Du Presentation VK 29.05.2022.pdf

Emirates Integrated
Telecommunication PJSC
Report by: Vipul Khemka
Stock Rating Target Price
Accumulate AED 7.6
29 May 2022

Subsidiaries
Company Overview
Emirates Integrated Telecommunications Company PJSC is a public joint stock company with limited liability,
it provides fixed, mobile, wholesale, broadcasting, and associated telecommunication services primarily in
the United Arab Emirates.
The company provides its services under the du and Virgin Mobile brands. Emirates Integrated
Telecommunications Company PJSC was incorporated in 2005 and is based in Dubai, the United Arab
Emirates.
It operates through four segments: Mobile, Fixed, Wholesale, and Others. It also offers software
development, IT infrastructure, public networking, and computer systems housing services; outsourcing
services, as well as value added services for telecommunications; and operates as a telecommunications
reseller and third-party telecommunications providers.
Company Overview
Segments Services
Mobile
• Mobility services to the enterprise and consumer markets.
• Mobile voice and data, mobile content and mobile broadband WIFI.
• Mobile handset sales, including instalment sales
Fixed
• Wire line services to the enterprise and consumer markets.
• Broadband, IPTV, IP/VPN
• Business internet and telephony
Wholesale
• Voice and SMS to national and international carriers and operators.
• Termination of inbound international voice traffic
• International hubbing
Others
• Broadcasting services,
• International roaming,
• Site sharing
50%
20%
10%
20%
Emirates Investment Authority
Emirates International
Telecommunications Company
LLC
Mamoura Diversified Global
Holding PJSC
Other Public Shareholders
Shareholders
Segmental Information
du
EITC Investment
Holdings Limited
Telco Operations
FZ-LLC
Smart Dubai
Platform Project
Company LLC
EITC Singapore
PTE. LTD.
100%
100%
100%
100%
Emirates Integrated Telecommunications Company PJSC 29 May 2022

du®, UAE Telecom Industry
Threat of New Entrant:
High barriers to entry in the market due to the restrictions placed by the UAE Govt, Huge initial capital outlay
requirement, huge technological infrastructure requirement, cost advantage for existing players due to
economies of scale. All these factors makes threat of new entrant in market very low in this industry segment.
Industry Overview
Threat of Substitutes:
Customers can easily switch networks in UAE, there are two major players in the market which makes the threat
of substitutes for du® high. Creating brand awareness, providing quality service to enhancing customer loyalty
and keeping the pricing competitive can help diminishing the likelihood of switching to new mobile service
providers.
Bargaining Powers of Buyers:
Large number of homogeneous buyers leaves a little room for bargaining from the buyers, however presence of
Etisalat and low switching cost among present providers increases the impact of this threat. Product
differentiation and giving more freedom to buyers should be the best way to operate for present players.
Bargaining Powers of Suppliers:
In the UAE, the bargaining power of the suppliers is considerably low since only two players, viz. Etisalat and du®,
dominates the market. It provides the operators better terms to negotiate with its suppliers. Thus, the operators
enjoys bargaining power over their suppliers.
Rivalry Among Market Participants:
Despite the duopolistic market in the UAE environment, the intensity of competition between the market
participants is very high. Both the firms are working hard to retain their customer base and maintain their brand
image. Each firm is always trying to capture the customer base of other company by adopting several competitor
strategies. Also, there are very high exit barriers due the significant costs and Govt. regulations.
Porter Five Forces Analysis
The UAE has a strong mobile market, dominated by Etisalat and du. Both are majority-owned by
the government. In a bid to attract additional foreign investment, it was resolved in early 2021
that the stake held by foreigners in the two companies could be increased.
Etisalat and du have deployed LTE networks providing national coverage, while the 5G
penetration rate is the second highest globally after China. This has underpinned growth in the
mobile broadband sector and has enabled the strong development in the take-up of rich
content and applications, as well as m-commerce. To help increase the capacity of 5G networks
in coming years, and so keep up with data demand, the government has allowed for the GSM
networks to be closed down and for spectrum and other assets to be re-purposed for 5G by the
end of 2022.
The fixed-broadband network in the UAE is dominated by fibre, with DSL having a minor and
declining presence. This focus on a fully fibred infrastructure has also facilitated growth in e-
commerce and has supported the government’s long-term aim of transitioning the economy
from its dependence on oil to being knowledge-based and supported by digital services.
The country stands to benefit from having signed the Abraham Accord Declaration with Israel,
which aims to normalize relations between the two countries. Such benefits can be seen in the
agreement to enable local ISPs to access Bezeq International’s submarine cable infrastructure,
and so improve direct connectivity to Europe, South East Asia, and Africa. The UAE’s ISPs can also
access Bezeq International’s data centre in Tel Aviv, improving internet services.
UAE Telecom Industry
0.0 0.6 1.4
6.9
17.2
0.0
20.0
2018 2019 2020 2021 2022
Number of 5G connections in MENA
(in millions)
3.2 3.4 3.6 3.6 3.7
2
3
4
2018 2019 2020 2021 2022
Post paid connections in UAE (in
millions)
Source: Ericsson Source: Telecom Regulatory Authority UAE
Increasing Penetration of 5G and the Advent of
6G are Expected to Drive the Market
Mobile is Expected to Hold a Major Share

