du's first quarter numbers promise possibilities for greater returns by year-end
Its share price looks relatively expensive, but 5G prospects should justify this
The Dubai teleco du (or Emirates Integrated Telecommunications Company) reported first quarter 2021 revenues of Dh2.88 billion compared to Dh2.98 billion last year. The decline of 3.35 per cent can be attributed to pandemic-induced market factors.
However, revenues grew 5.2 per cent quarter-over-quarter, for a third consecutive quarter of growth and reflecting a gradual recovery for several business activities. Mobile revenues stabilized at Dh1.31 billion, owing to 1.9 per cent growth in subscriber base to 6.8 million. On a year-on-year comparison, mobile revenues showed a 12.7 per cent erosion, possibly due to a slight dip in average revenue per user.
It could be because international transit is still on the lower side, resulting in reduced buying pressure of prepaid services. Capex was recorded at Dh568 million (+83 per cent year-on-year), reflecting a continuation of the capital deployment plan. The company seems to be positioning itself for the expected 5G rollout by improving mobile coverage and capacity.
Despite the robust capital deployment, du appears to have a healthy generation of cash flow. Its operating cashflow was at Dh552 million during the quarter, and this is an increase from Dh162 million the previous quarter.
Comparing net profit with same period last year, a 27 per cent erosion has been witnessed with bottom-line at Dh257 million in contrast to Dh355m in Q1-2020. It indicates du hasn’t yet reached pre-COVID-19 levels.
Up and away
The stock has increased 14.5 per cent on a year-to-date basis, with low volumes observed in recent weeks. The company has a market capitalization of Dh29.78 billion with 4.53 billion shares outstanding. Effective February 23, du allowed non-UAE nationals, whether individuals or legal entities, to own up to 49 per cent to attract more investors.
du has been paying dividends from 2012. During this time, the size of the payments have not been stable. It paid Dh0.22 a share in 2019, but that fell to Dh0.15 per share for last year.du has a dividend yield of 4.29 per cent and a PE ratio of 21.68x compared to the 14.4x for the UAE market, indicating its share price is higher relative to its earnings.
du could continue looking at monetizing their infrastructure investments, particularly the 5G network. The penetration of 5G handsets still seems relatively low, but network utilization will improve, boosting du's revenue and profit figures.
UAE’s wide vaccination programme, a drop in the COVID-19 cases gradually and the Expo could give a significant boost to international travel, resulting in a pick up to du's third- and fourth quarter revenue figures, driven by increased prepaid usage. The outlook is promising.