Thursday, June 16, 2011

Axiata Berhad Company Update

16 June 2011
Price Target: RM5.60
Share Price: RM4.93

# We met up with Axiata’s CEO, Datuk Sri Jamaluddin Ibrahim and Axiata’s new CFO James Maclaurin yesterday and came away feeling positive on the group and their direction.

# Axiata’s new CFO James Maclaurin brings a wealth of experience in fixed-line, transmission and towers, having served as CFO in various telcos around Asia, Africa and Central Europe.

# Axiata has completed the 1st phase of their transformation and is now moving into the 2nd phase, which entails positioning themselves for data and human resource

# Axiata is focused on monetising their networks and towers and is actively pursuing tower-sharing. The group sees an optimal tenancy ratio towards 2.1-2.3x verses 1.3x for XL and slightly over 1x for Celcom currently. Over the longerterm, Axiata may consider monetising their towers from a legal entity perspective.

# FOREX (RM strengthening) remains the biggest challenge for the group.

# For Malaysia: On the 2.6GHz LTE frequency, MCMC has requested telcos to resubmit their plans. This could be a positive move if it leads to the reduction in the number of spectrum awards.

# Only 3.4% of Celcom’s revenue is due to international roaming.

# Celcom plans to fiberise its hubs and rings to support its mobile infrastructure but does not see the need to build its own fiber backbone nor last mile (FTTH).

# For Sri Lanka: The floor price would be lowered slightly, which could lead to a slight increase in the competitive environment.

# Regulatory risks (spectrum awards, re-farming and repricing, international interconnection, telco taxes);

# FOREX fluctuations & competitive risks.


Rating: BUY (Target Price: RM5.60)
- Despite the challenging 1Q11, Axiata’s main businesses (Celcom, XL, Dialog) continue to execute well.

- The move to pay dividends would help to narrow its valuation gap against other Malaysian telcos over the longer term.

- Slower growth, regulatory risks and potential disruptions from competition.

Our SOP-based target price is unchanged at RM5.60. At current price, Axiata is trading at an estimated PER of 13.5x, 11.7x and 10.9x for FY11, FY12 and FY13 respectively. Net dividend yields of 2.0% would help to underpin its share price.

Source: HLIB Research

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