Competitive Landscape
Peer performance comparison
• The telecom industry in UAE is highly
regulated and is under the control and
supervision of the Telecommunications
Regulatory Authority (TRA).
• TRA regulates issuing licenses, enforcing
regulations, promoting e-government
initiatives, establishing access management
policy, resolving disputes, and ensuring
service quality and access equity.
• The UAE telecom market is consolidated,
with key players, such as Etisalat and du
occupying the majority of the market share.
• Also, individual players are deploying the
5G network by partnering with various 5G
infrastructure providers globally.
UAE Telecom Industry Competition Analysis
• The other main competitor for Du in UAE if Etisalat and the competitors in the region are
Saudi Telecom Company (KSA) and Mobily (KSA) and the relevant benchmark is DFM.
• Comparative performance of Du against its peers and the benchmark (DFM) are presented
for the TTM.
-20%
0%
20%
40%
60%
80%
100%
120%
27-May-21 27-Aug-21 27-Nov-21 27-Feb-22 27-May-22
Peer Performance Comparison
DU Etisalat STC Mobily
Benchmark performance comparison
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
DU DFM
Peer Rating Summary DU Etisalat STC Mobily
Rating Accumulate Reduce Buy Hold
Local Currency AED AED SAR SAR
Target Price 7.50 25.00 135.00 40.00
CMP 5.90 29.10 104.00 38.40
Potential Change (%) 27.1% -14.1% 29.8% 4.2%

Du SWOT Analysis
Transaction
Opportunities
STRENGTHS
OPPORTUNITIES
WEAKNESSES
THREATS
SWOT
Weaknesses
- Fall in subscriber base
- Complex purchasing process and weak
customer experience across digital
channels.
Strengths
- Enhanced capabilities in ICT sector
- Broad range of innovative offering
and initiatives
- Strong financials and balance sheet
- Strategic synergies from Du’s launch
of Virgin Mobile brand
- First VMware verified cloud provider
in the MENA region.
Threats
- UAE’s telecom market is highly
penetrated in both the fixed and
mobile segment
- High cost of building towers and
running operations
- Aggressive competition leading to price
war in Telecom industry
- OTT services tends to affect revenues
of telecom operators.
Opportunities
- UAE is the central hub for digital media
companies
- Government policy to improve ICT
development
- Providing digital innovative offering for
tech-savvy customers
- 5G enabling Internet of Things (IoT)

