Revenue – KWD156mn, -6% Y-o-Y, +1% Q-o-Q, +2% vs. EFGe
EBITDA margin – 36.7%, +5.3pp Y-o-Y, -1.3pp Q-o-Q, -0.6pp vs. EFGe
Net income – KWD8.5mn, +178% Y-o-Y, -3% Q-o-Q, +1% vs. EFGe
 
Ooredoo Kuwait reported 2Q19 headline results, showing no surprises across most numbers. Net profit totalled KWD8.5mn, exactly in line with our estimate and up almost threefold Y-o-Y, suggesting some improvement in cost optimisation, barring the positive effect of IFRS 16 on operating margins. We note that earnings had declined slightly Q-o-Q, primarily because of the deteriorating business environment in Algeria, we believe. Revenues continued to shrink across the board, on an annual basis, in line with our expectation, with the company citing a broad shift from traditional voice/SMS services toward data as a key reason for revenue decline; we see this as an indication that the company, perhaps, did not focus enough on the data segment. Both group revenue and EBITDA were in line with our estimate, as worse-than-expected EBITDA performance in Algeria was offset by a surprising one in Tunisia, despite a 21% Y-o-Y depreciation in the TND. Overall, we still have concerns over the operating health of certain subsidiaries (namely Algeria), mainly because of their challenging environments, but we believe this is more than priced in at current levels. We have a ‘Buy’ rating on the stock, and our TP implies an upside of c53% from the current price. We believe Ooredoo Kuwait’s trading multiples are attractive, standing currently at a 2019e EV/EBITDA of 2.3x and a dividend yield of 7.7%.
 
Group revenue fell 6% Y-o-Y to KWD156mn (+2% vs. EFGe), pressured by a decline in revenues across all opcos. Both the largest constituents, Kuwait (36% of revenues) and Algeria (35%), showed revenue declines of roughly 7% Y-o-Y, with Algeria affected negatively by a weak economic environment, DZD devaluation (3% Y-o-Y) and price competition, according to the company; KWD-denominated revenues from Tunisia were also affected negatively by a 21% depreciation in the TND, even though revenues were up 9% Y-o-Y in local currency terms. Group revenue was up 1% Q-o-Q, as sequential revenue drops in Algeria and Maldives were offset by recoveries in Kuwait, Tunisia and Palestine. 
 
Group EBITDA grew 10% Y-o-Y to KWD57mn (-0.2% vs. EFGe), implying a margin of 36.7% (+5.3pp Y-o-Y, -0.6pp vs. EFGe). We note, however, that EBITDA margins were boosted by the application of IFRS16 accounting standards starting 1Q19, which distorted Y-o-Y comparisons. Both Kuwait and Tunisia showed approximately 11.5pp Y-o-Y increases in EBITDA margins, although - with the absence of sufficient disclosure - we cannot assess how many of these expansions were caused by actual improvements in operations vs. IFRS 16; management indicated that some of the positive impact came from the realisation of savings from the cost optimisation programme. On a sequential basis, which we see as more indicative, group EBITDA fell 2% Q-o-Q, driven mainly by weak margin performance in Algeria (-8.0pp Q-o-Q) and Maldives (-3.4pp Q-o-Q); this was met by a flat performance in Kuwait (+0.7pp Q-o-Q) and a slight improvement in Tunisia (+6.8pp Q-o-Q) and Palestine (+3.4pp Q-o-Q).
 
The group’s subscriber base grew 2% Y-o-Y to c26.6mn, driven by net additions across all opcos. The subscriber base fell 3% Q-o-Q on lower customers in Algeria, Tunisia and Maldives; Kuwait and Palestine showed flat Q-o-Q performance.

Omar Maher, Karim Sherif
 
Ooredoo Kuwait: KWD0.65 as of 25 Jul. 2019, Rating: Buy, TP: 1.00/share, MCap: USD1,070mn, OOREDOO KK/OORE.KW