Investment Highlights

• We maintain our HOLD call on Axiata Group (Axiata) with an unchanged sum-of-parts-based fair value of RM3.86/share, which is at a 25% holding company discount to our sum-ofparts of RM5.14/share. This implies an FY19F EV/EBITDA of 5x, 2 SDs below its 3-year average of 7x.

• Axiata has secured an award from TM to provide 2G, 3G and 4G connectivity for voice, short messaging and data services to TM’s 73%-owned webe digital services under its 4G multioperator core network system for 3 years.

• This expected development is part of Axiata’s earlier domestic roaming collaboration with TM, which was signed back on January 2016.

• Recall that Axiata’s wholly-owned Celcom, TM and Packet One Networks (Malaysia) Sdn Bhd (renamed webe digital services) have signed 3 core agreements – TM next-gen backhaul, high speed broadband (HSBB) access and domestic roaming services – to leverage each other’s existing infrastructure and optimize asset utilization for cost efficiencies.

• The announcement did not provide the estimated value of the arrangement, which will be determined by usage at the agreed rates.

• While some revenue will be generated from utilizing Celcom’s network, we expect minimal earnings contributions from webe over the medium term given its low subscriber base relative to the 4 main cellular operators currently contending for market share. Hence, we are neutral on this development.

• Even though Axiata currently trades at a bargain FY18F EV/EBITDA of 5x, way below its Maxis’ 13x, the group’s likely weak 4QFY18 results announcement later today from further year-end asset impairments amid deteriorating overseas risk profile from Nepal’s additional capital gains tax charge on NCELL acquisition and intense competition from both local and overseas mobile operations constrain upside momentum.

• Additionally, the government’s intention to reduce Khazanah Nasional’s GLC holdings casts possibilities of a share overhang over the medium term.

Source: AmInvest Research - 22 Feb 2019