Q3 19 revenue and EBITDA growth surpasses our expectations, standing at c7% yoy and c13% yoy, respectively, outperforming our expectations by c5% and c6%. Voice revenue grew by c4% yoy driven by c6% yoy subscriber growth and c3% yoy decline in ARPU. Despite the thirteen-day bandwidth restriction, data revenue grew by c17% yoy driven by c12% yoy subscriber growth and c52% yoy increase in average megabyte per user (AMBPU). Had there been no such restriction, we estimate data revenue growth could have been c23%, resulting in c8% total revenue growth.
EBITDA margin expanded by 336bps yoy, giving an additional boost to EBITDA. The main reason for this is Q3 18 only received partial benefits of uniform tariff rate whereas Q3 19 incorporated the full impact. Also, there has been an adjustment in sales and marketing costs, which reduced costs by BDT257mn, thereby, contributing to c70bps in EBITDA margin improvement.
We estimate BDT7.16 normalised EPS with c15% normalised earnings growth when we adjust a one-off tax. Reported EPS declined by c14% yoy to BDT5.38 (from BDT6.25 in Q3 18) due to one-off tax expenses. Effective tax rate was c57% in Q3 19 compared with usual level of c42%, suggesting that GP provisioned around BDT2.4bn additionally in this quarter. Should we adjust for the estimated one-off tax expenses, there would be c15% normalised growth in earnings, considering normalised Q3 19 EPS of BDT7.16.
We may see a fresh round of discussions in the BTRC audit. The complexity related to the audit claim was elevated after the regulator sought permission from the Telecom Ministry to appoint administrators, and in response, GP received a court injunction against the regulator's audit claim. It signalled a prolonged legal dispute between GP and the regulator, despite the Finance Minister’s efforts in negotiations. However, the recent involvement of the Prime Minister's ICT Affairs Adviser Sajeeb Wazed Joy, according to a report, leads us to expect another initiative to negotiate further. In a meeting on Monday (22 October 2019) with the telecom CEOs and the regulators, Joy suggested considering alternatives to settle the dispute outside the court. We think this new development lessens the risk of appointing administrators even further. But the procedure might require GP to keep a recoverable deposit of BDT2.0bn with the regulator (1.6% of the total contingent liability, 5.6% of 2019e earnings), as suggested by an earlier report.
Tower sharing guideline – possible delay in network expansion. GP and Edotoco (the Axiata tower operating subsidiary) concluded an agreement regarding the tower-sharing guideline and submitted to the regulator for approval. However, the regulator did not approve the proposal and wanted to intervene on the commercial terms of the proposal with its own Master Service Level Agreement (MSLA). GP disagreed with the regulator's intervention. Since GP and the regulator are yet to conform on the implementation of the tower-sharing guideline, we think there will be a delay in GP’s organic network expansion plan, which is likely to affect its network strength.
We reiterate Buy with TP of BDT438.8 (43.6%ETR). Our TP already includes c36% payment for the contingent liability (BDT33/share). Even if we consider the total payment of contingent liability (BDT93/share), the fair value of GP would stand at BDT379/share, offering 23.2% return. Therefore, we think the impact of the contingent liability claim is already priced in.