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[This document has been prepared by the Research Team of EBL Securities Limited (EBLSL) for information only of its clients. No part of this report should be copied or used in any other report or publication or anything of that sort without prior written permission taken from the authorized publisher of this report] Equity Valuation Report on Grameenphone Limited

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Page 1: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

[This document has been prepared by the Research Team of EBL Securities Limited (EBLSL) for information only of its clients. No part of this report should be copied or used in any other report or publication or anything of that sort

without prior written permission taken from the authorized publisher of this report]

Equity Valuation Report on

Grameenphone Limited

Page 2: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd.

Last 3 years’ CAGR- 63.7% in data subscription

Last 3 years’ CAGR-74.6% in data revenue

Current Price471.4

480.0Target Price

0.0 %

20. 0%

40. 0%

60. 0%

80. 0%

100 .0%

120 .0%

140 .0%

2012 2013 2014 2015 2016 2017(HY1)

108%129%

108%96% 105% 98%

HISTORY OF SOUND DIVIDEND PAYOUT RATIO

4G/LTE technology will accelerate thedata subscription growth and revenue

Continuous OPEX reduction will enhancethe profitability margins further

67%

13%

3%4%

8%5%

REVENUE COMPOSITION OF GP (2016)

Voice Traffic

Data

CustomerEquipmentOther Revenue

Market Leader45% Market Share

49.8%46.9% 46.6% 45.5% 44.2%

2013 2014 2015 2016 2017 9M

OPEX* TO SALES RATIO

Market Capitalization

BDT 637 billion

Market Weight

15.1%

Paid Up Capital

BDT 14 billion

Expected EPS (2017)

BDT 22.2 (Growth 33.0%)

Rating: Market Weight

Rating Validity: Up to June, 2018

Robust growth in data subscriptioncontinued

*Excluding Depreciation & Amortization

Page 3: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. DSE: GP BLOOMBERG: GRAM:BD Re-initiation Report Target Price: BDT 480.0, Current Price: 471.4 Rating: Market-weight Valuation date: 30st November 2017

Analyst:

Mohammad Asrarul Haque [email protected]

Disclaimer of EBLSL & the Analyst, key terminologies and the stock rating definition is located at the end of this report

Market Cap (BDT million) 636,531

Market weight (Equity) 15.1%

Paid-up Capital (BDT million) 13,503.0

Free-float Shares (Inst.+For.+Public) 10%

52-week price range (BDT) 281.5-506.9

2015 Act. 2016 Act. 2017 Exp. 2018 Exp.

Financial Information (BDT million):

Net Sales 104,754 114,862 130,781 141,732

EBITDA 55,971 62,564 77,420 82,839

EBIT 36,964 41,566 54,118 58,899

Profit After Tax 19,707 22,526 29,959 31,839

Total Assets 132,450 130,500 127,893 151,202

Long Term Debt 18,964 13,556 8,487 27,231

Total Equity 30,625 33,572 37,373 37,480

Retained Earnings 9,266 12,213 16,013 16,120

Cash 4,153 2,912 6,154 2,705

Dividend (C/B)% 140/0 175/0 230/0 250/0

Margin:

EBITDA 53.4% 54.5% 59.2% 58.5%

EBIT 35.3% 36.2% 41.4% 41.6%

Net Profit 18.8% 19.6% 22.9% 22.5%

Growth (YoY):

Sales 2.04% 9.65% 13.9% 8.4%

EBITDA 2.60% 11.78% 23.8% 7.0%

EBIT 0.18% 12.45% 30.2% 8.8%

Net Profit -1.35% 14.31% 33.0% 6.3%

Profitability:

ROA 15.0% 17.1% 23.2% 22.8%

ROE 63.6% 70.2% 84.5% 85.1%

Payout Ratio 95.9% 104.9% 103.7% 106.0%

PEG ratio -12.86 1.19 0.66 3.24

Leverage:

Debt Ratio 21.8% 16.6% 27.7% 37.3%

Debt-Equity 94.5% 64.5% 94.9% 150.4%

Int. Cov. Ratio 17.9 16.6 33.5 14.1

Altman Z-Score 3.3 3.9 6.4 5.3

Valuation:

EPS (BDT) 14.6 16.7 22.2 23.6

NAVPS (BDT) 22.7 24.9 27.7 27.8

Blended ARPU 155 162 171 175

Voice ARPU 113 112 116 112

Data ARPU 53 60 66 74

AMPU 244 258 268 275

APPM 0.64 0.63 0.65 0.64

P/E (x) 17.3 17.0 21.6 20.4

P/NAV (x) 11.2 11.4 17.3 17.3

EV/EBITDA 6.5 6.4 8.4 8.2

EV/Sales 3.5 3.5 5.0 4.8

Price/Sales 3.3 3.3 5.0 4.6

DPS 14.0 17.5 23.0 25.0

Sector Telecommunication

Rating Validity Up to June 2018

Potential Upside 1.8%

Exp. Dividend Yield (for July-Dec’17) 2.7%

We initiated a valuation on Grameenphone Ltd. based on Discounted Cash Flow and various other methods while assuming next 5-Years’ CAGR of revenue will be 8.1%. Currently, GP is traded at BDT 471.4 (as on 30th November 2017). In our valuation, the December target price of GP is determined at BDT 480.0 per share and GP is now fairly valued based on current

market price. We therefore recommend ‘Market-weight’ rating for the operator.

Grameenphone Ltd. (GP) is the leading telecommunication service provider in Bangladesh. The immediate parent of GP is Telenor Mobile Communications AS and the ultimate parent is Telenor ASA; both the companies were incorporated in Norway.

Rolling out of 4G/LTE technology will accelerate the data subscription growth & revenue: After launching 3G, data subscription in telecom industry has increased radically. Last 3 years’ CAGR of GP’s data subscription was robust 74.6% while revenue from data also grew at a 3 year CAGR of 63.7%. GP is poised to launch 4G after obtaining required approval from the regulator by the beginning of 2018. Revenue from data segment is expected to witness robust growth afterward.

Continued focus on OPEX reduction will enhance the profitability margins further: The operator is undergoing several operating cost minimization strategy by means of increased digitalization, staff cost reduction etc. OPEX (excluding dep. & Amort.) to sales ratio declined from 50% to 44% over the last 5 years.

Strong brand image and active subscriber base has positioned the company ahead of its rivals : GP holds strong brand image in the mindset of subscribers and most of the subscribers are loyal and considers GP as the main connection, even if they hold multiple connection. This enabled GP to charge higher prices on data and voice tariff compared to other competitors.

GP’s handsome dividend payout policy remains a strong catalyst for investors’ interest: GP disburses handsome dividend for its shareholders. Payout ratio remains almost 100% of its net earnings. The operator is expected to continue almost 100% of dividend pay-out ratio in the years to come.

Rigid regulatory environment along with some unresolved regulatory issues and penalties remained key bottleneck for the operator: GP has several contingent liability issues with the regulatory body.

As per the Latest 9M, 2017 earnings disclosure of the company, revenue grew by 13.1% on YoY basis while NPAT grew by 25.1% on YoY basis during the period. Meanwhile, OPEX (excluding dep. & Amort.) to sales ratio dropped to 41.8% against that of 45.4% during the same period of 2016. GP’s total subscriber base stood at 63.9 million and data user stood at 30 million as on September 2017. During the Q3, 2017 GP’s AMPU, ARPU and AMBPU was 257, 170 and 754, according to the company estimates.

Page 4: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

2 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Economy & Industry Review Stable macro-economic scenario driving the growth in Bangladesh Telecommunication Sector Growing GDP is also driving the country towards its digital growth. The economy of Bangladesh has been witnessing average 6% plus growth rate over the last decade and has run above 7% over the past two years while the economy is growing at an increasing rate over the last 5 years.

Bangladesh aspires to be middle income country by 2021, which will require increasing GDP growth to 7-8% per year. Continuous efforts of the government to further develop the power, energy and transport sector, may result in a better investment environment in the near future.

Post and telecommunication sector grew by 6.63% in FY 2016-17 (provisional) with 2.61% contribution to GDP (at Constant Prices) during the year, according to BBS data. According to industry insiders, a 1% increase in mobile penetration could lead to an increase in the GDP growth rate by 0.28%, while a 1% increase in internet penetration can lead to an increase of up to 0.077% in the GDP growth rate. Communication services, particularly the mobile phone based services (MPS) market continued to drive the telecommunications industry which led to the high growth of Post and Telecommunication sub-sector.

Favorable macro-economic indicators kept the country ahead of its other regional economies. Domestic interest rate is declining and single-digit lending rate is helping corporations to finance for capital investment at a low cost. Private sector credit is also experiencing growth. In the last 8 years, CAGR in foreign exchange reserve was 20.6%, reflecting the country's strength from the economic and financial point of view. Bangladesh usually needs a reserve of about 10 billion U.S. dollars to meet its import bills for three months in light of an internationally accepted standard.

Growing population along with large number of young and middle aged group population are accelerating the pace of growth in telecommunication industry: The country has a population of 168 million and is expected to grow by 1.04%. 35.8% of them reside in urban areas and the annual rate of change in urbanization is 3.19%. Increased urbanization is transforming the traditional structure of communication and with increased digitalization, the country is progressing towards more connectivity. Widespread access to internet is increasing and mobile phones have become part and parcel of everyday life. Young and middle-aged people are the major users of mobile communication devices and around 60% of the entire country belongs to these two groups.

Bangladesh Telecommunication Industry: A success story of 24 years

Source: Grameenphone Ltd.

27.76%

19.36%

39.73%

6.93% 6.23%

0.0 0%

5.0 0%

10. 00%

15. 00%

20. 00%

25. 00%

30. 00%

35. 00%

40. 00%

45. 00%

0-14 years: 15-24 years: 25-54 years: 55-64 years: >65 years:

Age Distribution Structure

Source: CIA (US Central Intelligence Agency) World fact book

6.6

0%

6.4

0%

6.2

0%

5.7

0%

5.6

0%

6.4

6%

6.5

2%

6.0

1%

6.0

6%

6.5

5%

7.1

1%

7.2

8%

7.4

0%

0.0 0%

1.0 0%

2.0 0%

3.0 0%

4.0 0%

5.0 0%

6.0 0%

7.0 0%

8.0 0%

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

FY2016

FY2017

FY2018E

GDP Growth Rate

Source: BBS & EBLSL Research

Rolling out 4G/LTE

2018

Page 5: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

3 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Bangladesh first put its footprint into the world of cellular device-based telecommunication in 1993 when the only operator, Citycell, started its journey with CDMA technology. Back in 1997, when Grameenphone started its operation as a village phone programme with GSM technology, having a mobile phone was a luxury in Bangladesh. But in the last two decades it has not only grown keeping pace with the economy but also has become an integral part of everyday life for

all classes of people. Bangladesh has the 9th highest number of mobile subscribers in the world according to the World Bank data but the country’s mobile subscriber base for both voice traffic and internet is still far below than that of other developing economies in the world that sinifies significant growth prospect for the industry.

A multi-SIM market with growing subscriber addition: Presently the penetration of telephone users, driven by

increased number of subscription, is increasing gradually and total number of subscription crossed 140 million threshold at the end of September 2017, according to the Bangladesh Telecommunication Regulatory Commission (BTRC). Meanwhile, due to bio-metric reregistration of SIMs in 2016, total number of active subscription dropped during the year as a number of subscribers did not complete the bio-metric reregistration within stipulated timeframe. In 2016, SIM re-registration through the biometric process has been a major development in telecom sector. In terms of performance, Grameenphone was ahead of other operators and 97% of its subscriber base re-registered through the bio-metric process.

The Bangladesh telecom market is mainly dominated by pre-paid customers and 99% of total subscriptions are prepaid, according to Grameenphone. Though industry penetration based on number of subscription is huge, a large portion of customer holds more than one subscription as one primary and others as secondary SIMs. However, about half of the entire population has yet to be connected with the mobile telecommunication network, also indicating that there is enormous room to grow. The real market penetration remained steady in the last three years as mandatory bio-metric SIM reregistration has slowed down the pace of new customer acquisition. If mobile network portability (MNP) is successfully introduced in the country, the total number of subscriptions may decline but real industry penetration is expected to continue its steady growth.

