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Vimpel-Communications Update Report – 1Q 08 Results Robust expansion in subscriber-base to drive top-line, going forward ADR
Fundamental stock Ticker: Target price: Current price: VIP US$36.77 US$31.191

30 June 2008


Fundamental research indicates an approximately 18% upside in the ADR over the next 6-12 months. We have calculated the target price based on fundamental factors, using a weighted average of target prices obtained using DCF and comparative valuation methodologies. We reiterate the ADR (1 ADR = 0.05 common shares) a BUY based on fundamental factors, with a 612 month target of US$36.77. The Russian stock is expected to decrease approximately 5% over the next 6-12 months. Approximately 18% of the fundamental upside is offset by a 23% downside attributable to the anticipated depreciation of the US dollar against the Russian ruble over the same period.

Russian Stock1
Ticker: Target price: Current price:


RUB14,750.01 We reiterate the Russian stock a HOLD with a 6-12 month target price of RUB13,973.7.

Supervisor: Jinesh Joshi Analyst: Smita Uchil Editor: Shem Pennant Global Research Director: Satish Betadpur, CFA Next news due: 2Q 08 results, 29 August 2008

Investment horizon - short term actionable trading strategies
This report addresses the needs of strategic investors with a long term investment horizon of 6-12 months. If this report is provided to you by your broker under the Global Settlement, you may now also access (free of charge) the short term trading outlook that we publish from time to time for this issuer, looking at the coming 5-30 days for readers with a shorter trading horizon. These are available on-line only at

Report summary
Vimpel-Communications (Vimpelcom) registered robust growth in revenues, EBITDA and net income in 1Q 08. Robust revenue growth in 1Q 08 was driven by higher Average Revenue Per User (ARPU) growth experienced in Vimpelcom’s Russian, Ukrainian and Armenian operations and an increase in subscriber-base from all regions. Vimpelcom, acquired 49% of Corbina Telecom (a fixed-line operator in Russia) for US$404 mn during 1Q 08. Vimpelcom now has a 100% stake in Corbina. Corbina has operations in 25 Russian regions, including Moscow and St Petersburg. With the acquisition of Golden Telecom, Inc. (GT) and Corbina, Vimpelcom will be able to provide a full range of fixed-line and wireless voice and data services. Going forward, we expect growth in mobile subscriber-base in Russia to slow due to market saturation. Conversely, we expect expansion in broadband subscriber-base due to low broadband penetration. Currently, Russia has broadband Internet penetration of 10%, which is expected to reach 36% by 2012. In addition, Vimpelcom has received a 3G license for Russia, Uzbekistan and Armenia and is planning to launch its 3G network in the Southern Russian cities of Sochi, Krasnodar and Rostov-on-Don during the second half of 2008 which will drive top–line growth, going forward. As Vimpelcom’s 1Q 08 results were below our expectations, we have revised our FY 2008 and FY 2009 revenue estimates downwards. Furthermore we expect operating expenses, as a percentage of revenues, to decrease due to improved cost efficiency. As a result, we have revised our margin estimates upwards. In light of impressive 1Q 08 results, coupled with strong fundamentals our outlook for the ADR remains positive.

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