October 29, 2021/CSL Research

Despite regulatory headwinds, just like its peers, the telecom giant, MTNN, reported impressive 9M results. Revenue was up 23.6% y/y to N1.2tn from N975.8bn in 9M 2020. On a q/q basis, Total Revenue improved by 2.2% to N415.0bn in Q3 2021 from N405.9bn in Q2 2021. The growth in Total Revenue was buoyed by better outturn in Service Revenue (up 23.7% y/y to N1.2tn). Across the components of Service Revenue, all items recorded growth, with the major drivers being Data (up 51.5% y/y to N366.2bn) and Voice (up 10.6% to N722.0bn). The management attributed the growth in Voice Revenue to a 9.6% increase in minutes of use by subscribers, which partly mitigated the impact of the decline in its subscribers base which was down by 7.5m to 67.5 subscribers in 9M 2021. However, following the lifting of the regulatory ban on new SIM sales and activation in April 2021, the management is of the view that it expects a return to positive net additions as it ramps up its NIN-SIM integration exercise. While all hands are on deck, should the 31 October 2021 deadline by the NCC remain in place, the downside risk is the likely loss of subscribers whose SIMs are not integrated with their NIN. For Data Revenue, the firm noted a surge in traffic (up 85.5% y/y) after its rollout of additional 4G network sites, which boosted connectivity. The firm also reported a 4G penetration of 69.2% in 9M 2021 from 65.1% in H1 2021 and 60.1% in December 2020. Though the pandemic had adverse effects, yet it was positive for the telecom industry, as the need to stay connected was crucial. Similarly, we note a significant improvement in Fintech Revenue, up 55.2% y/y to N50.2bn and Digital Revenue, up 56.0% y/y to N12.1bn in 9M 2021.

Direct Network Operating costs grew faster than Revenue, climbing higher by 30.2% y/y to N296.4bn in 9M 2021 from N227.6bn in 9M 2020. The growth in Direct Network Cost was largely driven by higher BTS leases cost (up 29.8% y/y to N215.4bn) due to pass through effect of the full impact of lease rentals as well as upward pressure on dollar denominated costs due to currency adjustments. Beyond that, the increased network maintenance costs (up 28.2% y/y to N45.6bn), a fallout of enhanced network capacity and sizable regulatory fees (up 19.9% y/y to N30.2) also contributed to the spike in Direct Network Operating Costs. Consequently, growth in Profit after direct costs moderated, climbing higher by 21.6% y/y to N909.9bn in 9M 2021 from N748.2bn in 9M 2020.

Operating Expenses rose 10.0% y/y to N275.4bn in 9M 2021 from N250.4bn in 9M 2020. Growth in Value Added Services (+49.7% y/y), Discounts & Commissions (+17.2% y/y), Advertisements, Sponsorships & Sales Promotions (+28.3% y/y), Interconnect & Roaming Costs (+13.0% y/y), Transmission costs (+35.8% y/y) and Other Operating Expenses (+12.1% y/y), were the major drivers of the double-digit growth in Opex. The growth in Opex reflects the impact of Naira depreciation on the company’s USD costs, additional site rollout and Covid-19 related expenditure. Nevertheless, EBITDA grew higher by 27.4% y/y to N634.5bn in 9M 2021 from N497.9bn in 9M 2020. In addition, EBITDA margin also expanded, up 158bps y/y to 52.6% in 9M 2021. Against all odds, Operating Profit grew by 36.3% y/y to N418.4bn in 9M 2021 from N307.0bn in 9M 2020 despite a 13.3% y/y jump in Depreciation & Amortisation to N216.2bn in 9M 2021.

Net Finance Cost rose, up 1.7% y/y to N97.0bn in 9M 2021 from N95.4bn in 9M 2020. The marginal increase in Net Finance Cost reflects the 41.3% y/y decrease in Finance Income despite a 3.1% y/y drop in Finance Cost. The decline in Finance Income was driven by lower interest earned on financial instruments and no FX gain earned in 9M 2021. Also, Finance Costs fell mainly due to lower Interest Expense on borrowings (down 30.2% y/y). As a result, Pre-Tax profit increased, up 51.9% y/y to N321.4bn in 9M 2021 from N211.6bn in 9M 2020. Effective Tax Rate tapered slightly by 0.4ppts y/y to 31.4%. Net Profit was up 52.7% y/y to N220.3bn in 9M 2021 from N144.2bn in 9M 2020. EPS rose to N10.92/s in 9M 2021 from N7.09/s in 9M 2020.

We have a target price of N237.11/s with a BUY recommendation on the stock. Current price; N175.60/s.

The company will hold a conference call today, Friday, 29 October 2021 at 3 pm Lagos time to discuss the results.

Source: Company data, CSL Research