Number of Mobile Subscription (mn)

2012 2013 2014 2015 2016 2017*

GP 40.02 47.11 51.50 56.68 57.95 63.88

Robi 21.04 25.38 25.29 28.32 25.91 41.21

Banglalink 25.88 28.84 30.90 32.87 30.97 32.38

Airtel / Warid 7.05 8.27 7.51 10.71 7.92 0.00

Citycell 1.54 1.37 1.29 1.01 0.00 0.00

Teletalk 1.65 2.82 3.86 4.14 3.63 3.24

Total 97.18 113.78 120.35 133.72 126.39 140.71

Industry Net Addition 16.60 6.57 13.37 -7.33 14.32 *Up to September; Data Source: Bangladesh Telecommunication Regulatory Commission (BTRC)

Market Penetration of Telecom Operators in Bangladesh

2012 2013 2014 2015 2016 2017*

GP 25.70% 29.90% 32.31% 35.16% 35.71% 38.64%

Robi 13.51% 16.11% 15.86% 17.57% 15.97% 24.93%

Banglalink 16.62% 18.30% 19.38% 20.39% 19.08% 19.59%

Airtel / Warid 4.53% 5.25% 4.71% 6.64% 4.88% 0.00%

Citycell 0.99% 0.87% 0.81% 0.62% 0.00% 0.00%

Teletalk 1.06% 1.79% 2.42% 2.57% 2.24% 1.96%

Industry Penetration 62.40% 72.21% 75.50% 82.95% 77.88% 85.12% *Up to September; Data Source: World Bank Data, BTRC and EBLSL Calculation

Bangladesh has the 9th highest number of mobile subscribers in the world

Bangladesh has the 9th highest number of mobile subscribers in the world

44%

46%

51% 51% 51%

43%

44%

45%

46%

47%

48%

49%

50%

51%

52%

2013 2014 2015 2016 Aug-17

Real Telecom Market Panetration

Source: Grameenphone yearly presentation

Source: Grameenphone yearly presentation

77.88

82.18

86.95

88.78

89.26

96.87

96.88

100.07

111.70

113.70

118.92

149.13

0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00

Bangladesh

Iraq

India

Bhutan

Myanmar

Turkey

China

Iran (I.R.)

Nepal

Egypt

Brazil

Indonesia

Mobile Subscriber Panetration(%) -2016

18.25

19.69

21.23

25.07

25.37

29.55

39.21

41.77

53.2

53.23

58.35

59.68

0 10 20 30 40 50 60 70

Bangladesh

Nepal

Iraq

Myanmar

Indonesia

India

Egypt

Bhutan

China

Iran

Turkey

Brazil

Internet Panetration (%) -2016

Source: International Telecommunication Union (ITU) & EBLSL Research; **Internet Subscription in Bangladesh was 40% as on December 2016 according to BTRC data

Page 6: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

4 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Along with stable voice traffic growth, market for mobile internet is keeping pace with high subscriber addition and increased penetration: Bangladesh has advanced significantly in internet connectivity and effectively led

major SAARC nations, with around 48% of the total population using internet for various purposes. As of September, 2017 there are around 140.70 million

active mobile subscriber in Bangladesh and 73.82 million mobile internet users in Bangladesh i.e., 52.5% of mobile users are now using internet. The number of internet subscribers increased to around 79.22 million at the end of September 2017. Of the total connections, 93.2% are through the mobile network, 6.7% through the internet service providers and only 0.1% through WiMAX that is available in cities. Grameenphone's per customer data usage in a month, as of March 2017 stood at 621 MB while that of Banglalink's 523 MB and Robi's 465 MB during the same period.

3G services getting momentum but yet below expectation: The regulator provided 3G license to 4 operators on 8th September 2013 under the 3G auction. Although, state owned operator Teletalk has been providing 3G services in Bangladesh since October 2012. By this time, operators have invested a big chunk of money (BDT 320 million) for providing 3G services in Bangladesh. As of June 2017, total 3G subscriber of the country stood at 49.66 million.

Grameenphone dominates the oligopoly market: With two mobile phone operators having merged and another

shutting down, a six-player market has turned out to be a four-player one, dominated by Grameenphone, Robi and Banglalink who together control 97% of the market. The telecommunication industry of Bangladesh is highly competitive in nature. Top three players are in a battle to acquire new subscribers with aggressive marketing strategy.

GP dominates the telecom industry with 45% of the total market share in terms of active mobile user as on August 2017. Banglalink was in the second leading position before the merger of Robi with Airtel. However, 8.2 million subscribers from Airtel have been added to Robi’s subscriber base as a result of the

merger that placed the operator into the second-leading position.

Service quality depends highly on allocated spectrum & frequency to operators: Currently, the spectrum of 900

MHz & 1800 MHz bands are allocated for second generation (2G) mobile service and the 2100 MHz band is allocated for 3G mobile services. In 2013, BTRC held a 3G auction where each MHz of paired spectrum in 2100 band was sold at USD 21 million against the base price of USD 20 million. Grameenphone (GP) bagged a 3G license for 10Megahertz (MHz) spectrum at USD 210 million, while Banglalink, Robi and Airtel each acquired 5MHz of spectrum at a price of USD 105 million. State-owned Teletalk also collected 10MHz of spectrum.

GP Banglalink Robi* Airtel* Citycell Teletalk

Standard G S M :

900/1800/2100 G S M :

900/1800/2100 G S M :

900/1800/2100 G S M :

900/1800/2100 CDMA 850 G S M :

900/1800/2100

Frequency 2G 22.0 MHz 15.0 MHz 14.8 MHz 15.0 MHz 8.82 MHz 15.2 MHz

Frequency 3G 10.0 MHz 5.0 MHz 5.0 MHz 5.0 MHz n/a 10.0 MHz

Launching Date: 2G 1997 1997 1997 2005/2010 1993 2004

Launching Date: 3G 2013 2013 2013 2013 0 2012 *As on pre-merger period; Source: EBLSL Research

Source: EBLSL Research

7.45

7.45.2

14.6

10

17.4

10 10

5

10 10

GP Banglalink Robi+Airtel Teletalk GP Banglalink Robi+Airtel Teletalk GP Banglalink Robi+Airtel Teletalk

900 MHz 1800MHz 2100MHz

Spectrum Distribution at Different Band

29.6

15.5

21.8

0.40

5

10

15

20

25

30

35

GP Banglalink Robi & Airtel Teletalk

Internet Subscription (mn) as on May 2017

Internet penetration now stands at 48% in Bangladesh

Source: BTRC, cited in The Daily Star & EBLSL Research

Top three players hold 97% of the market share with leading position seized by GP

Source: BTRC & EBLSL Research

Teletalk3% Banglalink

23%

Robi+ Airtel29%

GP45%

28

.8

29

.1

28

.3

29

.4

27

.8

31

.1

32

.3

32

.9

33

.8

34

.6

35.6

36

.1

49

.7

22% 23% 24% 25% 23%25% 26% 26% 26% 26% 27% 27%

37%

15%

20%

25%

30%

35%

40%

45%

0.0

10. 0

20. 0

30. 0

40. 0

50. 0

60. 0

Jun

-16

Jul-

16

Au

g-16

Sep

-16

Oct

-16

No

v-16

Dec

-16

Jan

-17

Feb

-17

Mar

-17

Ap

r-17

May

-17

Jun

-17

3G Users in Bangladesh (in MN)

3G subscriber 3G as % of total subscriber

Source: Posts & Telecommunications Division, GoB

Page 7: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

5 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

After completion of the merger, Robi Axiata Bangladesh with its two operating brands ‘robi’ and ‘airtel’ conjointly holds the highest spectrum allocation from all three bands. However, as a condition for the merger Robi-Airtel had to surrender 5MHz spectrum in the EGSM or 900 band that were previously allocated to Airtel.

Big operators are eying to forthcoming spectrum auction: The posts and telecommunications division (PTD) has

approved the guidelines for selling the spectrum of 2100MHz band and set USD 25 million as base price for

each MHz of airwave, according to a local daily. However, telecom regulator, BTRC wants to add premium over the base price for allowing technology neutrality on prevailing 2G frequency bands. The BTRC has also decided to slap on an additional USD3.2 million for per MHz of technology neutrality on the existing spectrum on the 1,800 and 900 bands. If technology neutrality is awarded in all existing 2G bands (i.e. 900 MHz & 1800 MHz), the operators will be able to offer 4G services at any band.

Launching of ‘Technology Neutrality’ will allow operators to provide better quality service at lower cost: According to mobile operators, technology neutrality would allow mobile operators to use the 900 MHz and 1800 MHz bands for 3G & 4G/ LTE services. As the 900 MHz and 1800 MHz bands provide better coverage than 2100 MHz, mobile internet services could be provided more efficiently in rural areas. The benefits of technology neutrality are manifold: more

efficient use of spectrum, better quality, speed and lower prices. Most EU governments, USA, Canada, Thailand, Pakistan, Malaysia and many other markets are experiencing tech neutrality.

According to the draft 4G guideline published on 04th July 2017, existing Cellular Mobile Phone Operator(s) in Bangladesh, who will obtain a 4G License shall be able to convert

their other remaining spectrum in other bands into technology neutral spectrum by paying conversion fees and/or charges with applicable VAT, Taxes and by following the terms, conditions, fees, charges and time frame provided by the Commission.

Forthcoming 4G license distribution will boost the growth of the industry further: 4G is the fourth generation of

wireless mobile telecommunication technology, succeeding 3G, as defined by the International Telecommunication Union (ITU). Since its first commercial launch in 2009, 4G has become the fastest developing system in the history of mobile communication in the world.

The posts and telecommunications division (PTD) has published the draft guidelines for rolling-out 4G services in Bangladesh. The below mentioned fees and charges are applicable for 4G services in Bangladesh:

The proposed BDT 1500 million bank performance guarantee has to be paid in two separate segments: BDT 750 million as rollout obligation and another BDT 750 million to clear future dues, if any. Under the rollout obligation, the operators will have to take 4G network to all divisional headquarters within the first nine months of getting the license and to district headquarters within 18 months, according to the guideline. They will get a total of three years to complete their rollout of 4G service across the country. If the operators comply with the obligations, they will get a refund of BDT 250 million in each segment. According to the management of a leading telecom brand of the country, 1800 MHz is the most suitable for providing 4G services.

The sector experiences rigid regulatory environment and high taxation: The telecom

industry is highly regulated and highly taxable sector in Bangladesh. Publicly traded/ listed corporations are imposed with a 40% income tax while unlisted telecom operators are exposed to

Available spectrum and recommended price by BTRC for auction

Spectrum band Spectrum available for auction Recommended Floor price per MHz

2100 MHz 15 MHz USD 27 mn

1800 MHz 10.6 MHz USD 30 mn

900 MHz 5 MHz USD 30 mn Source: Leading Local Newspaper Reports

VAT, TAX and other Regulatory Charges for Telecom Industry

Gross Revenue Sharing 5.5% of annual audited gross revenue

Social Obligation Fund 1% of annual audited gross revenue

SD on sale of new and replacement SIM 35%

VAT 15%

Supplementary duty (SD) & Surcharge 5% & 1% on sales

Income Tax 40% (For publicly traded companies) 45% (For non-listed companies)

Source: EBLSL Research

Proposed Fees & Charges* for 4G License

Application Fee/Processing Fee BDT 0.5 million

License acquisition fee (for 15 years) BDT 100 million

Annual License Fee BDT 50 million

Bank Guarantee Total BDT 1,500 million

Gross Revenue Sharing (for 15 years) 5.5% of annual audited gross revenue

Social Obligation Fund 1% (one percent) of annual audited gross revenue *Excluding fees, charges, VAT and taxes.; Source: Newspaper reports

Regulator is preparing for fresh auction of spectrum at various spectrum bands

Regulator is set to issue 4G licenses to existing as well as any new operator

Technology neutrality would allow mobile operators to use the 900 MHz and 1800 MHz bands for 3G & 4G/ LTE services

Page 8: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

6 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

a 45% income tax, a much higher rate compared to any other industry. Meanwhile, SIM tax has been changed to 35% in the amended budget declaration, which was earlier BDT100 for each new or replacement SIM. Besides, 5.5% of the revenue sharing will remain unchanged for the next 15 years as per the decision taken in a telecom operators’ meeting with Prime Minister's ICT Affairs Adviser.

Regulator fixes the voice traffic and data pricing limit: For regular voice calls, there is currently a BDT 2 ceiling and

a floor price of BDT 0.25 for each minute, which the regulator fixed in 2008 after a cost modelling analysis supported by the International Telecommunication Union (ITU). After a few years, the BTRC set the ceiling at BDT 0.50 for each local SMS and BDT 2 for international SMS. There is no lower price limit in this segment.

At present, the data service prices are set by the operators, with the regulator having no benchmark to check the rationality of the pricing. Meanwhile, the regulator is also planning

to fix the upper and lower price limit for mobile operators' data packages. The telecom regulator is formulating a pricing guideline for internet services.

Key Industry Insights: Rapid growth in industry penetration: The telecommunication sector of Bangladesh has been witnessing tremendous

growth in customer acquisition, resulting in increased market penetration over the year. As the country is progressing towards increased digitalization, with growth in per capita income and change in the life style of its citizens, mobile subscription has become a part and parcel of everyday life of its population irrespective of the income level. Most people now hold more than one mobile phone set and more than one subscription, which is also resulting in significant growth in market penetration.

Socio-economic and cultural transformation driven by increased globalization driving the growth of telecom sector: As the country is undergoing a transformation journey in terms of its socio economic factors, rapid changes have

been observed in the life-style of its population. Heading towards globalization is also reshaping the prevailing culture as well as trade and commerce. Connectivity has been an integral part of modern-day life, thus accelerating the growth in mobile communication and internet uses. Meanwhile, use of social media platforms like Facebook, WhatsApp, Viber etc. and video streaming sites like YouTube now became part of everyday life for all classes of people mostly among the young and middle-age group. And the use of such media is growing everyday, ultimately resulting in more and more use of internet data.