Du Performance Overview
• The analysts Conesus rating for the Du is Accumulate
• Du has reported a decline by 23.7% YOY in the Net profit reaching AED 1.01 Bn at the end of 2021, as
compared to AED 1.44 Bn in the same period last year. This drop was mainly due to a strong decrease
in the Gain on disposal of investment, besides an increase in the Marketing expense.
• Despite the lower profit, the Company has reported an increase by 5.4% YOY in the Total Revenues to
AED 11.68 Bn in 2021, up from AED 11.08 Bn in 2020, mainly driven by 10.7% YOY increase in the fixed
revenues that was supported by solid contribution from the Consumer segment, disciplined execution
of the broadband strategy, and a growth in the Enterprise segment, as well as a 15.5% YOY increase in
the Other revenues through a continuous growth in the Equipment revenues and wholesale revenues.
• This was partially offset by 2.8% YOY decline in the Mobile revenues standing at AED 5.3 Bn, down from
AED 5.45 Bn in 2020. Meanwhile, the Costs excluding D&A and Marketing expenses were up by 10.4%
YOY reaching AED 6.86 Bn in 2021, compared to AED 6.21 Bn in 2020.
• Therefore, the Gross profit slightly decreased by 1% YOY to AED 4.82 Bn in the year ended 2021, with a
Gross margin equal to 41.3%, down by 268 bps from 43.9% in 2020.
• Similarly, the Marketing expense has increased by 35.1% YOY to AED 204 Mn at the end of 2021. As a
result, the EBITDA has decreased by 2.2% YOY from AED 4.72 Bn in 2020, down to AED 4.62 Bn in 2021.
• Du has reflected a strong Liquidity position with a Total Liquidity of AED 5.58 Bn in 2021. Whereas the
Cash &Term deposits amount a 36% from the Total liquidity, and the rest 64% for the Undrawn facility
that stood at AED 3.57 Bn in 2021.
• The Capex was at the highest level to reach an AED 2.6 Bn, up by 39.1% YOY from AED 1.87 Bn in 2020,
mainly due a strong deployment in 2021 through covering 91% of population with 5G service,
continued transformation of IT and network infrastructure, and a continuous fiber deployment.
• In addition, the Operating free cash flow remained strong at AED 1.99 Bn in 2021, despite the decline by
24.5% YOY from AED 2.64 Bn in 2020.
• Finally, the Company proposed a final Cash dividend of AED 0.11 per share amounting to AED 498.62
Mn for the year 2021.
Du Earning Analysis
Profitability
Return on Invested Capital (ROIC) 11.11% 10.59% 13.61%
Return on Equity (ROE) 13.87% 13.15% 16.78%
Return on Asset (ROA) 7.16% 6.94% 9.08%
Efficiency
Inventory Turnover 76.10 92.37 76.03
Receivable Turnover 7.44 6.88 7.37
Payable Turnover 1.51 1.75 2.18
Total Asset Turnover 0.74 0.74 0.70
Equity Turnover 1.43 1.40 1.29
Cash Conversion Cycle (187.52) (151.15) (112.75)
Margins
Gross Margin 54.47% 44.06% 45.63%
EBITDA Margin 27.65% 26.92% 30.48%
Operating Margin 9.31% 9.03% 9.84%
Net Profit Margin 9.68% 9.42% 13.02%
Financial Health
Current Ratio 0.78 0.77 0.93
Quick Ratio 0.66 0.76 0.92
Cash Ratio 0.37 0.34 0.45
Cash Flow to Debt 0.77 0.74 0.56
Interest Coverage 11.87 11.09 14.15
Capital Expenditure to EBITDA 0.58 0.64 0.59
Leverage
Degree of Operational Leverage (TTM) 2.18 10.66 5.08
Degree of Combined Leverage (TTM) 2.34 11.30 5.40
Debt to Equity 0.18 0.18 0.20
Total Debt to Equity 0.29 0.28 0.27
Long Term Debt to Invested Capital 0.14 0.14 0.16
Total Debt to Invested Capital 0.23 0.22 0.21
Equity Multiplier 2.05 1.95 1.85
Key Ratios

Financial Snapshot
0%
20%
40%
60%
80%
100%
FY 2021 FY 2020 FY 2019
42% 47% 52%
33% 30% 25%
19% 18% 16%
6% 6% 7%
Mobile Fixed Wholesale Others
Segment Wise Revenue Breakdown
Key Performance Indicators
Fiscal Year 12 Months Ending
Mar-22 2021 2020
Start: 31-Mar-2021 Start: 31-Jan-2021 Start: 31-Jan-2020
End: 31-Mar-2022 End: 31-Dec-2021 End: 31-Dec-2020
Income Statement
Total Revenue 11,926,781 11,681,970 11,083,845
Revenue % Growth 2.10% 5.40% -11.95%
Gross Profit 6,496,763 5,147,268 5,057,616
Gross Margin 54.47% 44.06% 45.63%
Total Operating Profit/(Loss) 1,109,990 1,054,520 1,090,651
EBITDA (Analyst Normalized) 3,353,782 3,200,752 2,868,125
Net Income (Analyst Normalized) 1,180,007 1,125,872 1,213,514
EPS (Analyst Normalized) 0.26 0.25 0.27
Balance Sheet
Total Assets 17,144,880 16,679,346 15,867,247
Total Debt 2,429,719 2,424,986 2,308,623
Total Liabilities 8,800,425 8,147,459 7,297,835
Total Equity 8,344,455 8,531,887 8,569,412
Cash Flow
Cash Flow from Operating Activities, Indirect 3,035,316 825,031 826,168
Cash Flow from Investing Activities (1,518,874) (1,310,279) (202,416)
Cash Flow from Financing Activities (1,285,695) (1,292,863) (2,588,318)
Change in Cash 230,747 428,005 (53,785)
Amounts in thousands, AED (except Ratios,
Multiples & per share items)
Historical Financial Summary
Metrics Mar-2022 Dec-2021 Dec-2020
EPS 0.26 0.25 0.27
EPS Growth 4.1% 36.1% -22.8%
P/E 26.47 36.69 16.48
EV 29,873,247 31,167,331 26,701,802
EV to Revenue 2.56 2.75 2.31
EV to EBITDA (Analyst
Normalized) 9.33 10.83 8.17
Price to Book (PB) 3.45 3.65 3.07
Price to Cash Flow (PCF) 16.77 19.09 18.49

