Dialog IPO gets good response

COLOMBO (Dow Jones)

The Initial Public Offering (IPO) by Dialog Telekom is likely to be oversubscribed, even though it's expected to be priced at the top end of the indicative range, given the Buoyant Sri Lankan Stock Market, the dearth of IPOs, and the company's strong growth outlook.

Dialog Telecom, Sri Lanka's largest mobile phone operator which is 100% owned by Telekom Malaysia Bhd. (4863.KU), plans to offer 712 million shares, or a 9.6% stake. The shares, with a par value of LKR1, will be offered on a book-building basis at between LKR8 and LKR12 apiece. Analysts expect the process will result in a price of LKR12.

"The company's dominant market position combined with its reputation for being a profitable company makes Dialog Telekom a must have for any portfolio," noted DFCC Stock Brokers in a review.

The IPO opens on July 7 and the shares will list on the Colombo Stock Exchange's main board about two or three weeks after the IPO. NDB Investment Bank are the managers of the issue.

The timing is right, say analysts. The Colombo All Share Index has risen nearly 26% so far this year, making it one of the region's top performers. Dialog is the first IPO this year to meet the increased demand for stocks.

Despite the market's hefty gains so far, analysts say there's room for the Index to climb another 15% this year due to an anticipated economic recovery triggered by post-tsunami reconstruction efforts. "We recommend Dialog as a good medium-term investment given the company's strong growth potential and sustained healthy growth in the local telecommunications sector," said Harsha Fernando, Chief Executive at SC Securities.

Dialog Telekom's net profit climbed 43% to LKR4.1 billion in 2004, reflecting strong market growth. The company said total revenue that year surged 53% to LKR11.4 billion from the previous year. The company estimates net profit in the first quarter ended March 31 at LKR1.72 billion, but didn't give a comparative figure for the previous year.

It hasn't made a net profit forecast for 2005, but analysts expect profit to climb to around LKR6.8 billion this year. Analysts say demand for Dialog shares may come mainly from foreign and institutional investors eyeing medium to long-term investments.

"Retail investors might be somewhat disappointed because the shares are at fair value and may not offer a quick return," said Dilhara Haputhanthri, analyst at CT Smith Stock Brokers.

Analysts expect the shares to climb to around LKR15 once listed and gain further to around LKR20-25 by year-end, provided political uncertainty won't hurt overall market sentiment.

DFCC's review said Dialog's return on equity was around 47% in 2004, and "we expect ROE to remain consistently high around 36% and 47% in 2005 and 2006 respectively, indicating strong investor value and effective capital reinvestments in the future."