• Earnings beat likely on non-operating item Earnings came in at KWD10.2 million, more than double our estimate, despite revenue and EBITDA both being in line. We suspect the earnings beat will have been due to a non-operating item below EBITDA. Kuwait is still recovering at a steady rate, with revenue up for the sixth consecutive quarter (+13% Y-o-Y, +2 Q-o-Q) following the restructuring of the unit and modernisation of its network; however, this did not filter down to the operation’s EBITDA margin; there are no details on margin contraction, but we suspect it was a result of increased selling and marketing costs as the company continues to market aggressively for its latest generation of high-speed services. We do not expect low margins to be a recurring issue, as cost optimisation efforts will likely offset part of the higher opex.
• Buyers on attractive valuation; DPS could surprise positively again We reiterate our Buy rating on the stock as it trades at a 2016e EV/EBITDA of 3.3x, a 42% discount to our MENA telecoms coverage. We believe FX volatility in Algeria and Tunisia, as well as strong competition in Kuwait, are more than priced in. Also, Ooredoo Kuwait offers one of the highest yields (8.5% in 2016e) in our MENA telecoms coverage. We note that the company had surprised positively with a hike in cash dividends for FY2015 to KWD0.100/share, which we believe was due to parent Ooredoo Group’s upcoming debt repayments of cUSD1.0 billion in 2016 and 2017 each. The high dividend pay-out by Ooredoo Kuwait, if sustained or increased, should act as a catalyst for positive share price performance.
• Algeria and Tunisia challenging In Algeria, revenue was down 7% Y-o-Y despite efforts to capitalise on the 3G advantage; we see this as evidence of competition remaining intense. On a more positive note, EBITDA margin recovered Q-o-Q, which could imply some rationalisation of aggressive marketing spending, in our view. In Tunisia, the worsening macro-economic situation and depreciation of the TND continue to affect the operation.

Omar Maher
Karim Riad