DCF Valuation
Cost of Equity (CAPM) Low High
US Bond Rate (Rf) 2.97% 3.25%
ERP 5.22% 5.70%
Beta (B) 0.9 1
Adj. for other risks 0.42% 0.42%
Cost of Equity (Rf + B* ERP + Other risks) 8.1% 9.4%
In AED Millions
Cost of Debt
Interest expense 104
Debt 2,430
Cost of Debt 4.3%
Tax Rate 55%
Tax adj. cost of Debt 1.92%
WACC (Median)
2 years avg. Debt 2,367
Market value of Equity 29,464
Weight of Debt (Wd) 7.4%
Weight of Equity (We) 92.6%
Cost of Debt (Kd) 1.92%
Cost of Equity (Ke) 8.73%
WACC (Kd * Wd) + (Ke * We) 8.23%
Low
High
Median
AED 8.22
AED 9.09 AED 10.14
DCF Price Range
In AED Millions
In AED Millions
In AED Millions
Projected Financial Performance Dec-21 Dec-22 Dec-23 Dec-24 Dec-25 Dec-26 Dec-27 Dec-28 Dec-29 Dec-30 Dec-31
Revenue 11,682 12,161 12,100 12,681 13,011 13,336 13,603 13,875 14,152 14,435 14,724
% Growth 5.4% 4.1% -0.5% 4.8% 2.6% 2.5% 2.0% 2.0% 2.0% 2.0% 2.0%
EBITDA 4,914 4,917 5,076 5,206 5,335 5,442 5,550 5,661 5,775 5,890
% of Revenue 40.4% 40.6% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
D&A (2,072) (2,057) (2,023) (2,043) (2,060) (2,101) (2,143) (2,186) (2,230) (2,274)
EBIT 2,842 2,860 3,053 3,163 3,275 3,341 3,407 3,475 3,545 3,616
Proforma Taxes (853) (858) (916) (949) (983) (1,002) (1,022) (1,043) (1,063) (1,085)
NOPAT 1,989 2,002 2,137 2,214 2,292 2,339 2,385 2,432 2,482 2,531
Capital Expenditure (2,046) (2,043) (1,522) (1,431) (1,466) (1,473) (1,457) (1,465) (1,465) (1,462)
% of Revenue 16.8% 16.9% 12.0% 11.0% 11.0% 10.8% 10.5% 10.4% 10.1% 9.9%
NWC 83 (11) 103 57 57 47 48 49 50 51
(+) D&A 2,072 2,057 2,023 2,043 2,060 2,101 2,143 2,186 2,230 2,274
Free Cash Flows 2,098 2,005 2,741 2,883 2,943 3,014 3,119 3,202 3,297 3,394
% Growth -4.4% 36.7% 5.2% 2.1% 2.4% 3.5% 2.7% 3.0% 2.9%
WACC 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23% 8.23%
PV of FCF 1,939 1,712 2,162 2,101 1,982 1,876 1,793 1,701 1,619 1,539
Sum of present values of FCFs 18,424
Terminal Value
Growth in perpetuity method:
Long term growth rate 2.0%
WACC 8.23%
Free cash flow (t+1) 3,462
Terminal Value FCF10* (1+g) / (Ke-g) 55,599
PV of TV 25,219
Enterprice Value 43,643
Debt 2,430
Equity Value 41,214
# of outstanding shares 4,533
Price per share 9.09
In AED Millions

