UPDATE 2-Emirates Telecom Q2 profit soars on Saudi stake sale

(Adds analyst comments, background)

By Ola Galal

DUBAI, July 14 (Reuters) - Emirates Telecommunications Corp (Etisalat) ETEL.AD posted a 58 percent jump in second-quarter profit on Monday, topping most analysts forecasts as it profited from the sale of a stake in its Saudi affiliate.

Etisalat, the largest Arab telecom company by market value, said profit attributable to shareholders rose to 3 billion dirhams ($817 million) in the three months to June 30 from 1.89 billion a year earlier.

That beat two of three forecasts from analysts polled by Reuters last month, which ranged from 2.03 billion dirhams to 3.09 billion. [ID:nL29553371]

The company sold part of its stake in Etihad Etisalat (Mobily) (7020.SE) in April, reducing its shareholding in Saudi Arabia's second mobile phone operator to 26.25 percent from 35 percent and generating a profit of 1.78 billion dirhams.

"The sale of a stake in Mobily has generated an exceptional profit in the second quarter," Etisalat Chairman Mohammed Omran told Reuters.

Earnings per share rose to 0.50 dirham from 0.32 dirham a year earlier, Etisalat said, adding it made more money from new and current subscribers. Revenue rose 21.5 percent to 6.38 billion dirhams.

Etisalat had 6.83 million mobile phone customers the end of June, up 7 percent from Dec. 31, Etisalat said. Most of Etisalat's subscribers are in the UAE, home to 4.5 million people, and where many people own more than one phone.

Etisalat added 200,000 new subscribers in the quarter, according to a Reuters calculation.

WINDFALL REVENUES

The state-controlled company lost its domestic mobile phone monopoly last year when rival du DU.DU started operations.

Etisalat, which operates in 16 countries, said profit excluding minority interests was 2.84 billion dirhams in the second quarter, up 64 percent from 1.73 billion a year earlier.

Awash with windfall revenues from a more than a seven-fold increase in oil prices since 2002, Etisalat, like its Gulf Arab peers Kuwait's Zain (ZAIN.KW) and Saudi Telecom Co 7010.SE, has been expanding to offset growing regional competition. "Saudi and Egypt operations will have higher contributions to the company's profits in the future and we don't see any weakness in the UAE market," said Jithesh Gopi, head of research at Bahraini investment bank SICO.

"So Etisalat should be in a position to maintain this strong momentum in the short to medium term," he said.

In addition to its Saudi operation, Etisalat owns a majority stake in Egypt's third mobile phone company and has stakes in operators in countries including Pakistan and Indonesia.

The company said in April it could spend up to $4 billion on an acquisition or a licence to enter India, the world's second-largest mobile phone market. It added in May it was evaluating a possible bid for South Africa's MTN (MTNJ.J).

"Etisalat's controlled expansion is a positive strategy as long as its is getting returns from investments," Gopi said. "I don't think they have overpaid for any acquisition, so expansion is good for shareholders."

The company's shares rose 1 percent before the earnings statement, which came after trading closed. (Editing by David Holmes)