Fee reduction, reversal of provisions for previous years could add around $163.4m to du's annual profit
Profits of telecoms company du
could double after the federal government slashed its
annual royalty fee, analysts said as the shares soared on
The operator, which reports results on March 3, said it
would only pay 15 percent of net profits to the government in
This is far below the 50 percent analysts had expected and
which is paid by its main rival, Etisalat, fuelling
talk that Etisalat may see a similar reduction.
Du, which broke Etisalat's monopoly in 2007, has been
setting aside funds since 2008 to provision for the royalty fee.
It was not required to pay the fee until it became profitable.
"The good news is that they don't have to pay for 2008, 2009
and for 2010 instead of 50, it's 15," said Simon Simonian, Shuaa
Capital telecoms analyst. "It's definitely positive and I think
it leaves room for upside surprises."
The fee reduction and reversal of provisions for previous
years could add as much as AED600m ($163.4m)
to du's annual profit, analysts said.
Shuaa Capital now sees annual profit of AED1.16bn
dirhams, compared to AED527m before the royalty
Shares in du soared 3.12 percent to a 15-month high in
Dubai, while Etisalat edged up 0.90 percent on Abu Dhabi bourse
amid hopes its royalty fee may be trimmed.
Analysts said the royalty rate was unlikely to stay at 15
percent in 2011, given Etisalat is paying 50 percent.
Etisalat, the largest Gulf telco by market value, last year
requested a reduction in its royalty fee. The federal government
is a majority shareholder in both Etisalat and du.
"We don't know what royalties du must pay for 2011 and
beyond, but this increases the probability that royalty fees
could come down for both du and Etisalat," said Irfan Ellam, Al
Mal Capital telecoms analyst.
Du, formally called Emirates Integrated Telecommunications
Co, said it would be informed of its future royalty fees "in due
course." Abu Dhabi-based Etisalat was not immediately available
Ellam said the du news will mean savings of 550 million
dirhams in royalty fees from 2008 to 2010, which will likely be
added to its fourth-quarter earnings.
Analysts polled before the royalty cut had forecast fourth
quarter profit of AED152.38m ($1=AED3.673)