Du owner EITC third-quarter net profit dips as mobile subscribers drop

Emirates Integrated Telecommunications Company, the parent of operator du, posted a 7.4 per cent drop in third-quarter net profit due to a one-off item in last year’s comparative period and a dip in mobile subscribers.

The Dubai telco made a net profit after royalty of Dh441 million in the three months to September, it said in a statement on Thursday. Du missed the Dh451m median estimate of two analysts polled by Bloomberg.

The UAE’s second-largest telecom operator expects growth of mobile subscribers to be affected by the decline in pre-paid customers as the company focuses on high-end prepaid, post-paid and fixed-line clients, said chief executive Osman Sultan.

"The level of churn has been extremely high by the nature of some offers in the market," Mr Sultan said. "We are focusing on high-end pre-paid, and that strategy is working well because it is limiting the decline we anticipate in pre-paid."

The company’s active mobile subscribers declined 3.3 per cent in the third quarter to 7.71 million. The company has disconnected some mobile customers on the back of the UAE regulator’s “My Number, My Identity” campaign. Fixed line subscribers during the quarter grew 5 per cent to 760,000.

In the third quarter of last year, there was a one-off gain from the reversal of depreciation cost, which affected third quarter results this year, Mr Osman said. He declined to disclose the size of the exceptional item.

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“If you adjust for that one-off, earnings would look almost unchanged year-on-year,” said Omar Maher, an analyst with EFG Hermes. “The results are in line with our estimates at all levels, so no surprises there and nothing to be concerned about, in our view. Revenue and margins are still pretty healthy despite slower growth in the economy and talks of expat departures.”

Total revenues rose 6.4 per cent to Dh3.33 billion while mobile revenues increased by only 0.3 per cent to Dh1.78bn. Fixed line revenue registered good comparative growth, increasing 7.8 per cent to Dh579m during the period.

Fourth-quarter earnings are likely to improve as a result of "stronger demand trends, which is attributable to a few factors - expat families returning to the UAE to begin the school season, increase in tourism quarter-on-quarter and increase in handset sales,” said Mr Maher.

Du, which revealed in 2016 plans to save Dh1bn by 2019 as a result of reducing cost of sales, operational expenses and captal expenditures, is on track to achieve its target, said Mr Sultan. The company may continue to cut costs beyond next year.

"In 2020, things will not stop," he said. "Probably there will be other things that will induce efficiency."

EITC, which was founded in 2005 as the UAE’s second licensed telecommunications provider, includes the du brand, launched in 2007 and Virgin Mobile that was rolled out last year.

The company said in May it would push a limited service of 5G this year, the ultra-high speed mobile broadband that is expected to revolutionise the internet, ahead of a wider launch in 2019.

EITC is 39.5 percent owned by Emirates Investment Authority, 19.75 percent by Mubadala Investment Company, 19.5 percent by Emirates International Telecommunications and the remaining by public shareholders and national organisation.

Last week, the UAE’s biggest telecom operator Etisalat had reported a drop of 4.2 per cent in its third-quarter net profit as expenses and expenditure rose.

Moody's expects low-to-single digit revenue growth in the next 12-18 months for telcos in the Middle East, the rating agency said in a report.

"Our outlook on the EMEA [Europe Middle East and Africa] telecoms sector remains stable but fragile into 2019, as intensifying competition, slower GDP growth and the impact of past regulation continue to raise concerns about the future sustainability of revenue growth," said Carlos Winzer, senior vice president at Moody's.