ICH collapses! PTCL Earnings likely to decline sharply

ICH collapses! PTCL Earnings likely to decline sharply

News reports have confirmed that Pak government has withdrawn the controversial ICH agreement, which essentially means return of perfect competition in the LDI market.

The government is hoping that intense competition will lead to lower calling rates, thus incentives for grey players to penetrate the market will decrease.

Incorporating a more competitive environment, we lower our earnings estimates for Pakistan Telecom Company (PTC) by 13%/38%/36% over 2014E/15F/16F. Hence, we are now expecting the company to report an EPS decline of 7.8% and 23%YoY in 2014 and 2015 respectively.

We reiterate our ‘Sell’ call on PTC with a revised target price of Rs24 (previously at Rs28). Note that post the earnings revision, valuations are looking punchy where PTC is trading at 2015F P/E of 13.2x vs. the market’s 2015F P/E of 8.4x.