Monday, September 12, 2011

Axiata Berhad: Overweight: Continued Growth Momentum From Overseas

13 September 2011
Price Target: RM5.48
Share Price: RM4.78


Highlights
# We attended Axiata’s briefing yesterday and the company has laid a new strategy blueprint, mainly focusing on:
1. Cost leadership through procurement, network outsourcing, network sharing, etc;
2. Product and services innovation i.e. music, TV, m-commerce, m-ads, download services; and
3. Customer intimacy/centricity through analytical capabilities, bundling and new pricing business model.

# Guidance on growth: Malaysia (5.1%), Indonesia (7.8%), Sri Lanka (14.2%), Bangladesh (15-20%) and Cambodia (19.2%).

# CAPEX (Total: RM3.9bn): Malaysia (RM750m), Indonesia (RM2.2bn), Sri Lanka (RM300m), Bangladesh (RM570m) and Cambodia (RM70m).

# Celcom HSDPA network has achieved 100% coverage with 14.4Mbps capacity and target for 28.8Mbps by year end.

# Celcom’s infrastructure sharing with DiGi has started operations with the first telco site decommissioned and combined. The collaboration has identified 400 to be dismantled. The total exercise will translate to a cost savings of ~RM2.2bn over 10-years.

# 900MHz spectrum refarming negotiations among the telcos have reached a deadlock and is expected to be delayed.

# XL has geared up to face the “data tornado” in Indonesia, whereby it is estimated to serve a daily average of 38TB of data traffic. XL sees tremendous growth opportunity in data considering low 3G handset (13-14%) and smartphone (4%) penetrations.

# Revenue contribution from data increased from 14% to 21% over the past year.

# Dialog’s turnaround is nearing completion with the company targeting about 14% revenue growth. However, EBITDA margins are under pressure due to VAT rules and higher direct costs (energy).

# Robi is in a subscriber growth mode. ARPU pressure would be compensated by MOU volume. The company expects to see high-teens revenue growth in 2011.

# Hello is operating in a highly competitive market with 8 rivals fighting for only 9.5m addressable market. ARPU is estimated to be between US$2.12-2.06 for FY11-FY12. Hence, industry consolidation is expected to happen.

Risks
Regulatory risks, FOREX fluctuations & competitive risks.

Forecasts
Updated with latest guidance. Our FY11, FY12 and FY13 EPS are revised by –9.1%, -7.5% and –7.3% respectively.

Rating - BUY (Target Price RM5.48)
Positives
– Despite the challenging 2Q11, Axiata’s main businesses (Celcom, XL, Dialog) continue to execute well.

Valuation
SOP-based target price is lowered from RM5.60 to RM5.48.


Source: HLIB Research

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