du’s 3Q18 results were in line with our estimates at all levels; we saw no surprises and nothing to be concerned about, in our view. Revenue came in at AED3,331mn, climbing 6% Y-o-Y and standing in line with our estimate, driven mainly by “other revenues” (wholesale, broadcasting and others), which surged 19% Y-o-Y to AED973mn, and to a lesser extent fixed revenues, which grew 8% Y-o-Y to AED579mn; the company did not clarify what caused this sharp increase. Conversely, mobile revenue was almost unchanged Y-o-Y; last quarter we had noted that this would be the likely trend for the rest of the year, especially with seasonality affecting usage during summer. Earnings came in at AED441mn, in line with our estimate, falling 7% Y-o-Y; this is mainly the result of an exceptionally low amortisation charge last year, which inflated earnings; adjusting for it, earnings would look almost unchanged Y-o-Y.
 
Overall, we see this as a good set of numbers; revenue and margins are still pretty healthy despite slower growth in the economy and talks of expat departures. Next quarter should be better as a result of stronger demand trends, which is attributable to a few factors: i) expat families returning to the country after summer holidays to begin the school season; ii) increase in tourism Q-o-Q, especially with the start of the shopping festival; iii) increase in handset sales as the recently launched new devices (Apple, Samsung) begin to hit the shelves. The stock is currently undervalued, in our view, and our TP offers an upside of 33%; hence, we reiterate our Buy rating on the stock. Allowing foreign ownership is still the most important catalyst for the stock, we believe, but there is no visibility on when it might occur. 

Omar Maher

  
du (DU): AED4.90 as of 31 Oct. 2018, Rating: Buy, TP: AED6.50/share, MCap: USD6,052mn, DU UH/DU.DU