Unprecedented growth in data service revenue reshaping revenue pie of telecom industry players: With

increased smartphone market penetration and afterwards the launching of 3G services in the country mobile internet subscription witnessed tremendous growth in the country along with growth in overall internet penetration. Last 5 years CAGR in total number of Internet Subscribers in Bangladesh was 20.05% and that of Mobile internet was 19.83%. Contribution of data revenue to total revenue of the country’s leading mobile operator GP increased to 16.11% as on 2017 (up to 9 months) compared to meagre 2.95% in the year 2017, reflecting the overall industry scenerio. Currently, there are 90 million mobile phone devices in the country, according to industry experts. Use of smartphone in Bangladesh is growing in line with reduction in smart phone prices and increase in purchase power of people. According to Grameenphone Ltd., total smartphone penetration of the country stood at 28% as on August 2017. Along with branded smartphones, low cost Chinese phone are driving the growth. Besides, local manufacturers are also set to manufacture smartphones locally, which will bring affordability. Besides, prevailing 2G devices in the market are to be replaced with 3G & 4G enabled devices in the market which will bring more uses in Data.

Heading towards “Digital Bangladesh” vision by the government driving the growth in telecommunication industry: The government of Bangladesh is working towards accelerated use of information and digital communication

systems to materialize its “Digital Bangladesh” vision by 2021, which is directly driving the growth in internet uses in the country. Realization of this vision remains a political priority and is supposed to enable significant growth in local telecom industry. Nearly all of the government services are now online-based, and they are also implementing aggressive campaigns to educate the masses about internet use alongside offering IT-based training programs and increased access to information technology. These efforts are culminating into huge growth in internet uses. Meanwhile, 93% of the total internet subscription accounts for mobile internet and the market is growing due to increased smart-phone penetration in the country, which is directly helping mobile operators.

Broadband Master Plan

2018 70% internet penetration

2021 100% internet penetration Source: Internet Service Providers Association Bangladesh

The regulator is also planning to fix the upper and lower price limit for mobile operators' data packages as like voice and SMS tariff

Source: GP Investor Relation Department; Note (Currency converted from USD to BDT at USD 1= BDT 80.

12,000

4,800 3,200 2,640 2,640

7%

17%

22%25%

28%

0%

5%

10%

15%

20%

25%

30%

-

2,00 0

4,00 0

6,00 0

8,00 0

10,0 00

12,0 00

14,0 00

2013 2014 2015 2016 Aug-17

Avg. Smartphone Price (BDT) and Penetration

Smartphone price (BDT) Penetration

Page 9: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

7 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

The government is also working to take the rate of internet penetration in the country to 100% from present 47.9% by 2021, ensuring high speed broadband internet at cheaper rate to all the government offices, educational institutions, health centers and union parishads, expanding 3G network to all across the country and launching 4G.

More market players are poised to become enlisted with the capital market: Robi the second leading market

player in the industry with the highest spectrum holding to date, is expected to be listed with the capital market very soon. Interest from investors in this sector is likely to grow further with more operators in the capital market. Fresh development in regulatory landscape might bring changes in existing business operations of telecom operators: The government of Bangladesh and telecom regulatory body, BTRC is working to bring various new regulatory developments. Guidelines for 4G and Spectrum auction is yet to finalize, Tower sharing guidelines are under discussion where mobile operators are likely to lose the authority to set up towers under a new licensing regime where tower companies will own all the towers and provide services to the telecom operators, Telecom VAS guideline has been initiated where telecom operators are now entitled to offer Value Added Services (VAS), Mobile network operators are in discussion with regulator to finalize the process and technical readiness of MNP (Mobile Network Portability), and industry consultation is ongoing regarding cost modelling of data and revised voice tariffs.

The Telecom Sector Outlook of the Country: The mobile telecommunication industry in Bangladesh will continue to experience hefty growth amidst increased market penetration. The country has a large population base with steadily increasing disposable income,

consistent GDP growth, and low penetration of internet connectivity. The country is now undergoing a transformation period towards going more digital, that will have a major contribution from telecommunication industry and the industry will also enjoy a robust growth along with this transformation journey.

As more and more subscriber are joining the network and smartphone penetration is also increasing, growth in

telecommunication sector will remain. Steady population growth and increase in purchase power will continue to

drive the telecom sector growth.

Voice ARPU may remain steady in next few years and may decline in the long run but data ARPU is expected to

grow further in the years to come due to increased data consumption and new data subscriber addition.

Introduction of 4G will further amplify data service growth as service quality will increase and result in additional

data subscribers from rural areas within the shortest period of time. According to Grameenphone, 3G smartphone

users have 34% and 4G smartphone users have 116% higher ARPU than feature phone users due to higher uses

of data volume. So, with the launch of 4G, ARPU of the market operators are likely to increase significantly.

Source: Grameenphone Ltd. & EBLSL Research

Rigid and uncertain regulatory environment remains a key concern for the operators as strict regulation, high

taxation and several pending disputes with NBR need to be resolved.

Feature phone 150 MB data usage/month

3G Smartphone 950 MB data usage/month

4G/LTE Smartphone 2000 MB data usage/month

Data Uses Potential Based on Technology

Data Uses Potential Based on Technology

Page 10: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

8 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Company Fundamental Review & Analysis Grameenphone Ltd., a successful venture by Telenor Group, leading the local market for two decades

Grameenphone Ltd. (GP) is the leading telecommunication service provider in Bangladesh. It is the largest in terms of revenue, coverage and subscriber base. GP is a public limited company incorporated in Bangladesh in 1996 and commenced

commercial operation in 1997. The immediate parent of GP is Telenor Mobile Communications AS and the ultimate parent is Telenor ASA; both companies were incorporated in Norway.

GP mainly provides telecommunication services (voice, data and other related services) in Bangladesh. The company also provides international roaming services through international roaming agreements with various operators of different countries across the world.

Key Personnel: Petter Borre Furberg (Chairman), Michael Foley (CEO), Yasir Azman (Deputy CEO) and Karl Erik Broten (CFO)

Shareholding Pattern: GP offloaded 10% of its shares in the capital market by listing with DSE and CSE in 2009. Currently, 55.8% of the shares of the company are held by Telenor Mobile Communications AS, 34.2% of the shares are held by Grameen Telecom and rest 10% shares are held by various institutional and foreign investors as well as general public.

Detail Breakdown of Shareholding Structure as on 31st December 2016

Name of the Shareholders # of Shares %of Total

Telenor Mobile Communications AS 753,407,724 55.80%

Grameen Telecom 461,766,409 34.20%

Investment Corporation of Bangladesh 14,444,197 1.07%

Grameen Bank Borrower's Investment Trust 11,037,221 0.82%

A.K. Khan & Co. Limited 5,508,000 0.41%

ICB Unit Fund 4,307,278 0.32%

AB Investment Limited- Investors Discretionary Account: 12320 2,790,000 0.21%

Government of Norway 2,461,037 0.18%

Bangladesh Fund 2,373,683 0.18%

United Commercial Bank Ltd. 2,049,786 0.15%

JPMCB NA for JPM Lux A/C Schroder International Selection Fund 2,023,511 0.15%

NTC A/C Harding Loevner Frontier Markets Equity Fund 1,921,600 0.14%

Mellon Bank N.A. A/C Acadien Frontier Markets Equity Fund 1,566,259 0.12%

NTC A/C The Caravel Fund (International) Ltd. 1,420,000 0.11%

Grameen One: Scheme Two 1,400,000 0.10%

The Bank of New York Mellon AF UPS Group Trust 1,314,800 0.10%

ABERDEEN GLBL FRNTR MRKTS EQTY Fund 1,297,228 0.10%

Rupali Bank Limited 1,283,800 0.10%

SSBT A/C Aberdeen Frontier Markets Equity Fund 1,243,459 0.09%

BNSANV A/C Blackrock Froientire Investment Trust PLC 1,186,361 0.09%

Other 75,497,669 5.59%

As on December 2016 total 1,350,300,022 100%

Sponsor/Director Govt. Institute Foreign Public

As on Oct 31, 2017 90.00% 0.00% 4.45% 3.47% 2.08%

As on Jun 31, 2017 90.00% 0.00% 4.82% 3.14% 2.04%

As on Dec 31,2016 90.00% 0.00% 5.19% 2.40% 2.41% Source: DSE Website, Company Annual Report and EBLSL Research

Sponsor’s profile:

Telenor Mobile Communications AS (TMC): TMC is an indirectly wholly-owned subsidiary of Telenor ASA. Telenor ASA is the leading Telecommunications Company of Norway listed on the Oslo Stock Exchange. TMC owns 55.8% shares of Grameenphone Ltd.

In addition to Norway and Bangladesh, Telenor owns mobile telephony companies in Sweden, Denmark, Hungary, Serbia, Montenegro, Bulgaria, Thailand, Malaysia, Pakistan, India and Myanmar. Telenor has 214 million consolidated mobile subscriptions worldwide as of December 31, 2016.

Grameen Telecom (GTC): Grameen Telecom, which owns 34.2% of the shares of Grameenphone Ltd., is a not-for-profit company in Bangladesh established by Professor Muhammad Yunus, winner of the Nobel Peace Prize in 2006.

Leading telecommunication service providers in Bangladesh

Page 11: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

9 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Business Overview The company operates a digital mobile telecommunications network based on the GSM standard in the 900 MHz, 1800 MHz and 2100 Mhz frequency bands, under the license granted by the Bangladesh Telecommunication Regulatory Commission (BTRC).

Mobile spectrum licenses held by Grameenphone Ltd.

Spectrum Bandwidth (MHz) Expiry

900 MHz 2×7.4 2026

1800 MHz 2×7.2 + 2×7.4 2026

2100 MHz 2×10 2028

As of December 2016, the company’s network covers more than 99% of Bangladesh’s population with 2G services and more than 92% population with high speed 3G network. GP has 11,841 3G sites, whereas its closest competitor Robi has 8,575 3G sites as on September 2017. 95% of the company’s sites are now 3G-enabled. GP has currently 63.9 million subscribers, nearly half of the total mobile subscriber base in the country. It generates 222.5 million calls daily. Close to 30 million people use internet on its network. In the last two decades, Grameenphone has added 8,124 users per day on average. Now, 30,000 to 35,000 new customers are joining the network every day.

Grameenphone LTD: Key Data*

No of Subscribers (As on 22 October 2017) 64.0 mn

Mobile data Users (As on 30 Sep 2017) 30.0 mn

Nationwide Fibre Network (Including Leased from others) 5,881.0

Point of Sales (December 2016) 357,744.0

Product & Services Offering: Grameenphone is continuously diversifying its product offerings to retain its growing momentum in the digital marketplace. However, until now 64% of the company’s revenue are generated for voice traffic service, though data service revenue is continuously increasing its share of pie while contribution from voice traffic service is declining due to robust growth in data revenue. GP has been focusing on simplification of its voice call offerings and in line with this, several of the Voice Call packages has recently been discontinued. More than 98.5% of subscribers are prepaid package subscribers. Currently, in pre-paid segments only 3 packages are available. GP has increased call rates for each of the prevailing voice packages in this year that resulted into 10.3% YoY voice revenue growth in its latest quarter.

Pre-paid Packages

Nishchinto (Attractive Flat Rate for All)

Bondhu (Highest F&F Numbers)

Djuice (Exclusive Community Rate)

As on Oct-17 FnF : N/A GP to Any : 21 poisha/10 second 21 poisha/10 second

Pulse : 10 second SMS : 50 poisha / SMS

FnF : 1 Super FnF (5.5 poisha/10 second) & 17 FnF (11.5 poisha/10 second) GP to Any : 27.5 poisha/10 second

Pulse : 10 second SMS : 50 poisha / SMS

FnF : 10 FnF (11.5 poisha/ 10 second) GP to Any: 27.5 poisha/ 10 second Pulse : 10 second

SMS : 50 poisha/SMS

As on Oct-16 FnF : N/A GP to Any : 17 poisha/10 second Pulse : 10 second

SMS : 50 poisha / SMS

FnF : 1 Super FnF (5.5 poisha/10 second) & 17 FnF (11.5 poisha/10 second) GP to Any : 27 poisha/10 second

Pulse : 10 second SMS : 50 poisha / SMS

FnF : 10 FnF (11 poisha/ 10 second) GP to Any : 26.5 poisha/ 10 second, Pulse : 10 second

SMS : 50 poisha/SMS

As on Oct-15 FnF : N/A

GP to Any : 16.66 poisha/10 second Pulse : 10 second SMS : 50 poisha / SMS

FnF : 1 Super FnF (5.5 poisha/10 second)

& 17 FnF (11.5 poisha/10 second) GP to Any : 27 poisha/10 second Pulse : 10 second

SMS : 50 poisha / SMS

FnF : 10 FnF (11 poisha/ 10 second)

GP to GP : 26.5 poisha/ 10 second, Pulse : 10 second SMS : 50 poisha/SMS

Source: Grameenphone website & EBLSL Research

Along with those voice packages customized bundle packs and flexi plans (where customers can make their chosen voice and data bundle with chosen duration of validity) to offer customers with more simplified & user-friendly services.