Other Valuation Models
Transaction
Opportunities
Dividend Discount Model
Metrics Current Market Price PE
DU AED 5.95 23.58
Etisalat AED 29.40 26.95
STC SAR 104.00 18.25
Mobily SAR 39.00 25.45
Ooredoo QAR 7.25 45.05
Industry Average PE 27.86
Current EPS AED 0.25
Target Price AED 6.96
Metrics High Low Conclusion
Adjusted Dividend (AED) 0.25 0.25 0.25
Perpetuity Growth Rate 1.8% 2.3% 2.1%
Discount Rate 7.6% 8.8% 8.2%
Fair Value (AED) 4.36 3.92 4.13
Relative Valuation
Low Mid High
Benchmark LTM P/E Ratio 14.3x 24.4x 35.1x
Historical LTM P/E Ratio 12.5x 14.2x 36.2x
Selected P/E Multiple 22.3x 23.4x 24.6x
(x) LTM Net Income 1,155 1,155 1,155
(=) Equity Value (AED) 25,717 27,070 28,424
(/) Shares Outstanding 4,532.90 4,532.90 4,532.90
Fair Value (AED) 5.67 5.97 6.27
P/E Multiple Valuation
Low Mid High
Benchmark EV / LTM EBITDA 3.9x 9.9x 12.2x
Historical EV / LTM EBITDA 4.3x 8.2x 12.5x
Selected EV / LTM EBITDA 10.0x 10.6x 11.1x
(x) LTM EBITDA (AED) 2,633 2,633 2,633
(=) Implied Enterprise Value (AED) 26,458 27,851 29,243
(/) Shares Outstanding 4,532.90 4,532.90 4,532.90
Fair Value (AED) 5.84 6.16 6.47
EV/ EBITDA Multiple Valuation
In AED Millions
In AED Millions

Valuation Summary
• Most of the valuation methods used to determine the intrinsic value of the Du shares, reflects that the share is undervalued at its current market price and has
upside potential.
• The company has strong balance sheet but has a poor dividend history, which is resulting in a lower valuation for the Dividend Discount Model.
• Discounted Free Cash Flow (DCF) method is the most comprehensive hence for determining a weighted average fair value for Du, a weight of 50% has been allowed
to DCF method and all other methods are given an equal weight of 10% each.
• The weighted average fair value of Du is approximately AED 7.6 per share, which offers a 29% upside over the current market price.
52 weeks Trading Range
Current Analyst Forecast
Relative Valuation
Precedent Transaction Valuation
DCF Valuation
DDM Model
P/E Multiple
EV/ EBITDA Multiple
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Valuation Football Field
5.28 7.28
7.58
6.21
6.96
1.36
8.22 10.14
Share Price in AED
3.92 4.26
5.67 6.27
5.84 6.47
Valuation Models Low High Median Weight
Analyst Forrecast 6.21 7.58 6.895 10%
Relative Valuation 6.96 10%
DCF Valuation 8.22 10.14 9.18 50%
DDM 4.36 3.92 4.14 10%
P/E 5.67 6.27 5.97 10%
EV/ EBITDA 5.84 6.47 6.15 10%
Weighted Average Fair Value
(AED) 7.60
Current Market Price 5.9
Upside Potential 29%
P/E Multiple Valuation
In AED

Purchase Price Allocation
Purchase Price Allocation
Equity Purchase Price (Current EV) 29,873,247
Assets Book Value Assumed Fair Value
adustement
Fair Value
adjustement
Fair value
Property, plant and equipment 8,955,191 10% 895,519 9,850,710
Right -of-use assets 1,603,496 10% 160,350 1,763,846
Intangibles and Goodwill 854,866 - 854,866
Lease receivable 128,134 - 128,134
Investments accounted for using the equity method 21,700 10% 2,170 23,870
Financial asset at fair value through other comprehensive income 18,368 10% 1,837 20,205
Contract assets 327,726 - 327,726
Trade and other receivables 82,691 - 82,691
Current assets
Inventories 64,526 - 64,526
Lease receivable 19,623 - 19,623
Contract assets 456,678 - 456,678
Trade and other receivables 2,093,287 - 2,093,287
Due from related parties 58,345 - 58,345
Term deposits 1,674,082 - 1,674,082
Cash and bank balances 786,167 - 786,167 18,204,756
Non-current liabilities
Lease liabilities 1,507,001 - 1,507,001
Contract liabilities 238,703 - 238,703
Provision for emp loyees' end of service benefits 239,114 - 239,114
Other provisions 202,122 - 202,122
Current liabilities -
Trade and other payables 5,232,630 - 5,232,630
Lease liabilities 722,718 - 722,718
Contract liabilities 449,225 - 449,225
Due to related parties 8,912 - 8,912
Borrowings 200,000 - 200,000 8,800,425
Less: Goodwill (part of intangibles and goodwill) 413,220
Recognized Goodwill 20,055,696
In AED ‘000

Du Presentation VK 29.05.2022.pdf

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