MTEL's 4Q06 net profit came-in in-linewith our and consensus estimate at HUF 16.4bn (+21.8% y/y) on the back of a 13.5% y/y growth in revenues to HUF 176.7bn, some 4.1% ahead of consensus.
Revenues: Strong revenue growth was partly driven by increasingly stable fixed revenues, which were up 7.1% y/y to HUF 90.5bn as declines in voice revenues stabilise and broadband (+42.9% y/y) and new IT and Systems Integration businesses continue to drive growth. Mobile revenues were up21.1% y/y to HUF86.2bn, boosted by the remaining EDR revenues for booked for 2006 , which lifted sales by some 10bn. Traditional mobile revenues were stable and came in-line with our expectations as as ARPU remained stable y/y at HUF 4800on a 12% y/y MoU increase. Mobile subscribers posted a modest 5.7% y/y growth to 4.4m, (we were forecasting 4.1m) as market share remained largely stable at 44.5%.
EBITDA: showed a marginal 1.6% y/y growth to HUF66.0bn, and was 11.5% ahead of our estimate due to the higher revenues. Additionally, a change in accounting allowed MTEL to re-allocate local tax charges (some HUF 8.5bn) from "other operating costs" above the EBITDA line to the Income tax line. Therefore, adding back that amount, EBITDA comes to some HUF 58bn, slightly short of our, and consensus expectation of HUF 59bn. Opex was largely in-line with our estimates due to the lower-margin nature of the EDR revenues, which increased the cost of telecom equipment sales.
Financial expenses: came in significantly below our estimate due to lower debt position, and more favourable interest rates than our forecast.
Tax rate: following the tax re-allocation, tax costs can now be expected as 16% statutory tax + HUF 8.0-8.5bn average local tax (depending on net revenues). For FY06, the effective tax rate worked out at 21%.
Overall, we view the results positively as the underlying revenue and profit drivers remain strong. However, we believe the market is likely to hold-off for firmer indications of dividend payment for 2007.