MTelekom posts strong 2005 results, targets above 3% revenue growth in 2006 & 2007
MTEL’s 4Q05 results were a touch above our, and consensus, estimates. More importantly, the company is guiding for above 3% revenue growth in 2006 and 2007. Consolidated revenues for 4Q05 grew 6% to HUF 161.3bn, versus HUF 151.7bn in 4Q04, and against our forecast of HUF 158.7bn. The 2005 consolidated revenues stood at HUF 620.7bn, a 3.2% y/y increase, versus our HUF 618.1bn forecast, as mobile continues to offset fixed-line pressure, growing 8.4% y/y to HUF 289.6bn. Fixed-line revenues continue to slowly turnaround, declining 0.9% y/y to HUF 331.1bn, versus the mid-single digit declines in the previous two years.
We view the stabilization of the fixed portion of fixed line revenues positively, contracting 0.5% y/y to HUF 105.7bn, versus the 3.3% decline in 2004. This confirms our view that the migration from traffic to access based revenues should slow fixed line deterioration as traffic continued to migrate either to mobile, IP platforms, or other networks, falling another 10.3% y/y, and lines continue to get churned (5% in 2005). Importantly, some 66% of Magyar’s fixed customers are now on flat rate packages, further protecting the company’s fixed revenue stream from further tariff declines and line churn. Broadband continues to drive fixed-line growth, growing 25% to HUF 63.7bn, on a 19% y/y rise in DSL lines installed.
Mobile revenues grew 8.4% y/y on the back of a 4% rise in the number of subscribers, a 10% increase in MOU, and a broadly flat ARPU at HUF 4,917. We note that 7.7% reduction in equipment sales as an indication that most subscribers are still at the beginning of their handset cycle, and would not expect handset replacements to be reflected in higher equipment revenues anytime soon. However, we also note that 31% fall in SAC, which we believe is rather impressive given that VOD is widely known to be pushing-up its market share. Whilst we view this trend positively, we would keep our forecasts for fairly flat SAC evolution in the medium-term as we believe that TMH will have to tweak up its retention costs to prevent loosing market share to VOD.
EBITDA expanded some 50 bp wider than we were expecting to HUF 249.9bn, a 40.3% margin, versus our expected 39.8%. Below the EBITDA, MTEL’s results were in line with our estimates, and therefore reported net income came in some 1.4% ahead of our expectation at HUF 80.13bn, versus our forecast of HUF 79.01bn, and consensus estimate of HUF 79.5bn.
Whilst the strong 2005 numbers are generally in-line with consensus, we expect the positive guidance to have a more material trading impact on the shares today as it could trigger some upgrades. Further, we believe the market will be looking for indications regarding dividends for this year at the conference call this afternoon. We reiterate our Buy recommendation on the stock and our HUF 1,150 fair value estimate.