GP has multiple data offerings ranging from 1 day to 30 days of validity and very small to large volume packs. Data price has been reduced over time in line with market competition. Despite the reduction in data prices, the company has been able to achieve robust data service revenue growth due to large addition to data subscriber base and increased data ARPU.

Besides voice traffic and data service offerings, the operator has also diversified its business in different VAS, GP online shop for selling mobile communication devices to end customers, financial services like GPAY and Mobicash along with several cloud based services including MyGp, WowBox and GP Music etc. app based digital services. Innovation in these digital services will reshape the business model of the operator in future.

Page 12: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

10 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

MyGP App: mobile application for digital self-care channel for customers to access all GP services, offers, bonus and rewards. Presently, GP has 1.6 million monthly active users for this app.

Flexi Plan: Subscriber can make chosen service bundles for talk time, Internet, SMS etc. based on own requirement. Currently, GP has 1.5 million monthly active users for this service.

WowBox: Lifestyle app providing easy access to internet, intuitive interface and a variety of local contents. Currently, the operator has 3.1 million monthly active users for this application.

GP Music: Application based music library along with the latest international releases. Currently, 227,000 active users uses this application.

Bioscope: One-stop shop for live TV and video on demand having 1.9 million monthly active users.

GP Online Shop: An online platform for ordering latest smartphones, gadgets with authentic manufacturer’s warranty having 1.7 million monthly active users.

Tonic: A digital healthcare service platform to drive convenience and access with the help of telecommunications and technology. Presently, the operator has 4.2 million monthly active users for this application.

Business Performance of GP:

Steady business growth driven by the increased subscriber base: GP managed to record steady revenue growth

over the years that was driven by an increase in number of subscribers, despite intense market competition among the six telecom service providers operating in the country. Currently GP is the largest telecom operator with a subscriber base of 63.9 million as of September 2017, which was 58.0 million in December 2016. Among the subscribers, 98.6% are pre-paid subscribers and 47.0% of the total subscribers are mobile data users, as of September 2017.

Growing market share placed the operator in the leadership position: GP has been maintaining leadership position in the telecom industry of Bangladesh since the last

two decades. It has the highest 2G and 3G coverage in the market, backed by large volume spectrum capacity. The market share of the operator experienced declining trend up to 2012 due to increased competition from other operators in the market. However, inauguration of 3G enabled the operator to further strengthen its position with growing market share. The market share of the operator increased to 45.4% in September 2017 from 41.2% in 2012. GP’s subscription base as well as market share increased despite the early inertia regarding the compulsory bio-metric reregistration.

Source: BTRC Data & EBLSL Research

Innovation & diversification of products & services driving the growth: GP is a pioneer in introducing new products

and services in the local telecom market. The operator was the first to introduce GSM technology in Bangladesh and mobile to mobile telephony and became the first company to cover 99% of the population. It introduced first 24-hour call centre, value-added services such as SMS, fax and data transmission services, international roaming service, SMS-based push-pull services, and personal ring-back-tone. The company is now working on e-commerce services and segments such as entertainment and plans to roll out more digital services.

44.0% 44.0%

42.7%

41.2% 41.4%

42.8%42.4%

45.9%45.4%

40. 5%

41. 5%

42. 5%

43. 5%

44. 5%

45. 5%

46. 5%

2,009 2,010 2,011 2012 2013 2014 2015 2016 Sep-17

Market Share of GP

Source: BTRC & EBLSL Research

40.047.1 51.5

56.7 58.063.9

9.7%17.7%

9.3% 10.0%

2.2% 2.2%

0.0 %

5.0 %

10. 0%

15. 0%

20. 0%

25. 0%

30. 0%

35. 0%

0.0

10. 0

20. 0

30. 0

40. 0

50. 0

60. 0

70. 0

Year 2012 Year 2013 Year 2014 Year 2015 Year 2016 Sep-17

GP Subsrciber

Total Subscriber (mn) Growth in GP subscriber

Page 13: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

11 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Spectrum Auction & 4G license Issue: GP has expressed its interest to participate in the auction for new spectrum in

1800MHz and 2100MHz bandwidth. To roll-out 4G and to participate in the forthcoming spectrum auction, the operator will have to spend around USD 400 million (BDT33,000.0 million) for spectrum charges, 4G license fees and other related fees and charges, according to newspaper reports, draft guideline for 4G roll-out and company management estimate. We expect that to meet its ongoing spectrum requirement for catering to the need of large number of subscribers, the operator will bid for purchasing around 10MHz of spectrum from various bands.

Core strengths & Business Outlook of Grameenphone Revenue contribution from voice segment is declining but still offers attractive growth potentials: The market

still offers growth potential in voice traffic segment as half of its entire population are yet to get connected with mobile network. In line with increased purchase power and affordability by the population, more subscribers are joining the network with increased minutes per user. GP has the widest network coverage in the country - 99% of the country’s population is under the network coverage of the operator. Besides, the operator is emphasizing on simplifying its voice call service offers and price perception among the customers is also increasing, all of those factors contributing to the healthy growth in voice segment.

The voice segment witnessed negative growth in 2015 due to intense price competition and voice bundle offers despite 10% growth in subscription and stable uses per subscription during the year. However, the company successfully revived the situation as it managed to retain its subscriber base and enjoy higher growth in later years. Thanks to the mandatory bio-metric reregistration of SIMs during the year 2016 and price hike of voice tariff.

To widen the market share, all the mobile operators including GP had to penetrate in the lower ARPU (Average revenue per user) generating segment. ARPU continued to decline over the years as the operator had to make downward price adjustment to support increased market competition. ARPU increased slightly in 2016 compared to that of 2015 as the operator has increased its voice call rates during the year with simplified product offerings.

Robust Growth in data segment is expected to continue and data will be tomorrow’s key contributor to the company’s revenue:

Since the implementation of 3G in the country, use of mobile internet increased significantly. GP’s data users increased from meager 4.6 million at the end of 2013 to 30.0 million by the end of September 2017. Countrywide 3G network expansion has been driving the high growth in Data Segment.

1.37% 2.11% 2.16%

-3.95%

5.08%

9.50%

-6.00%

-4.00%

-2.00%

0.0 0%

2.0 0%

4.0 0%

6.0 0%

8.0 0%

10. 00%

12. 00%

2012 2013 2014 2015 2016 2017 (9M-YoY)

Growth in Voice Traffic

Growth in Voice Traffic Linear (Growth in Voice Traffic)

Source: GP annual reports, quarterly disclosures and EBLSL research

17

6

16

5

15

5

16

2

16

9

24

9

24

3

24

4

25

8

26

0

0.71

0.68

0.64 0.63

0.65

0

50

100

150

200

250

300

Year 2013 Year 2014 Year 2015 Year 2016 9M 20170.5 8

0.6 0

0.6 2

0.6 4

0.6 6

0.6 8

0.7 0

0.7 2

ARPU, AMPU & APPM

ARPU (BDT) AMPU (Minutes) APPM

90126

284

488

624

0

100

200

300

400

500

600

700

2013 2014 2015 2016 2017 (9M-YoY)

Average Data Usage (MB Per Month)

4.6 10.815.7

24.5

30.0

9.8%

21.0%

27.7%

42.3%47.0%

0.0 %

5.0 %

10. 0%

15. 0%

20. 0%

25. 0%

30. 0%

35. 0%

40. 0%

45. 0%

50. 0%

0.0

5.0

10. 0

15. 0

20. 0

25. 0

30. 0

35. 0

2013 2014 2015 2016 2017 (Sep)

Data Users and Contribution to GP's total Subscriber Base

Mobile data Users (mn) Data subscriber as % of Total Users

Source: GP annual reports, quarterly disclosures and EBLSL research

3.0% 3.3%5.0%

8.1%

12.5%

16.1%

0.0 %

2.0 %

4.0 %

6.0 %

8.0 %

10. 0%

12. 0%

14. 0%

16. 0%

18. 0%

2012 2013 2014 2015 2016 2017 (9M)

Data Revenue Contribution

34.9%

16.9%

61.2%66.0% 69.7%

54.0%

0.0 %

10. 0%

20. 0%

30. 0%

40. 0%

50. 0%

60. 0%

70. 0%

80. 0%

2012 2013 2014 2015 2016 2017 (9M-YoY)

Data Revenue Growth

Data revenue growth Linear (Data revenue growth)

Source: GP annual reports, quarterly disclosures and EBLSL research

Page 14: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

12 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

GP’s revenue from data segment grew by 54% on YoY basis in the 9M of 2017 and data revenue accounted for 49% of the incremental revenue during the period. Last 5 Years’ CAGR in revenue from data segment was robust 48.3% and last 3 Year CAGR of data revenue was 63.7%, which depicts phenomenal performance in data service business by the operator. In 2016 revenue from data sales stood at BDT 14.4 billion which is 69% more than the preceding year. Increased internet penetration, cheaper smartphone devices and the government’s motive towards digitalization of the country will continue to generate huge growth in the data consumption. The growth in data revenue is expected to witness further momentum once the operator successfully roll-out 4G services in Bangladesh.

Growing focus on operating cost minimization with innovation and business model restructuring: Grameenphone has been successfully controlling its operating expenditures despite implementing countrywide network expansion. GP’s OPEX (excluding depreciation and amortization) to sales ratio declined from 49.77% in 2013 to 44.22% in 2017 (9M). Efficient market spending, reduction in operation and maintenance expenditures, lower subscriber acquisition cost, IT cost reduction through application optimization and virtualization and cost savings by workforce reduction etc. enabled the operator to control its operating expenditures.

The operator has been eventually reducing its work force by offering voluntary retirement schemes to control staff cost in the long run. The company has incurred BDT 1,011.2 million for voluntary retirement of 265 employees (10% of total employees) during the current year (2017) and BDT 944.6 million for voluntary retirement of 348 employees (11.6% of total employees) during the year 2016. Replacing technology against staff cost will help the company to reduce salaries & personnel expenditures for the coming years.

To control OPEX further, GP optimizing its shifting to digital media for market spending, digitalizing sales process, increased recharge through digital channels. Recharge through digital channels has increased to 11.6% from meagre 0.1% in 2013. GP has been working to make digital recharge more convenient and tools and processes have been redesigned to ensure efficiency of digital channels.

The operator is also working towards simplification of products and services that will result in reduced cost and digitalizing customer services. Customer hits in online-based self-service platform are increasing while calls in the call center are declining which will ultimately result in better customer service at reduced cost.

Meanwhile, GP has made fresh agreement with IT service provider ‘Wipro’ and looking into simplification of IT infrastructure systems, achieving efficiency in power solutions and site maintenance cost and having synergy from Telenor Group initiated projects.

Expanding 3G network Coverage strengthening the market position: GP has already made available high-speed

internet for more than 95% population of Bangladesh by extending its 3G service tower. Currently, there are more than 30,000 towers, of which GP owns 12,517 as on September 2017. Around 95% of the towers of GP are 3G enabled.

Fresh investment will improve service quality: GP continues to invest in network and technology to improve

capability and capacity. During January to September of 2017, the company invested BDT 9.9 billion to rollout more 3G sites, expand 2G coverage and enhance capacity to cater higher data and voice volumes as well as enhancement of IT infrastructure for better product and service offerings.

More pricing power generated by Robi-Airtel merger: Even though Robi has become the second-largest market

player in the industry with highest spectrum holding, it is not likely to pose any significant threat to GP. Rather, the threat of a price war by Airtel has become eroded due to reduced market competition, on which GP has already started capitalizing the opportunity with increase in the prices of its voice calls.

49.8%

46.9% 46.6%45.5%

44.2%

41. 0%

42. 0%

43. 0%

44. 0%

45. 0%

46. 0%

47. 0%

48. 0%

49. 0%

50. 0%

51. 0%

2013 2014 2015 2016 2017 9M

OPEX* to Sales Ratio

0.10% 0.50%

8.20%

10.40%11.60%

0.0 0%

2.0 0%

4.0 0%

6.0 0%

8.0 0%

10. 00%

12. 00%

14. 00%

2013 2014 2015 2016 2017 9M

GP's Recharge through digital channels(% of sales)

*OPEX excluding depreciation & amortization

0.1110.101 0.094

0.082

0.054

5 56

7

9

4

5

6

7

8

9

10

0

0.0 2

0.0 4

0.0 6

0.0 8

0.1

0.1 2

Q3,16 Q4,16 Q1,17 Q2,17 Q3,17

Call Center and Customers' Self Service Use

Call center daily calls (mn) Self service daily hits (mn)

Source: Grameenphone Ltd. & EBLSL Research

Page 15: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

13 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Other Issues relating to GP’s future performance:

Plan to set up new tower company: In February 2017, GP has urged the Bangladesh Telecommunication Regulatory Commission (BTRC) to set up a subsidiary company for network infrastructure. This effort will facilitate greater efficiency, maximize resource utilization, minimize duplication as well as ensure market competition.

