• 2Q16 earnings beat estimate on lower-than-expected tax expenses 2Q16 earnings came in at OMR32mn, up 20% Y-o-Y and 9% above our estimate despite revenue and EBITDA being broadly in line with our estimates. The beat was due to lower-than-expected taxes as it continued to book taxes based on a 12% rate rather than the 15% announced by the government starting in 2016. Omantel will continue to book 12% until the official government decree is issued, but it is not clear whether the tax hike will be applied retroactively for 1H16; we are on the side of caution and maintain our tax assumption of 15% and assume it will be applied retroactively.
• Dividend in line; no hike in sight, as expected The board proposed an interim DPS of OMR0.040, in line with our forecast. We continue to believe that Omantel will not opt to hike dividends in 2H16 from OMR0.075/share due to ongoing investments in upcoming cable projects. Furthermore, we continue to expect a hike no earlier than 2018. The stock is trading at a FY16e EV/EBITDA of 5.1x, implying a modest discount of 8% to our MENA telecoms coverage. We reiterate our Neutral rating on Omantel, and maintain our view that the stock is unlikely to rerate until a dividend hike occurs.
• No further losses from Worldcall Following an unsuccessful attempt to sell its 56.8% stake in Worldcall Telecom Ltd. (WTL), management highlighted that the stake will most likely be sold in 2016. Omantel will not incur losses from the consolidation of WTL, nor incur additional impairment losses.
• Wholesale and fixed-line revenues offset decline in mobile revenue Total revenue was up 7% Y-o-Y due to strong growth in wholesale revenue (+42% Y-o-Y) and in fixed-line revenue (+6% Y-o-Y), driven by strong fixed broadband revenue. Mobile revenue started to show signs of weakness (-2% Y-o-Y) as Omantel booked lower handset sales in the quarter. The EBITDA margin stood at 50.1%, broadly in line with our estimate.

Karim Riad
Omar Maher