- We reaffirm our BUY call on Axiata at an unchanged fair value of RM7.80/share following its post-1Q15 results teleconference.

- Celcom: Its IT system has stabilised and Celcom is now able to launch new products to regain subs share. The first launch (in recent weeks) was a postpaid product First Basic 38, which saw new sign-ups balloon from 800/day to 1.5K/day. Celcom is moving on to a new prepaid launch in early June.

- The large churn in 1Q15 prepaid segment was affected by: (1) lingering IT issues; (2) a competing prepaid free basic data product which has gained traction; and (3) aggressive price competition in the Bangladeshi and Indonesian foreign worker market (accounts for 22% of prepaid market).

- 2Q15 earnings is still expected to be soft given the initial impact of GST (that led to hiccups in reload sales) and it will only partly reflect the new product launches. Nonetheless, 1Q15 should mark a bottom in subs trend.

- Ground work being executed: Celcom is redeploying its device strategy, having been behind peers on this front (80K devices vs. 450K by peers) last year given its IT issues. Celcom is looking at innovative methods to drive device sales without affecting margins, with minimal subsidy and with a focus on bundling. Meanwhile the number of active dealers has recovered to around 3K after having dropped to 2K during the peak of Celcom’s network and IT issues.

- Celcom is spending higher capex (RM1.1bil from ~RM800mil), in-line with its return to the market this year, and its catch up on LTE rollout. Celcom is likely to focus on the prepaid market where it has lost a lot of subs share, and is likely to introduce a form of free basic internet products to counter competition. Unlike XL, Celcom’s issue is more on revenue/subs growth in FY14 whereby the resolution of its IT issues in 1Q15 is a huge turnaround catalyst.

- XL: Still has 6.5k surplus towers and is keeping tower sale as an option to pare debt. At an estimated IDR10.6tril proceed (based on prior sale price), sale of these towers can bring down net gearing to 0.8x from 1.6x currently.

- Better margins and better unit revenue are among key success milestones over the next 12-18 months whereas subs growth is no longer a priority. XL is looking at 2H15 for the negative revenue/margin trends to reverse.

Source: AmeSecurities Research - 21 May 2015