Meanwhile, the Ministry of Posts, Telecommunications and Information Technology released the revised Tower Sharing Guideline on 10 Sep' 17 and the operators provided their feedback afterwards. The telecom industry has reiterated their existing legal rights to build, maintain, operate and co-locate towers.

Mobile Number Portability (MNP) Issue: MNP can be a crucial issue for mobile operators in Bangladesh as it makes it easier for customers to switch from one network to another. The probable impact over GP is difficult to measure as it has the strongest network all over the country though it charges comparatively higher call rate relative to other operators. Our view remains neutral regarding MNP on GP’s projected performance.

SIM Tax Issues: VAT Appellate Tribunal of the NBR has rejected the plea of mobile operator on June 22 for NRB’s Large Tax Unit’s (LTU) claim of BDT 10,323 million (excluding interest) for SIM tax alleging that GP evaded SIM tax by selling new connections in the name of replacement SIMs during 2007-2011. However, GP filed an appeal challenging the dismissal by VAT Appellate Tribunal at the High Court Division and hearing is yet to commence. Meanwhile, LTU has demanded fresh claim for SIM tax for BDT 378.95, that according to NBR, GP sold SIMs to new clients but reported replacement to original subscribers as there was no tax on replacement till June 2014. GP has replied by seeking hearing on the fresh claim. NBR Chairman formed a committee seeking recommendation for expeditious disposals of few pending lawsuits including SIM tax issue.

Investment Concerns

Currency & Interest Rate Risk: GP has significant exposure to foreign exchange rate as well as interest rate risk mainly because of its USD345 mn syndicated loan facility, which was originated by IFC at LIBOR + 3.5%. GP incurred BDT 1.1 billion foreign exchange loss in 9M, 2017 due to devaluation of BDT against USD during the quarter. Moreover, LIBOR rate is also in uptrend over the last few years.

Technology neutrality: In the absence of technology neutrality, mobile operators will have to incur large capital expenditure for 4G with limited market potential in early years. According to the operator source, only 4% of the users have 4G enabled devices right now in Bangladesh. So, high investment in specific band of spectrum will be costly in absence of tech neutrality. However, according to the draft guideline for fresh spectrum auction, all the new spectrum will have technology neutrality and existing spectrum of the operators can also be converted into technology neutrality by paying a fixed conversion fees.

Rigid Regulatory environment: The Company operates in a highly taxable business segment in the country. Besides, the Company undergoes very strict and unpredictable regulatory environment which put its earnings in to vulnerable position. Several unresolved and long pending regulatory issues remained a key concern for the company. GP has various unresolved issues with Bangladesh Telecommunication Regulatory Commission (BTRC) and National Board of Revenue (NBR) in the ground of illegal broadband internet services, audit, tax on replacement SIM, VAT rebate etc. which is currently on trial of court.

Key Financial Performance & Forecast:

Grameenphone Ltd. Historical Projected

Particulars Year 2014

Year 2015

Year 2016

Year 2017

Year 2018

Year 2019

Year 2020

Year 2021

Year 2022

Blended ARPU 165.0 155.0 162.0 170.6 175.5 185.3 194.6 206.3 218.7

Voice ARPU+ 129.4 113.3 112.4 116.0 111.9 108.1 104.0 100.1 96.8 Data ARPU+ 55 53 60 66 74 82 91 100 110

Total Population* (BD) 159.4 161.2 163.0 164.8 166.7 168.6 170.6 172.5 174.5 Total Subscriber** (mn) 51.5 56.7 58.0 62.0 67.3 72.0 77.0 81.7 86.6 Growth in GP subscriber 9.33% 10.05% 2.25% 7.00% 8.50% 7.00% 7.00% 6.00% 6.00% GP Market Penetration 32.31% 35.16% 35.57% 37.62% 40.36% 42.69% 45.16% 47.32% 49.59%

Mobile data Users** (mn) 10.80 15.70 24.50 27.90 40.37 50.39 61.62 73.49 82.22 Net Addition (Data Subs. mn) 6.20 4.90 8.80 3.40 12.46 10.02 11.23 11.86 8.74 Growth in Data Subscription 134.78% 45.37% 56.05% 13.90% 44.67% 24.83% 22.29% 19.25% 11.89% Data subscriber as % of Total Users

20.97% 27.70% 42.27% 45.00% 60.00% 70.00% 80.00% 90.00% 95.00%

Data market penetration 6.78% 9.74% 15.04% 16.93% 24.21% 29.88% 36.13% 42.59% 47.11%

Historical Data Sources (for 2014 to 2016): +EBLSL Estimate, *World Bank Data **BTRC Data

Page 16: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

14 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Revenue: Grameenphone Ltd. achieved sound 6.9% CAGR in its topline during the preceding five years up-to September

2017. Increased contribution of data revenue mainly drives the growth in the recent period. Even though Voice remained the core component

of GP’s revenue pie, it contribution is on the decline. Contribution from data revenue during 2017 up to September

stood at 16.2% against 13% in 2016. Meanwhile, GP has managed to record 9.5% YoY growth in voice revenue during the 9M, 2017.

We expect that revenue from voice traffic will grow further and will turn out to be the key contributor as mobile penetration is still on the rise but share of voice traffic revenue in total revenue pie will be declining. Growth of data revenue will remain strong and its contribution in total revenue will be in upswing during the forecasted period.

Segment Wise Revenue Contribution

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022E

Voice Traffic 79.87% 77.58% 74.60% 70.22% 67.30% 63.83% 61.26% 56.19% 51.63% 46.98% 42.95%

Data 2.95% 3.28% 4.98% 8.10% 12.54% 15.79% 21.26% 27.92% 33.81% 39.82% 45.02%

VAS,SMS,MMS & Others 4.81% 4.99% 5.97% 7.39% 7.60% 7.41% 7.38% 6.97% 6.59% 6.08% 5.64%

Interconnection 9.98% 10.34% 10.36% 10.14% 8.06% 6.87% 6.15% 5.26% 4.55% 3.92% 3.39%

Customer equipment 0.30% 1.94% 2.04% 1.96% 2.40% 2.21% 2.14% 1.98% 1.86% 1.73% 1.62%

Other Revenue 2.10% 1.87% 2.05% 2.19% 2.11% 1.91% 1.81% 1.68% 1.57% 1.46% 1.37%

Operating performance: Controlled operating expenditures policy has resulted into increased operating profit margin.

Higher revenue and operating efficiency contributing to healthy EBITDA. GP has always focused to control its OPEX with efficient control measures, which resulted into growth in EBITDA as well as increased EBITDA margin over the years. EBITDA margin increased from 50.2% in 2013 to 54.5% in 2016.

Operating Performance Indicators

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022E

Sales Growth 5.12% 6.25% 2.04% 9.65% 13.86% 8.37% 13.37% 12.11% 12.64% 12.12%

OPEX to Sales ratio 63.36% 65.64% 64.06% 64.71% 63.81% 58.62% 58.44% 55.95% 55.48% 53.58% 52.46%

EBIT Margin (OPM) 36.64% 34.36% 35.94% 35.29% 36.19% 41.38% 41.56% 44.05% 44.52% 46.42% 47.54%

EBITDA Growth -0.64% 12.39% 2.60% 11.78% 23.74% 7.00% 14.12% 12.29% 13.58% 11.91%

EBITDA Margin 53.15% 50.23% 53.14% 53.43% 54.47% 59.20% 58.45% 58.83% 58.93% 59.42% 59.31%

In line with historical trend and management declaration to give more focus in controlling the operating expenditures, we expect that OPEX to sales ratio will remain in declining trend which will result in increased EBIT margin and likewise EBITDA margin will also enjoy healthy growth.

Revenue sharing and other regulatory fees & charges: GP shares 5.5% of its revenue as ‘revenue sharing’ and 1.0%

of its revenue as ‘contribution to social obligation fund’ with BTRC as per licensing conditions. Licensing conditions also require the operator to pay annual fees and spectrum charges. The same rates of revenue sharing and contribution to social obligation fund has to be paid after launching 4G, according to the draft 4G service guideline from the regulator.

Profitability: High price competition, mainly for voice traffic, forced GP to reduce its prices, while increased operating

expenditure to launch 3G service led GP to drop in its net profit margin during 2013. However, driving on the growth of data sales and increased 3G coverage with controlled operating expenditures the company managed to maintain a healthy margin during the last 3 years.

Key Profitability Indicators

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022E

Pre Tax Profit Margin 32.85% 34.00% 33.95% 33.34% 33.24% 38.88% 38.53% 41.41% 42.45% 44.73% 46.15%

Net Profit Margin (NPM) 19.04% 15.22% 19.46% 18.81% 19.61% 22.91% 22.46% 24.14% 24.75% 26.08% 26.91%

Net Profit Growth -16.01% 35.88% -1.35% 14.31% 32.99% 6.28% 21.84% 14.91% 18.70% 15.68%

Return on Total Assets (ROAA) 15.45% 11.63% 15.03% 14.98% 17.13% 23.19% 22.82% 25.70% 29.41% 34.50% 39.77%

Return on Equity (ROE) 47.09% 44.15% 63.92% 63.58% 70.18% 84.46% 85.07% 100.38% 104.83% 108.57% 113.74%

As the market has become less competitive with the elimination of two operators, GP has the opportunity to charge higher prices on its services with wider network coverage that will have a positive impact on the margin. Besides, as the operator will no longer need to invest heavily for providing 4G services (according to the operator, 4G services can be provided on existing infrastructures developed for 3G), the margin for GP is expected to experience an uptrend in the coming years due to comparatively reduced OPEX.

67%

13%

3%4%

8%5%

Revenue Composition of GP (2016)

Voice Traffic

Data

Customer Equipment

Other Revenue

Interconnection

VAS & SMS

Robust growth in data revenue mainly drives the growth of GP

Robust growth in data revenue mainly drives the growth of GP

Source: GP annual Report & EBLSL Research

Page 17: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

15 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Loans & borrowing and Finance expenditures: GP’s loans and borrowings include a long-term syndicated loan led by

the International Finance Corporation (IFC) of USD 345 Million at 6-month-LIBOR + 3.5% interest rate. The full loan amount of USD 345 Million has been drawn down in multiple tranches, the repayment of which is in 10 installments. The first 4 installments were repaid in October 2015, April 2016, October 2016 and April 2017. Current outstanding loan balance is USD 207 Million. The final installment is scheduled to be paid in April 2020. The syndicate members include IFC, DEG, FMO, Proparco, CDC and OFID. Meanwhile, the operator also has around BDT 2.0 billion short-term loan outstanding, which were taken from different local and multinational banks.

Leverage Ratios

2012A 2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022E

Total Debt to Equity 23.11% 62.19% 89.76% 94.50% 64.51% 28.24% 85.01% 60.59% 46.89% 26.19% 12.43%

Debt to Total Assets 6.96% 14.32% 21.54% 21.85% 16.59% 8.25% 21.07% 16.01% 13.91% 8.87% 4.48%

Times Interest Earned (TIE) 18.67 15.82 16.67 17.85 16.63 33.45 14.06 16.96 21.63 27.64 33.95

To finance large amount of expenditure (approximately USD 400 million) for launching 4G services and participating in the spectrum auction, the operator will pursue for long term syndicated loan mostly from local financial market as foreign currency loans have become less attractive due to high volatility in foreign exchange rates and increasing trend in LIBOR rate. Hence, finance expense will be comparatively higher (we assumed @7.5% interest rate) from local market but will remain stable over the amortization period.

Dividend History: Like most other MNC’s, GP has a history of handsome cash dividend disbursement. GP distributes its earnings to the shareholders in the form of interim as well as final cash dividend. In the preceding five years, dividend payout ratio remained well above 100% of its net earnings, except for the year 2015.

2012 2013 2014 2015 2016 2017 (HY1

Interim Cash Dividend 90% 90% 95% 80% 85% 105% Final Cash Dividend 50% 50% 65% 60% 90% n/a Total Cash dividend 140% 140% 160% 140% 175% 105%

DPS 14.0 14.0 16.0 14.0 17.5 10.5 EPS 13.0 10.9 14.8 14.6 16.7 10.72 Payout Ratio 108.0% 128.6% 108.1% 95.9% 104.9% 97.9%

The dividend policy of the company states that dividend payout of 50% of the NPAT will be maintained. Last five years average payout ratio was 109%. We assume that the company will continue to maintain approximately 100% payout ratio and dividend will be disbursed both in the form of interim and final dividend. And, like most other MNC, we expect no stock dividend from GP in the years to come.

