Turk Telekom - 3Q09 Results came better than consensus

Turk Telekom (TTKOM) posted TRY 548m net profit for 3Q09, slightly higher than the consensus estimate of TRY 533m, implying 16.2% y/y decline and 3.4% q/q increase. Margin expansion in the fixed line operations seems to be the main driver of the bottom line, despite a weak quarter for mobile operations.

Net revenues came at TRY 2,669m, inline with TRY 2.660m consensus, implying 1.9% y/y and 1.0% q/q growths benefiting from the 26% and 21% y/y increases in ADSL and mobile revenues. PSTN revenues declined by 16.6% y/y in the same period due to decline in PSTN lines and ARPL. The weight of mobile and ADSL revenues in TTKOM's total revenues increased to 46.3% in 3Q09, from 38.3% in 3Q08 and 43.5% in 2Q09.

EBITDA came at TRY 1,120m, better than TRY 977m consensus, implying 9.2% y/y decline and 6.5% q/q increase. EBITDA margin contracted by 510bp y/y and improved by 220bp q/q to 42.0% in 3Q09 from 47.1% in 3Q08 and 39.8% in 2Q09. The intensified competition in the mobile market and price wars have pressured down Avea's, mobile operator of TTKOM, EBITDA margins. Avea barely posted a positive EBITDA of TRY 11m in 3Q09 with an EBITDA margin of only 1.6%, which is significantly weaker than 24.8% in 3Q08. Fixed line segment continued to perform well in 3Q09, by accounting 99% of TTKOM's EBITDA and posting 56.1% EBITDA margin, significantly better than 52.1% in 3Q08.

Subscriber loss was inevitable in PSTN and mobile segments. TTKOM's number of PSTN lines continues to decline in 3Q09 to 16.8m, from 17.1m in 2Q09 and 17.7m in 3Q08. PSTN penetration was 24% based on total population. Avea also lost 300k subscribers in 3Q09, negatively affected from MNP and its total subscriber base declined to 12.1m from 12.4m in 2Q09.