- Myanmar announced the winners of its two new telco licenses last week. Telenor and Qatar-based Ooredoo were the two recipients of the 15-year licenses, while the France Telecom-Marubeni consortium were named as back-up in case any of the two winners do not meet the minimum criteria. As a recap, 12 consortiums/telcos were shortlisted for the award which included Axiata, Airtel, Digicel, France Telecom-Marubeni, KDDI Corp, Millicom, Ooredoo (Qatar Telecom), Singtel, Telenor, Viettel and Vodafone (pulled out from the bid).

- Myanmar license wasn’t in the price in the first place: While Axiata (BUY, FV: RM7.30/share) failed to get a license in Myanmar, this does not change our positive view on the stock and more importantly, little expectations have been built into Axiata’s price judging by minor movement in share price (+2%) since Axiata was shortlisted for the license in April 2013. On the contrary, this frees up Axiata’s capital commitment (for Myanmar), which would have ran into >USD1bil over the initial rollout period.

- Credit line remains idle for now: Though Axiata’s USD1.5bil (RM4.8bil) credit line remains idle (and raises possibilities of a special dividend) we remain conservative for the time being, as it depends on the development of the Indonesian market, in particular, XL’s capex trends and potential M&As. Axiata was said to be considering a bid for Axis back in May 2013 and indicative EV was reported to be USD1bil (RM3.2bil). Axis launched its services in 2008 (provides 2G and 3G services) and is 84% owned by Saudi Telecom. The group has >70% population coverage in Indonesia and an estimated 6% market share. The main reason for the consideration is to acquire more spectrum, which would allow for more efficient network rollout (given less base stations required for coverage with more spectrum).

- Tower asset spin-off: Another key catalyst which could lead to higher dividend payout would be the potential spinoff of Axiata’s tower assets. XL was reported earlier this year, to be asking for USD1.48bil for its 8000 towers (on average of USD185K per tower), while Idea was reportedly looking to spin-off 9400 towers that it still owns (11K towers already transferred to Indus Towers, where Idea owns a 16% stake). However value unlocking of its tower assets looks pretty complex as this would cut across different jurisdiction with different regulatory standards - Axiata operates across seven different countries in Malaysia. Celcom has already entered into an infra-sharing arrangement with Digi (involving >4K sites) which is expected yield up to RM2.2bil in cost savings over a 10-year period.

- Raising cash from Digi?: We raise Digi to HOLD from SELL (FV maintained at RM4.60/share) as share price has retraced 14% since our downgrade in Oct 2012. We think Digi could see some interest in the near-term following Telenor’s win of one of Myanmar’s telco licenses. Digi is a sizeable component of Telenor’s earnings, accounting for 17% of Telenor group EBITDA (2^nd largest after home market, Norway), suggesting possibilities that Telenor may resort to raising dividends at Digi, among others, to help fund its Myanmar venture.

- Telenor’s net gearing stood at 42% at end FY12 (net debt: USD5.3bil) and the Myanmar rollout looks to require heavy capex given its greenfield setup. Ooredoo as an example has committed USD15bil for network rollout over the license’s 15 year period (breakeven within 3-4 years). While Digi’s management has highlighted previously that there is little room for further capital management initiatives (after the two it has done in the past 2 years), adoption of a business trust structure would allow Digi to payout dividends out of its operating cash flow versus accounting earnings currently (which could raise div yield to 6% from c. 5% currently).

Source: AmeSecurities