Source: DSE and EBLSL estimates

140% 140%160%

140%175%

230%250%

290%

340%

410%450%

108.0%128.6%

108.2% 95.9% 104.9% 103.7% 104.0% 99.1% 101.3% 103.1% 98.0%0%

50%

100 %

150 %

200 %

250 %

300 %

350 %

400 %

450 %

500 %

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

Dividend & Payout Ratio (Historical & Projected)

Total Dividend (Cash) Payout Ratio

Applicable Interest Rate for GP:

Finance Lease Obligation 15%

Loans and borrowing: Foreign (syndicated loan led by IFC) 6 months LIBOR +3.5%

Local 3.7%-4.15% Source: GP Annual Report 2016

Page 18: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

16 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Investment Thesis Fairly Valued based on both on DCF, DDM and Relative Valuation Metrics

Discounted Cash Flow Valuation: We conducted DCF based valuation of Grameenphone Ltd. by forecasting Free Cash flows over next five years period. To derive the intrinsic value of Grameenphone, we estimated terminal value at the end of 2022 using- 1. Constant Growth Cash flow Method 2. EV/ EBITDA Exit Multiple Method

Our DCF analysis with a discount rate of 12% & terminal growth rate of 4% and terminal EV/ EBITDA multiple1 of 6.5(x) gives us Enterprise Value of BDT704.3 billion using the constant FCFF growth model and BDT 716.2 billion using Exit Multiple Method. The DCF based fair value using Constant Growth Cash Flow method stands at BDT 512.6 per share for the company and BDT 515.1 per share using Exit Multiple Method.

(Figures in BDT million) 2017 2018 2019 2020 2021 2022 Terminal

DCF Valuation Based on Terminal Cash Flows

Profit for the Year 29,959 31,839 38,794 44,579 52,916 61,212 Add: After Tax Interest Expenses 943 2,383 2,476 2,174 1,996 1,848 Add: Depreciation & Amortization 23,301 23,940 23,748 25,964 26,386 26,773 Less: Investment in NWC 3,313 -987 -2,875 2,921 415 -1,039 Less: Capital Expenditures 12,000 18,000 20,000 25,000 25,000 25,000 Free Cash Flow to the Firm 38,890 41,148 47,893 44,796 55,883 65,871 856,148 Discount Factor 1.0000 0.8928 0.7972 0.7117 0.6355 0.5674 0.5674 Present Value Adjusted Free Cash flow to the Firm 38,890 36,739 38,179 31,883 35,513 37,374 485,765 Enterprise Value 704,343 Plus: Cash & cash equivalent 5,055 Less: Interest Debt & Lease Obligation 17,206 Equity Value 692,192 No. of Share Outstanding 1,350 Value per Share (BDT) 512.6

DCF Valuation Based on using Exit Multiple Method

Terminal Value with assumed EV/ EBITDA 877,091 Free Cash Flow to the Firm 38,890 41,148 47,893 44,796 55,883 65,871 Present Value of Explicit FCFF 218,578 Present Value of Terminal Value 497,648 Total Enterprise Value 716,226 Less: Debt & Lease 25,801 Add: Cash 5,055 Equity Value 695,480 Value per Share (BDT) 515.1

We have also checked the sensitivity analysis of DCF value per share on various discount rates and terminal growth rates and terminal EV/EBITDA multiple.

Sensitivity Analysis- Constant Growth Model Discount Rates

Term

inal

FC

F G

row

th

3,189.3 10.0% 11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0%

3.00% 606.0 529.2 497.7 469.6 444.6 422.1 401.8 383.3

3.50% 642.6 556.0 520.9 489.8 462.4 437.9 415.8 395.8

4.00% 685.3 586.6 547.2 512.6 482.3 455.4 431.2 409.6

4.25% 709.5 603.6 561.7 525.1 493.2 464.9 439.6 417.0

4.50% 735.8 621.9 577.3 538.4 504.7 474.9 448.4 424.8

5.00% 796.4 663.1 611.9 568.0 530.1 496.9 467.6 441.6

Sensitivity Analysis- Exit Multiple Method Discount Rates

Term

inal

EV

/EB

ITD

A

mu

ltip

le

.7 10.0% 11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0%

4.00 402.1 387.4 380.3 373.3 366.6 360.0 353.6 347.3

6.00 526.2 506.0 496.2 486.7 477.5 468.5 459.7 451.1

6.50 557.3 535.6 525.2 515.1 505.2 495.6 486.2 477.0

7.00 588.3 565.3 554.2 543.4 532.9 522.7 512.7 503.0

8.00 650.3 624.6 612.2 600.1 588.4 576.9 565.8 554.9

9.00 712.4 683.9 670.2 656.8 643.8 631.2 618.8 606.8

Page 19: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

17 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Valuation Based on Dividend Discount Model & Residual Income Model:

We also conducted valuation for Grameenphone ltd. based on Dividend Discount Model & Residual Income Model without changing our core assumption for discount rate and terminal growth rate. Historically, GP has been paying out dividend from its earnings at a rate of more than 100% (except in the year 2015 during the preceding five years). Dividend are paid both in the form of interim and final Cash Dividend. We assumed a likely payout trend for the operator from our next five years of financial projection for the company and hence our intrinsic value for GP based on DDM approach with 12% discount rate & 4% terminal growth rate stands at BDT476.1 per share.

Dividend Discount Model approach

(Figures in BDT million) 2017 2018 2019 2020 2021 2022 Terminal Projected EPS 22.2 23.6 28.7 33.0 39.2 45.3 Projected Payout Ratio 103.7% 106.0% 100.9% 103.0% 104.6% 99.3% Dividend per share 23.0 25.0 29.0 34.0 41.0 45.0 584.88 Discount Factor 1.0000 0.8928 0.7972 0.7117 0.6355 0.5674 0.5674 Present Value of projected DPS 23.0 22.3 23.1 24.2 26.1 25.5 331.85 Price per share 476.1

Assuming the same discount rate (12%) and terminal growth rate (4%), the value derived for GP using Residual Income Model stands at BDT 432.4 per share.

Residual Income Model

(Figures in BDT million) 2017 2018 2019 2020 2021 2022 Terminal Equity Charge 4,216 4,228 4,491 5,103 5,893 6,248 Residual Income 25,743 27,611 34,303 39,477 47,023 54,964 714,380 Book Value of Equity 37,373 Discount Factor 1.0000 0.8928 0.7972 0.7117 0.6355 0.5674 0.5674 Present Value of Residual Income 25,743 24,653 27,345 28,097 29,882 31,186 405,328 Equity Value 583,863 Value Per Share 432.40

Our derived valuation is sensitive to changes in discount rate and terminal growth rate assumption. Dividend Discount Model based valuation may range from BDT 738 to BDT 356.7 per share based on different combination of discount rates and terminal growth rates. And Residual Income based valuation may also range from BDT669.1 per share to BDT324.6 per share.

Sensitivity Analysis- Dividend Discount Model Discount Rates

Term

inal

Gro

wth

3,189.3 10.0% 11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0%

3.00% 562.3 491.5 462.3 436.4 413.3 392.5 373.7 356.7

3.50% 596.1 516.2 483.7 455.1 429.8 407.1 386.7 368.2

4.00% 635.5 544.4 508.0 476.1 448.1 423.2 400.9 380.9

4.25% 657.8 560.1 521.4 487.6 458.1 432.0 408.6 387.7

4.50% 682.1 577.0 535.7 499.9 468.8 441.2 416.8 394.9

5.00% 738.0 615.0 567.7 527.1 492.2 461.5 434.5 410.5

Sensitivity Analysis- Residual Income Model Discount Rates

Term

inal

Gro

wth

3,189.3 10.0% 11.0% 11.5% 12.0% 12.5% 13.0% 13.5% 14.0%

3.00% 510.2 446.2 419.9 396.5 375.7 356.9 340.0 324.6

3.50% 540.7 468.5 439.3 413.4 390.6 370.1 351.7 335.0

4.00% 576.4 494.1 461.2 432.4 407.2 384.7 364.6 346.5

4.25% 596.5 508.3 473.3 442.8 416.2 392.6 371.6 352.7

4.50% 618.5 523.6 486.3 453.9 425.8 401.0 378.9 359.2

5.00% 669.1 557.9 515.2 478.6 447.0 419.4 395.0 373.3

Page 20: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

18 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Relative Valuation Method: Grameenphone Ltd. is the only listed telecommunication company in the capital market of Bangladesh. Hence, we tried to compare the performance of GP based on its historical average P(x) multiple. As, the business model and operating performance for telecom sector companies in other regional countries also varies from that of in Bangladesh, we did not derive any valuation comparing other regional companies operating in the same industry.

GP appears to be fairly valued at current market price based on relative valuation methodologies calculated over 2018 EPS estimates and target PE multiples.

Relative Valuation

Particulars Note 2018 Estimates Multiple Valuation

Based on average historical PE multiple (1) 23.58 20.0 471.5

Historical PE of GP PE at YE 2013 PE at YE 2014 PE at YE 2015 PE at YE 2016 Current P/E Average

P/E 18.45x 24.67x 17.34x 17.03x 22.49x 20.00x

Source: DSE Website

International Market Multiple for Grameenphone Ltd. Peer

Market Cap E.V. P/Earnings EV/Net Sales EV/EBITDA EV/EBIT P/Book

Company Current (in millions USD) Last LTM Last LTM Last LTM Last LTM Last 2017e

Grameenphone Ltd. 7,345 7,641 27.8 23.34 5.66 5.16 10.42 9.15 15.81 13.49 18.65 19.42

VEON Ltd. 7,206 15,463 3.1 4.59 1.74 1.55 4.86 4.34 16.26 13.45 1.19 1.3

Ooredoo QSC 6,662 15,496 11.69 13.35 1.78 1.77 4.08 4.33 11.29 11.77 0.88 1.05

Bharti Airtel Limited 30,536 47,692 51.78 123.95 3.23 3.46 8.69 8.64 21.43 20.1 2.65 2.71

NTT DoCoMo Inc. 95,238 92,193 16.32 17.1 2.24 2.24 7.29 7.41 10.88 11.39 1.9 1.84

TIM Participacoes S.A. 9,354 10,249 40.12 30.29 2.11 2.06 6.18 5.58 22.95 17.59 1.75 1.66

Orange Belgium SA 1,287 1,642 14.19 13.83 1.15 1.14 4.49 4.33 13.29 13.49 2.04 1.93

Okinawa Cellular Telephone Co. 970 969 13.52 14.36 2.46 1.7 6.14 6.26 9.23 9.53 1.52 1.46

Kcell JSC 1,040 1,210 20.66 37.01 2.73 2.73 7.09 7.21 12.4 14.47 4.74 4.45

Mobile Telecommunications Co. KSC 5,734 8,983 11.08 11.22 2.51 2.66 5.33 6.09 10.22 12.1 1.22 1.2

Emirates Integrated Tel. Co. PJSC 6,147 7,274 12.91 13.65 2.1 2.06 4.87 5.03 14.38 7.02 2.88 2.84

Globe Telecom Inc. 4,826 6,817 15.32 14.21 2.71 2.57 6.52 7.13 12.12 12.05 3.83 3.65

TIME dotCom Bhd. 1,266 1,191 12.72 22.36 6.31 5.71 17.08 15.09 14.35 23.92 2.37 2.2

Peer Median 5,940.50 8,128.50 13.86 14.29 2.35 2.15 6.16 6.18 12.85 12.78 1.97 1.89 Source: http://infrontanalytics.com ; Last denotes last audited and LTM denotes preceding/ trailing twelve months period.

Note: Valuation multiple of GP by Infront Analytics and that of ours varies due to changes in time point and variation in calculation methodologies. For a better comparative scenario, we kept the multiple for GP by Infront Analytics unchanged in this table.

Note: 1 We made an upward estimate of EV/EBITDA multiple at 6.5x for GP’s terminal EV/EBITDA based valuation from its international peer

multiple of 6.2x considering the prospective high growth in coming years due to rolling out of 4G services, which will further accelerate the growth of GP, especially in the revenue from data segment.

Page 21: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

19 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Determination of Target Price We recommend a target price of BDT480.0 per share based on the average of our derived valuation from DCF, DDM, residual model valuation and target forward PE based valuation.

At current market price, GP’s shares have a P/E multiple of 22.26x for 2017 9 months’ annualized earnings. With our recommended target price the stock gives at total of 4.48% expected return, which is lower than our required rate of return. We therefore consider that the stock is fairly valued at current market price and hence we assign a ‘Market weight rating on the GP’s stock at its prevailing price level.

Market Performance of GP GP outperformed the broad market index DSEX since the introduction of the new index in Dhaka Stock Exchange.

