Investment Highlights

• We maintain our BUY call on Axiata Group (Axiata) with unchanged sum-of-parts-based fair value of RM6.30/share, on expectations of a value-enhancing re-merger with TM which could reduce the valuation differential with its peers.

• Our forecasts are maintained as we do not expect two new higher priced postpaid plans from Axiata’s wholly-owned Celcom is unlikely to gain much traction from its peers.

• The new Celcom First Gold Supreme costs RM128/month (25GB weekday + 25GB weekend + 25GB Free Video Walla + Unlimited Calls) while the Celcom First Platinum Plus comes at RM188/month (100GB anyday Internet + 100GB Free Video Walla + Unlimited Calls and SMS).

• The existing Celcom First Platinum postpaid plan, also applicable for current customers, has also been revised to RM148/month from RM150/month which still offers 30GB weekday and 30GB weekend but with an additional 30GB Free Video Walla.

• As a comparison, Maxis’ RM128/month plan offers 15GB all-day and 15GB weekend quota while its RM188/month provides 25GB all-day and 25GB weekends. Digi still offers unlimited internet quota for its RM158/month package. U Mobile offers the best unlimited data option yet at RM78/month with free data roaming while Webe costs RM79/month.

• This offer comes hot on the heels of four recently launched internet-based prepaid plans, which include 2GB for RM5/day, 500MB for RM6/week and 5GB for RM19/week and a monthly option at RM79 which offers 15GB of base data quota, 15GB Video Walla and Unlimited Music Walla.

• We view Celcom’s current customer base, comprising largely mid-income and corporate segments, as unlikely to be drawn by its new offers. Celcom’s 1QFY17 average revenue per user (ARPU) for the postpaid segment is only RM80/month, comparable to Digi’s RM79/month but significantly lower than Maxis’ RM102/month.

• Recall that since 4Q2014, Celcom has lost 2.7mil subscribers or 21% of its base due to its legacy IT infrastructure disruption and operational delays in introducing new plans to compete effectively. This caused its market share ranking to drop behind Maxis and Digi.

• We do not expect any significant recovery in Celcom's earnings for this year given the intense pre-paid competition spearheaded by Maxis, Digi and U Mobile. Nevertheless, we view the group’s struggles in regaining forward momentum in subscribers and ARPUs in Malaysia and regionally as underpinning the need for the group’s re-merger catalyst with TM.

• Axiata currently trades at a bargain FY17F EV/EBITDA of 7x, way below its 2-year average of 8.1x, vs. SingTel’s 14x.

Source: AmInvest Research - 21 Aug 2017