.5%
EBITDA margin 46.3% 46.9% 40.4% 39.5% 39.0% 41.5% 44.1%

Capex. (EGP mn) 3,172 2,616 2,878 1,998 1,960 1,914 1,856
Change -3% -18% 10% -31% -2% -2% -3%

Interest Bearing Debt (EGP mn) 5,550 4,980 5,830 5,040 4,055 3,155 2,129
Interest Expense (EGP mn) 587 573 640 549 435 318 246
Interest Rate 11% 12% 11% 11% 11% 10% 12%
Source: Mobinil KPIs & Jazira Capital estimates & projections

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 JAZIRA SECURITIES BROKERAGE MOBINIL
May 16, 2010
Equity Research

Income Statement (EGP mn) 2008a 2009a 2010e 2011f 2012f 2013f
Revenues 10,015 10,807 10,488 10,985 11,707 13,004
Growth 21.4% 7.9% -2.9% 4.7% 6.6% 11.1%
COGS (2,070) (2,039) (2,213) (2,353) (2,474) (2,582)
S., G., & Adm. Expenses (1,698) (1,732) (1,880) (1,999) (2,248) (2,506)
Ongoing Provisions. (252) (190) (209) (222) (233) (244)
Other Operating Expenses (1,361) (1,776) (1,949) (2,072) (2,180) (2,274)
EBITDA 4,635 5,070 4,236 4,339 4,571 5,399
Growth 24.8% 9.4% -16.4% 2.4% 5.4% 18.1%
EBITDA Margin 46.3% 46.9% 40.4% 39.5% 39.1% 41.5%
Depreciation (1,535) (1,677) (1,693) (1,694) (1,690) (1,700)
Amortization (125) (230) (237) (231) (231) (228)
Reported EBIT 2,976 3,163 2,307 2,414 2,650 3,472
Non-Operating Items 165 101 83 87 95 125
Net Interest (546) (688) (613) (342) (235) (114)
Net Profit Before Tax 2,595 2,577 1,777 2,160 2,511 3,483
Income Tax (499) (536) (355) (432) (502) (696)
Net Profit After Tax 2,096 2,041 1,422 1,728 2,009 2,786
Extraordinary Items (126) (3) 60 0 0 0
Minority Interest (1) (0) (0) (3) (6) (8)
Net Income 1,969 2,038 1,482 1,724 2,003 2,778
Non-Appropriation Items (160) (162) (118) (137) (159) (221)
Net Attributable Income 1,809 1,876 1,364 1,587 1,844 2,557
EPS (EGP) 18.1 18.8 13.6 15.9 18.4 25.6
Growth 19.6% 3.7% -27.3% 16.4% 16.1% 38.7%

Balance Sheet (EGP mn) 2008a 2009a 2010e 2011f 2012f 2013f
Cash 650 814 2,332 2,271 2,335 3,271
Net Trade Receivables 253 303 294 308 328 364
Inventory 166 125 121 127 135 150
Other Current Assets 519 628 609 638 680 756
Total Current Assets 1,588 1,869 3,357 3,344 3,479 4,541
Net Fixed Assets 7,870 8,911 10,141 10,498 10,825 11,103
Other LT Assets 4,200 3,859 2,733 2,502 2,271 2,043
Non-Current Assets 12,070 12,770 12,874 13,000 13,096 13,146
Total Assets 13,658 14,640 16,231 16,344 16,575 17,687

Short Term Bank Debt 375 559 317 325 338 367
CPLTD 327 407 798 998 929 1,065
Dividends Payable 709 889 1,068 1,137 1,359 2,026
Other Current Liabilities 3,908 4,630 4,669 4,793 5,006 5,451
Total Current Liabilities 5,319 6,486 6,852 7,253 7,633 8,909
Long-Term Debt 4,848 4,013 3,215 2,217 1,288 223
Issued Bonds 0 0 1,500 1,500 1,500 1,500
Other LT Liabilities 1,607 1,350 1,456 1,580 1,717 1,867
Non-Current Liabilities 6,455 5,363 6,172 5,297 4,505 3,589
Paid in Capital 1,000 1,000 1,000 1,000 1,000 1,000
Total Shareholders' Equity 1,884 2,790 3,207 3,794 4,437 5,189

Net Debt (adjusted for Div. Payable & Cash) 5,609 5,055 4,566 3,906 3,079 1,910
Working Capital (3,731) (4,617) (3,495) (3,909) (4,154) (4,368)

Free Cash Flow (EGP mn) 2008a 2009a 2010e 2011f 2012f 2013f
NOPLAT 3,129 3,077 2,298 2,347 2,508 3,191
Depriciation 1,535 1,677 1,693 1,694 1,690 1,700
Gross Cash Flow 4,664 4,754 3,991 4,041 4,198 4,891
Gross Investments (2,728) (2,153) (2,575) (1,987) (1,893) (1,692)
Free Cash Flow Exc. Goodwill 1,936 2,600 1,415 2,054 2,305 3,199
Investment in Goodwill & Intangibles (2,240) 0 (0) 0 (0) (0)
Free Cash Flow Inc. Goodwill (304) 2,600 1,415 2,054 2,305 3,199
Non -Operating Cash Flow 862 (250) (868) 244 109 (722)
Free Cash Flow 557 2,350 547 2,297 2,414 2,476

Source: Mobinil financials & Jazira Capital estimates and projections

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 JAZIRA SECURITIES BROKERAGE MOBINIL
May 16, 2010
Equity Research

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