Source: DSE & EBLSL Research

References: 1. Annual Reports, Quarterly Earnings Disclosures, Investor Relation Department - Grameenphone Limited 2. Dhaka Stock Exchange (DSE) website 3. Annual report 2016, Telenor Group 4. CIA (US Central Intelligence Agency) World Fact Book 5. International Telecommunication Union (ITU) 6. The Mobile Economy Asia Pacific 2017 by GSM Association 7. Bangladesh Telecommunication Regulatory Commission (BTRC) 8. Posts & Telecommunications Division, Government of The People's Republic of Bangladesh 9. ‘What is the impact of mobile telephony on economic growth?’- A report by GSM Association, Deloitte &

CISCO 10. ‘Middle East and Africa- Telecommunication’s industry at cliff’s edge- Time for bold decisions’- McKinsey &

Company, TMT practice, Vol. I, 2016 11. Bangladesh Bureau of Statistics (BBS), Government of the People's Republic of Bangladesh 12. World Bank data archive 13. Bangladesh Bank Data 14. ‘Guidelines for Invitation to Proposals/Offers for Assignment of Spectrum From 2100mhz, 1800mhz & E-GSM

(900 Mhz)Band To Cellular Mobile Phone Service Operators and Issuing Radio Communications Apparatus License in Bangladesh’- June 2017, BTRC

15. ‘Regulatory and Licensing Guidelines for Invitation of Proposals/Offers for Issuing License for establishing, Operating and Maintaining 4G/LTE Cellular Mobile Phone Services in Bangladesh’ (Draft)- BTRC

16. Internet Service Providers Association Bangladesh 17. The Daily Star, The Financial Express Bangladesh, New Age, Dhaka Tribune, Arthoshuchok 18. https://www.infrontanalytics.com 19. EBLSL Research

Valuation Methods Estimated Value

1. Discounted Cash Flow (FCFF) Method Valuation: a. Terminal Cash Flow Method 512.8 b. Terminal EV/EBITDA Method 515.1 2. Dividend Discount Model approach 476.3 3. Target Price/Earnings (22x) based valuation 488.1 4. Residual Income based valuation 432.6

Average Price Per Share 481.6

Current Price 471.4 June 2018 Target Price 480.0

Expected Capital Gain 1.82% Expected Dividend Yield (Interim) 2.65%

Holding Period Return (6 Months) 4.48%

0

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500

750

1,000

1,250

1,500

0

75

150

225

300

375

450

Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17

Price-Volume Movement of GP

VOLUME ('000) CLOSE PRICE

50.0

100.0

150.0

200.0

250.0

300.0

Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17

Performance of GP Vs DSEX

GP-Rebased Price DSEX-Rebased

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Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

20 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Key Terminologies: 1. AMPU: Average Minutes Per User Per Month 2. ARPU: Average Revenue Per User Per Month 3. APPM: Average Price Per Minutes 4. DCF: Discounted Cash Flow Valuation Method 5. DDM: Dividend Discount Model 6. Div. Yield = Dividend Yield Based on Historical and Expected Fair Value per Share 7. DPS: Dividend Per Share 8. EBIT= Earnings before Interest and Tax 9. EBITDA= Earnings before Interest, Tax, Depreciation & Amortization 10. EPS= Earnings per Share. 11. EV=Enterprise Value 12. FCFF: Free Cash flow To Firm 13. Free Float Share= Total shareholding- Sponsor or directors holding 14. GP: Grameenphone Ltd. 15. LTM: Trailing 12 Months 16. MMS: Multimedia Messaging Service 17. NAVPS= Net Asset Value Per Share 18. NPAT: Net Profit after Tax 19. OPEX= Operating Expenditure 20. PBT: Profit Before Tax 21. ROA= Return on Average Assets 22. ROE= Return on Average Equity 23. SMS: Short Message Service 24. VAS: Value Added Services 25. 2G, 3G & 4G/LTE: Second-Generation, Third Generation, Forth Generation/ Long-Term Evolution Cellular

Technology 26. Others: Q = Quarter, mn= Million, bn=Billion

Act. = Actual, Exp. = Expected,

EBLSL Stock Rating Definition: Overweight: Overweight indicates that the stock is expected to outperform the broader market averages. It usually derives the rating from comparing the expected return from the stock in a specified time period with weighted average cost of capital. ‘Overweight’ concludes that expected return from the stock is greater than the weighted average cost of capital. Market weight: Market weight indicates that the stock is expected to equal performance of broader market averages. It usually derives the rating from comparing the expected return from the stock in a specified time period with weighted average cost of capital. ‘Market weight’ concludes that expected return from the stock is equal to weighted average cost of capital. Underweight: Underweight indicates that the stock is expected to underperform broader market averages. It usually derives the rating from comparing the expected return from the stock in a specified time period with weighted average cost of capital. ‘Underweight’ concludes that expected return from the stock is less than the weighted average cost of capital. Not-Rated: ‘Not-Rated’ implies that currently the analyst does not have adequate conviction about the stock's total return relative to the broader market average

Page 23: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

21 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Grameenphone Ltd.

Statement of Profit & Loss

Historical Projected

Particulars ('000) Year 2014 Year 2015 Year 2016 Year 2017 Year 2018 Year 2019

Revenue 102,663,372 104,754,372 114,862,160 130,781,345 141,731,919 160,686,234

Revenue from mobile communication (includes revenue from voice and non-voice traffic, subscription and connection fee and interconnection revenue)

98,464,596 100,409,598 109,691,382 125,659,846 136,131,801 154,806,110

Revenue from customer equipment (revenue from sale of mobile handsets/ devices and data cards)

2,095,379 2,050,316 2,750,952 2,614,604 3,032,925 3,184,571

Other revenues (includes revenue from telecom facility sharing and commission income)

2,103,397 2,294,458 2,419,826 2,506,895 2,567,193 2,695,553

Total Operating expenses 65,767,301 67,790,674 73,296,037 76,662,962 82,832,770 89,897,400

Cost of material and traffic charges 9,591,883 10,693,577 10,661,819 10,863,132 12,475,867 14,328,441

Traffic charges (includes national and international interconnection cost)

5,267,603 5,705,995 5,732,536 5,647,901 6,806,590 7,740,306

Cost of material and services (cost of SIM card, scratch card, devices and contents)

4,324,280 4,987,582 4,929,283 5,094,295 5,669,277 6,588,136

Salaries and personnel cost 6,455,286 6,373,253 8,276,052 9,113,534 8,929,111 10,123,233

Operation and maintenance 5,070,609 4,419,129 3,757,496 3,774,618 4,251,958 4,820,587

Sales, marketing and commissions 13,200,722 12,913,376 12,497,326 11,404,965 14,173,192 15,265,192

Revenue sharing, spectrum charges and license fees

8,082,170 8,255,606 8,902,203 10,007,130 11,125,956 12,613,869

Other operating (expenses)/income, net 5,709,963 6,128,054 8,202,961 8,198,240 7,936,987 8,998,429

Depreciation and amortization 17,656,668 19,007,679 20,998,180 23,301,343 23,939,700 23,747,649

Depreciation 13,748,237 14,907,311 16,790,421 18,641,074 17,674,413 17,792,361

Amortization of intangible assets 3,908,431 4,100,368 4,207,759 4,660,269 6,265,287 5,955,288

PROFIT FROM OPERATIONS 36,896,071 36,963,698 41,566,123 54,118,383 58,899,148 70,788,834

Financial Expenses 2,307,001 1,940,737 2,591,068 1,617,648 4,086,888 4,247,239

Impairment loss on investment in associates/ (Gain) on sale of shares in GPIT

0 0 486,828 0 0 0

Foreign Exchange (Loss)/ gain 140,917 -115,721 -86,006 -1,654,373 -200,000 0

Share on profit (loss) on associate (net of tax) 125,008 15,119 -223,815 0 0 0

PROFIT BEFORE TAX 34,854,995 34,922,359 38,178,406 50,846,362 54,612,260 66,541,595

Provision for Income Tax 15,090,070 14,720,427 15,370,586 20,887,778 22,773,313 27,747,845

Provision for Deferred Income Tax -211,203 495,041 281,465 0 0 0

PROFIT AFTER TAX FOR THE YEAR 19,976,128 19,706,891 22,526,355 29,958,584 31,838,948 38,793,750

EPS 14.79 14.59 16.68 22.19 23.58 28.73

Page 24: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

22 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Grameenphone Ltd.

Statement of Financial Position

Historical Projected

Particulars ('000) Year 2014 Year 2015 Year 2016 Year 2017 Year 2018 Year 2019

ASSETS:

Non-Current Assets: 115,807,890 120,521,755 119,558,270 111,799,918 137,654,956 133,907,307

Property, Plant and Equipment-Carrying Value

70,306,649 74,204,532 76,787,577 72,817,816 71,336,353 72,793,992

Intangible Assets, net 44,774,181 41,045,545 38,183,422 34,394,831 61,731,332 56,526,044

Investment in Associates 695,524 710,643 0 0 0 0

Other Non-Current Assets 31,536 4,561,035 4,587,271 4,587,271 4,587,271 4,587,271

Current Assets: 14,864,935 11,927,812 10,941,241 16,093,235 13,547,445 16,783,616

Inventories 387,475 435,340 565,404 784,688 921,257 1,124,804

Trade Debtors 9,717,558 7,339,372 7,463,977 9,154,694 9,921,234 11,248,036

Short term Investment 0 0 0

Cash and Cash Equivalents 4,759,902 4,153,100 2,911,860 6,153,853 2,704,953 4,410,776

TOTAL ASSETS 130,672,825 132,449,567 130,499,511 127,893,153 151,202,401 150,690,923

SHAREHOLDERS' EQUITY AND LIABILITIES:

Shareholders' Equity: 31,364,502 30,625,258 33,572,284 37,372,863 37,479,761 39,815,411

Share Capital 13,503,000 13,503,000 13,503,000 13,503,000 13,503,000 13,503,000

Share Premium 7,840,226 7,840,226 7,840,226 7,840,226 7,840,226 7,840,226

Share Money Deposit 1,880 1,880 1,880 1,880 1,880 1,880

Capital Reserve 14,446 14,446 14,446 14,446 14,446 14,446

Retained Earnings/ Revenue Reserve

10,004,950 9,265,706 12,212,732 16,013,311 16,120,209 18,455,859

Non-Current Liabilities: 37,906,187 34,199,132 28,847,893 24,358,525 43,105,781 38,342,663

Long Term Loans - Secured 24,003,730 18,964,209 13,556,284 8,487,000 27,230,788 21,981,430

Net defined benefit plans 1,444,641 1,335,086 1,307,813 1,133,855 1,285,490

Obligation under finance lease 5,277,626 5,207,147 5,093,612 4,885,892 4,678,172 4,470,452

Deferred Tax Liability 7,993,446 7,910,630 8,235,939 8,893,131 9,212,575 9,641,174

Other Non-Current Liabilities 631,385 672,505 626,972 784,688 850,392 964,117

Current Liabilities: 61,402,136 67,625,177 68,079,334 66,161,765 70,616,858 72,532,849

Short Term Bank Loans 4,147,583 9,975,569 8,100,084 7,723,239 10,288,578 11,490,495

Trade Creditors 20,780,751 22,575,339 25,363,165 23,540,642 25,511,745 25,709,797

Current Tax Liabilities 19,629,253 19,785,655 18,942,559 18,942,560 18,942,560 18,942,560

Provision for operating expenses

14,303,882 14,077,929 14,274,056 14,385,948 14,173,192 14,461,761

Other Current Liabilities 2,540,667 1,210,685 1,399,470 1,569,376 1,700,783 1,928,235

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES

130,672,825 132,449,567 130,499,511 127,893,153 151,202,401 150,690,923

Net Asset Value (NAV) per share

23.23 22.68 24.86 27.68 27.76 29.49

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Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

23 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Grameenphone Ltd.

Statement of Cash Flows

Historical Projected

Particulars ('000) Year 2014 Year 2015 Year 2016 Year 2017 Year 2018 Year 2019

Cash Flows from Operating activities

Cash receipts from customers 102,696,002 106,354,277 115,707,956 130,781,345 141,731,919 160,686,234

Payroll and other payments to employees

-10,506,839 -7,985,573 -8,345,516 -9,113,534 -8,929,111 -10,123,233

Payments to suppliers, contractors and others

-40,266,804 -43,126,234 -42,531,964 -52,312,538 -56,692,768 -64,274,494

Interest received 265,764 211,870 153,435 0

Interest paid -2,219,303 -2,099,166 -2,662,556 -1,617,648 -4,187,858 -4,173,175

Income tax paid -18,713,347 -14,564,025 -16,169,852 -20,887,778 -22,773,313 -27,747,845

Net cash generated by operating activities

31,255,473 38,791,149 46,151,503 46,849,847 49,148,870 54,367,488

Cash Flows from investing activities

Payment for acquisition of property, plant and equipment and intangible assets

-20,250,401 -19,919,482 -19,962,199 -12,000,000 -18,000,000 -20,000,000

Payment for Telecom license and spectrum

0 -24,401,788 -2,746,488

Proceeds from sale of property, plant and equipment

102,847 12,106 122,894 0 0 0

Proceeds from sale of short-term investments

78,276

Net cash used in investing activities -20,069,278 -19,907,376 -19,839,305 -12,000,000 -42,401,788 -22,746,488

Cash flows from financing activities

Proceeds from/(payment of) short-term bank loan-net

-6,200,000 3,100,000 -1,911,800 3,000,000 12,000,000

Payment of long-term loan 15,089,705 -2,682,203 -5,402,010 -5,069,284 18,743,788 -5,249,358

Payment of dividend -19,579,350 -19,579,350 -19,579,350 -26,330,850 -31,732,050 -36,458,100

Payment of finance lease obligation -281,906 -329,022 -660,278 -207,720 -207,720 -207,720

Net cash used in financing activities -10,971,551 -19,490,575 -27,553,438 -31,607,854 -10,195,983 -29,915,178

Net change in cash and cash equivalents

214,644 -606,802 -1,241,240 3,241,993 -3,448,900 1,705,823

Cash and cash equivalents as at 1 January

4,545,258 4,759,902 4,153,100 2,911,860 6,153,853 2,704,953

Cash and cash equivalents as at 31 December

4,759,902 4,153,100 2,911,860 6,153,853 2,704,953 4,410,776

Page 26: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

24 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Grameenphone Ltd.

