Event: MTNN granted approval to conduct NIN registrations by the NCC
Implications: Stagnation of subscriber base pending completion of the audit. No impact on market share, and FY ’20 revenue and earnings. Potential negative impact on Q1 ’20 revenues and earnings if the NIN registration deadline is not extended and lines are disconnected.
The MTN Group (MTN or the Group) held a conference call to discuss the industry-wide SIM registration audit in Nigeria, and the Nigerian Communications Commission’s (NCC) directive to mobile operators to suspend new SIM registrations until the audit is complete. On the call, management disclosed that its Nigerian subsidiary, MTN Nigeria (MTNN), had been granted approval by the NCC to conduct National Identification Number (NIN) registrations on behalf of the National Identity Management Commission (NIMC). We view the move as a welcome development given the tedious and often time-consuming process associated with getting NINS from the government agency. From the government’s perspective, creating a centralized national identity database from the multiplicity of sources will help the nation’s security management. With respect to financial inclusion, only about 63% of Nigeria’s population had access to formal means of financial access in 2018. Read-across from other countries such as Pakistan show that the use of unique digital identities for mobile payments may well be a catalyst in the drive to achieve greater financial inclusion.
The recent approval comes on the heels of NCC’s 2-week ultimatum (ending 30 December 2020) for mobile operators to update the National Identification Numbers (NIN) of subscribers on their networks. According to the NCC, after the deadline, all SIMs without NINs are to be blocked from the networks. Although the NIMC was established in 2007, its success with respect to registration has been poor, with around 40-60 million unique identity profiles created up-to-date, according to MTN. The GSM operators’ extensive national coverage makes it logical for government to leverage their infrastructure to achieve deeper NIN penetration. Already, MTNN has procured about 14,000 registration devices which it will receive within the next two weeks. According to the firm, 14,000 devices have the capacity to process about 448,000 registrations per day. As such, at full capacity, the firm will be able to complete c.5.4 million registrations per annum. It expects to scale its number of devices up to about 45,000 by the end of Q1 ’21. A key feature of the new devices is their ability to capture about 10 fingerprints – a key requirement of the NCC – instead of about five by the older devices. At this point, we understand that the integration between the MTNN and NIMC /NCC platform is currently ongoing.
In 2017, MTNN lost market share to competition because of a 16% y/y reduction in its customer base following regulatory sanctions. However, this time around, its market share is expected to remain relatively stable due to the systemic nature of the suspension. We also see no impact on FY ’20f revenue and earnings. Although there is a potential negative impact on Q1 ’20 revenues and earnings if the NIN registration deadline is not extended, at this time the potential is difficult to estimate given the limited information available. We forecast ’20f revenue growth of 13% y/y to NGN1.3trn, driven by strong data growth of 48% y/y and a 5% y/y increase in voice. However, we forecast FY ’20f PAT growth of 2% y/y due to cost pressures from fx-linked costs (mainly lease rentals), which exerted downward earnings in Q2 and Q3 ’20.
On a relative basis, MTNN’s shares are trading on a 2020f P/E multiple of 15.3x for 9.2% EPS growth in 2021f.