Flash Report /

Grameenphone: High Court grants stay on SMP restrictions; reiterate Buy

    IDLC Securities
    18 June 2019
    Published byIDLC Securities

    High Court grants stay order on voice tariff-related SMP restrictions. This comes after Grameenphone (GP) filed a petition following the Bangladesh Telecommunication Regulatory Commission's (BTRC) decision to increase GP’s outgoing floor tariff (to BDT0.50/min from BDT0.45/min) and increase interconnection charges (to BDT0.15/min from BDT0.10/min), under the Significant Market Power (SMP) regulation. Local newspapers also reported that the High Court has asked the BTRC to justify its stance. 

    Meanwhile, the recently announced budget proposes the imposition of VAT at the import stage for telecom equipment. Currently, some telecom equipment, such as transmission and reception devices, are exempted from VAT. The proposed tax will therefore likely lead us to revise our capex assumptions, but we await further information to assess the impact, with the note that a 5% increase in capex would lower our fair value estimation by 2% (BDT8.7).  

    A proposed hike in supplementary duty (to 10% from 5%) will increase voice and data tariff. The hike will see total duties (in terms VAT, supplementary duty and others) paid by a customer reach 26.75% from 21.75% prior. Based on our observation of previous hikes in duty, we expect a 5% tariff hike to likely decrease minutes of usage (MOU) by 2%-3% in the next quarter, and then recover to current levels in the subsequent two quarters. However, we believe data consumption will remain unaffected since the industry average data price has reduced by c60% in the last eight quarters. We, therefore, believe that this particular regulation will not have a long-term implication for GP. 

    SIM tax to increase to BDT200 from BDT100. We believe this will have a negligible impact on acquiring new customers or 4G SIM replacement for two reasons. Firstly, we believe that the increase in price is not substantial to adversely affect SIM purchases or replacements. Secondly, we expect telecom companies to make promotional offers (free voice and data) to compensate for this increase in tax.  

    We reiterate Buy on Grameenphone with a TP of BDT440.5 (ETR 30.6%) as the impact of contingent liability is already priced in.