Key Performance Indicators

Historical

Particulars ('000) Year 2014 Year 2015 Year 2016 Year 2017 Year 2018 Year 2019 Liquidity Ratios:

Current Ratio 0.24 0.18 0.16 0.24 0.19 0.23

Quick Ratio 0.24 0.17 0.15 0.23 0.18 0.22

Operating Profitability Ratios

OPEX to sales ratio 64.06% 64.71% 63.81% 58.62% 58.44% 55.95%

Operating Profit Margin (OPM) 35.94% 35.29% 36.19% 41.38% 41.56% 44.05%

Pre Tax Profit Margin 33.95% 33.34% 33.24% 38.88% 38.53% 41.41%

Net Profit Margin (NPM) 19.46% 18.81% 19.61% 22.91% 22.46% 24.14%

Return on Total Assets (ROAA) 15.03% 14.98% 17.13% 23.19% 22.82% 25.70%

Return on Equity (ROE) 63.92% 63.58% 70.18% 84.46% 85.07% 100.38%

EBITDA Margin 53.14% 53.43% 54.47% 59.20% 58.45% 58.83%

Leverage Ratios

Total Debt* to Equity 89.76% 94.50% 64.51% 152.19% 157.47% 122.20%

Debt* to Total Assets 21.54% 21.85% 16.59% 36.5% 36.4% 31.4%

Coverage Ratios

Times Interest Earned (TIE) 16.67 17.85 16.63 33.45 14.06 16.96

Valuation Ratios

P/B (price to book) Ratio 15.58 11.16 11.43 17.34 17.29 16.28

Book Value Per Share 23.23 22.68 24.86 27.68 27.76 29.49

EPS 14.79 14.59 16.68 22.19 23.58 28.73

Dividend per Share 16 14 17.5 23.00 25.00 29.00

Dividend Payout Ratio 108.15% 95.93% 104.90% 103.67% 106.03% 100.94%

Retention Rate -8.15% 4.07% -4.90% -3.67% -6.03% -0.94%

P/E Ratio 24.46 17.34 17.03 21.63 20.36 16.71

EV/EBITDA 9.39 6.55 6.43 8.43 8.18 7.06

EV/Sales 4.99 3.5 3.5 4.99 4.78 4.16

Price/Sales 4.76 3.26 3.34 4.96 4.57 4.03

Sales/ Share 76.03 77.58 85.06 96.85 104.96 119.00

Growth Rates

EPS Growth Rate 35.88% -1.35% 14.31% 32.99% 6.28% 21.84%

Dividend Growth Rate 14.29% -12.50% 25.00% 31.43% 8.70% 16.00%

Sales Growth Rate 6.25% 2.04% 9.65% 13.86% 8.37% 13.37%

EBIT Growth Rate 11.14% 0.18% 12.45% 30.20% 8.83% 20.19%

Net Income Growth Rate 35.88% -1.35% 14.31% 32.99% 6.28% 21.84%

Dividend Payout Ratio -15.89% -11.30% 9.35% -1.18% 2.28% -4.80%

Total Asset Growth Rate -3.36% 1.36% -1.47% -2.00% 18.23% -0.34%

EBITDA 12.39% 2.60% 11.78% 23.74% 7.00% 14.12%

Extended DUPONT ANALYSIS

Net Profit/Pretax Profit 57.31% 56.43% 59.00% 58.92% 58.30% 58.30%

Pretax Profit/EBIT 94.47% 94.48% 91.85% 93.95% 92.72% 94.00%

EBIT/Sales 35.94% 35.29% 36.19% 41.38% 41.56% 44.05%

Sales/Assets 77.22% 79.62% 87.36% 101.23% 101.57% 106.45%

Assets/Equity 4.25 4.24 4.1 3.64 3.73 3.91

ROE 63.92% 63.58% 70.18% 84.46% 85.07% 100.38% *Debt includes lease obligations

Page 27: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

25 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

Grameenphone Ltd.

Last Eight Quarters’ Financial Results

Particulars (BDT mn) Quarters, 2016 Quarter, 2017

Q1 (3-month)

Q2 (3-month)

Q3 (3-month)

Q4 (3-month)

Q1 (3-month)

Q2 (3-month)

Q3 (3-month)

Q4Ex (3-month)

Net Turnover 27,560 28,052 29,438 29,812 30,622 32,413 33,193 34,553

Cost of material and traffic charges 2,534 2,578 2,742 2,807 2,793 2,547 2,707 2,816

Salaries and personnel cost 1,907 2,668 1,831 1,870 1,951 2,093 2,977 2,093

Operation and maintenance 1,466 775 934 582 1,056 681 1,387 650

Sales, marketing and commissions 2,605 3,267 2,856 3,769 2,696 2,884 2,913 2,913

Revenue sharing, spectrum charges and license fees

2,181 2,270 2,307 2,144 2,387 2,442 2,518 2,661

Other operating (expenses)/income, net 1,596 2,164 1,949 2,494 2,075 1,895 2,178 2,050

Depreciation and amortization 5,072 5,302 5,192 5,433 5,640 5,917 5,872 5,872

Total Operating expenses 17,362 19,024 17,812 19,099 18,599 18,459 20,552 19,053

PROFIT FROM OPERATIONS 10,199 9,028 11,627 10,713 12,024 13,953 12,641 15,500

Financial Expenses 487 964 538 602 389 400 351 410

Impairment loss on investment in associates/ (Gain) on sale of shares in GPIT

0 0 0 487 0 0 0 0

Foreign Exchange (Loss)/ gain -0.774 19 -87 -17 -414 -192 -498 -550

Share on profit (loss) on associate (net of tax) -77 -238 61 30 4 0 0 0

PROFIT BEFORE TAX 9,634 7,845 11,063 9,637 11,221 13,362 11,792 14,540

Income Tax Expenses 4,024 2,755 4,615 4,258 4,663 5,437 4,826 5,961

PROFIT AFTER TAX FOR THE YEAR 5,610 5,090 6,448 5,378 6,557 7,925 6,967 8,578

NPAT TO EQUITYHOLDERS 5,610 5,090 6,448 5,378 6,557 7,925 6,967 8,578

Other comprehensive income/(loss) 0 0 0 0 0 0 0 0

Total Comprehensive Income for the Year 5,610 5,090 6,448 5,378 6,557 7,925 6,967 8,578

EPS (BDT) 4.15 3.77 4.78 3.98 4.86 5.87 5.16 6.35

Relevant Disclosure Regarding Contingent Liabilities of GP that may have potential impact on the financial results in future: SIM tax on replacement SIMs

Large Taxpayers Unit (LTU)-VAT by a letter dated 16 May 2012 claimed SIM tax of BDT 15,804,391,570, including interests of BDT 5,454,810,667 for all replacement SIMs issued during the period from July 2007 to December 2011 alleging that GP evaded SIM tax by selling new connections in the name of replacement SIMs. GP challenged the demand by a writ petition and the High Court initially passed a stay order on the operation of the demand. The High Court later on 6 June 2013 disposed of the writ petition filed by GP and asked LTU VAT Commissioner to decide on this matter within 120 days and make no demand in the meantime. Consequently a SIM Replacement Review Committee was constituted by the Commissioner. The LTU representatives of the Committee in January 2014 finalized their observations without changing their earlier position.

GP expressed its dissatisfaction over the findings and the way LTU appointed members of the committee disregarded the spirit of the ‘Terms of Reference’ and agreed methodology as endorsed by BTRC in carrying out the review. A hearing notice was also served on GP for appearance before LTU-VAT on 25 January 2015. By way of a Writ Petition, GP challenged the premises on which the ‘hearing notice’ was served and obtained a stay order on 19 January 2015 on the operation of that notice for an interim period of three months pending hearing of the Writ Petition. As against such order of stay, the Government moved to the Appellate Division, which was disposed of by order dated 2 March 2015 staying operation of the interim order and directing for the Rule to be heard and disposed of by a particular Bench of the High Court Division, where it is presently listed and pending for a hearing.

In such circumstances, the Commissioner, LTU-VAT issued an order dated 18 May 2015 purporting to dispose of the show cause notice and finalize the demand at Tk 10,232,331,083 as SIM tax. The revised demand includes substantially all replacements done by GP between July 2007 and December 2011. It may be mentioned that the above amount of demand does not include interest.

GP later filed an appeal to the VAT Appellate Tribunal under Section 42(1)(Kha) of the VAT Act 1991 against the demand order. 10% of the disputed amount was deposited at the time of appeal as part of the appeal procedure prescribed by law. GP considered the deposit as a contingent asset under (IAS/BAS) 37 Provisions, Contingent Liabilities and Contingent Assets.

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Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

26 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

However, pursuant to external legal counsel’s advice the pending Writ Petition was withdrawn by way of non-prosecution (being infructuous) upon filing of the appeal before the VAT Appellate Tribunal.

On 5 June 2017, the VAT Appellate Tribunal dismissed the Appeals filed by Grameenphone and other mobile operators and asked GP to pay BDT 10.232 million. In addition to the disputed amount, the operators will also have to pay penalty and interest amount at the rate of 2% per month for delay in payment. The judgment was communicated to Grameenphone on 18 July 2017. Subsequently on 19 July 2017, challenging the said Judgment & Order of the Tribunal, Grameenphone filed a VAT Appeal before the Hon'ble High Court Division.

Meanwhile, the LTU-VAT of National Board of Revenue has further issued a show cause notice demanding BDT 3,789.5 million from GP alleging that it had dodged the amount as SIM replacement tax between July 2012 and June 2015. Grameenphone replied to the show cause notice on 23 July 2017.Tothe extent this show cause notice may lead to a final demand, the total demand for the period from July 2007 to December 2011 and July 2012 to June 2015 may be up to BDT 14,021,868,903. (Sources: GP Annual Report, 2016, 3rd Quarterly Report 2017 & Newspaper reports).

Interest on SIM Tax during 24 August 2006 to 27 March 2007

Large Tax Payer Unit (LTU), VAT, on 9 May 2016 Issued a show cause notice on GP as to why 2% interest would not be applied for the delay in payment of VAT and Supplementary Duty on sale of SIM (commonly known as SIM tax) during the period 24 August 2006 to 27 March 2007. Collection of SIM tax during this period was barred by an order passed by the Hon’ble High Court which had declared fixation of Tariff Value for determination of SIM tax to have been done without lawful authority. Accordingly the mobile operators could not collect SIM Tax from the customers for the above mentioned period. Upon a civil petition filed by the NBR, the judgment of the High Court was initially stayed by the Appellate Division on 27 March 2007 and finally reversed by its judgment passed on 1 August 2012. NBR issued a demand notice after the judgment and BDT 3,480,971,703 was paid on 12 September 2012 on protest.

Immediately, GP filed a writ petition before the High Court challenging the show cause notice of 9 May 2016 issued by NBR. The High Court division initially passed a stay order on the show cause notice, which was subsequently vacated by the Appellate Division.

NBR issued a demand notice on 22 June 2016 asking for payment of BDT 4,525,263,202 as interest in respect of a period of 65 months, i.e. the period between 1 April 2007 and the day before the date of the payment made by GP i.e. 11 September 2012 during which the matter was pending before the Appellate Division for disposal.

GP filed an appeal to the VAT Appellate Tribunal under Section 42(1)(Kha) of the VAT Act 1991 against the demand order. 10% of the disputed amount has been deposited at the time of appeal as part of the appeal procedure prescribed by law. The hearing before the Customs, Excise and VAT Appellate Tribunal took place on 28 March 2017. Now, the Tribunal is expected to pass its judgment.

GP considered the deposit as a contingent asset under (IAS/BAS) 37 Provisions, Contingent Liabilities and Contingent Assets. Hearing on the case is yet to commence

(Sources: GP Annual Report, 2016 & Q3, 2017 disclosure).

Page 29: Equity Valuation Report on Grameenphone Limited · Equity Valuation Report on Grameenphone Limited . Grameenphone Ltd. ... Total Equity 30,625 33,572 37,373 37,480 Retained Earnings

Grameenphone Ltd. Date: 30 November, 2017

Current Price (BDT): 471.4 Target Price (BDT): 480.0

27 Disclaimer of EBLSL & the Analyst(s) and the Stock Rating definition is located at the end of this report

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