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FOCUS: Big 3 mobile operators seen to keep on showing solid results in H2

By Yekaterina Yezhova

MOSCOW, Aug 27 (PRIME) -- Retail proceeds and infrastructure contracts for the football championship pushed AprilJune revenue of Russias three leading mobile operators MTS, MegaFon, and VimpelCom higher, securing their future until the end of the year despite the costly data retention law, in force since July 1.

The first half of the year was very successful for the Russian telecom operators, and its difficult to single out the winner or the loser. They all showed increased average revenue per user (ARPU) thanks to higher data traffic and lower voice traffic. The countrys subscriber base remained flat. The competitive environment was stable and contributed to improvement of financial state of all companies on the market, Artyom Mikhailin, an analyst at investment company Veles Capital, told PRIME.

All operators raised costs to upgrade and build networks, in particular LTE and LTE-A, which entailed the lack of positive dynamics in cash flows. MTS showed the fastest growth rates of financial results with revenue rising by more than 7%.

We expect the first halfs trend to pursue until the end of the year and hope to see stable growth of financial results along with further recovery of the connection market in the country.

Investment prospects of the industry are moderately conservative in view of the operators high expenses, including on the data retention law, said head of the research department at investment company IC RUSS-INVEST Dmitry Bedenkov.

Below is a breakdown of the operators key figures on the home market for AprilJune:

MTS, bln rbl MTS, change y-o-y, % MegaFon, bln rbl MegaFon change y-o-y, % VimpelCom, bln rbl VimpelCom, change y-o-y, %
Total revenue 106.4 +7.4 80.7 +4.9 72.5 +6.0
Mobile revenue 78.4 +4.4 67.1 +4.4 57.6 +3.5
Fixed-line revenue 15.2 +0.2 7.9 +21.8 8.9 -10.0
Sales of goods 14.1 +40.2 5.7 -7.3 5.7 +107.2
Customers, mln 78.1 0 75.9 +0.1 56.4 -3.3

MTS

Investment group Aton said, Growing data usage and the stable base number of mobile subscribers supported (MTS) solid mobile service performance. Also contributing to the strong revenue growth was rocketing sales of goods, up 40.2%, supported by a favorable environment on the Russian market, an increased product range, and an instalment payment option.

Brokerage BCS said in a research note that expenses on fulfilment of the data retention law will be minimal this year, while the main part of expected spending of 60 billion rubles will be evenly distributed over four years and a half.

The law obliges connection operators to store talks and text messages of their subscribers for six months from July 1, while Internet traffic must be stored for 30 days from October 1.

U.S. sanctions looming over Vladimir Yevtushenkov, the core owner of multi-industry holding Sistema, MTS major shareholder, are exerting pressure on the operators stock, but do not seem to be in the way of its solid performance. MTS remained the most popular operator servicing half of the countrys citizens as of the end of June.

MTS will rebound if the sanction risks weaken, while the operators shares are seriously underestimated, we think, Mikhailin at Veles Capital said.

Common shares of MTS sagged 8.7% since the beginning of the year to 251.95 rubles on August 23 in Moscow and its American depositary receipts (ADRs) lost 26.3% to U.S. $7.48 in New York.

Bedenkov at IC RUSS-INVEST said MTS stock could become a favorite among telecom investors in the second half of the year as the only mobile operator name left on the Russian bourse after MegaFons possible delisting.

Money could flow from MegaFons shares into MTS ones that will support the latter and will enable it to show above-market dynamics, he told PRIME.

MegaFon

The operator showed the smallest revenue growth among the big three operators, a 4.9% rise against 7.4% at MTS and 6% at VimpelCom, but its fixed-line revenue spiked 21.8% against a 0.2% rise at MTS and a 10% decrease at VimpelCom mainly thanks to the provision of infrastructure for the FIFA World Cup the country held on June 14July 15.

The revenue of approximately 800 million rubles from a business-to-government contract under which we provided telecom infrastructure for the FIFA World Cup boosted wireline revenue significantly. Even without this impact, wireline revenue demonstrated growth on the back of our further expanding service portfolio, MegaFon said in its AprilJune statement.

Revenue from sales of equipment and accessories in AprilJune decreased 7.3% to 5.729 billion rubles due to a decline in the number of our retail outlets as a result of our decision taken in 2017 to reduce our distribution network.

The operator said its 2018 capital expenditures are to reach 7580 billion rubles to comply with the data retention law. According to earlier reports, MegaFon planned to spend 78 billion rubles on the law during the first year of its effect.

Mikhailin at Veles Capital said that the operators buyback of common shares and global depositary receipts (GDRs), in force from July 16 through August 22, and a following delisting from the London Stock Exchange (LSE) with a possible withdrawal from the Moscow Exchange are the most noticeable events in the local telecoms at the moment.

MegaFons shares see almost no influence from any other factors but the buyback and delisting from the LSE, the analyst said.

The operators common shares gained 26.6% since the beginning of the year to 649.40 rubles in Moscow on August 23 and its GDRs went up 2.9% to $9.52 in London.

VimpelCom

Total revenue of the operator, working under the Beeline brand, rose 6% driven by an increase in mobile service revenue and a strong growth in sales of equipment and accessories of 107.2% to 5.7 billion rubles, which was mainly attributable to the additional monobrand stores following the Euroset integration and rebranding since February 22, VimpelComs sole owner, Amsterdam-based VEON, said in its AprilJune report.

The current best estimate for the expenditures related to the data retention law in 2018 of about 6 billion rubles are expected to be recognized in JulySeptember and OctoberDecember, VEON said.

VimpelCom is not traded, while VEONs quotes will depend on completion of a deal with CK Hutchison on the sale of Italian assets and performance in Algeria and Bangladesh, shrinking of its debt burden and a growth of cash flows, Mikhailin at Veles Capital said.

VEONs ADRs plunged 28.4% since the beginning of the year to $2.78 on August 23 in New York.

(67.7911 rubles U.S. $1)

End

27.08.2018 10:07
 
 
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