• 1Q19 core EBITDA grew 4.1% qoq and 6.4% yoy mainly on Robi’s turnaround and Dialog’s strong performance.

• Meanwhile, Celcom’s EBITDA slipped 6.5% qoq and 4.5% yoy amidst lower regulated mobile termination rate.

• Its portfolio rationalization on divestments and consolidation is on track so far. However, major risk in emerging market remains.

• Maintain HOLD and RM4.25 TP. Despite being upbeat on its merger, we believe the risk of the deal falling through is high pending due diligence and stakeholder approvals.

Robi and Dialog continue to perform

1Q19 EBITDA grew 4.1% qoq and 6.4% yoy mainly on Robi turnaround and Dialog’s strong performance. Robi’s EBITDA rose (qoq: 1.6%, yoy: 37.5%) on lower customer acquisition cost, enlarged subs and increased ARPU which led it to turn a net profit of BDT115m from net losses (1Q18: BDT1.3bn, 4Q18: BDT962m). Dialog’s EBITDA growth remain robust (qoq:5.7%, yoy:14.4%) driven by the fixed segment despite facing price pressure on its ARPU.

Celcom remains underpressure

Celcom’s EBITDA sliped 6.5% qoq and 4.5% yoy amidst lower regulated mobile termination rate (MTR). This impact is similar to other domestic telcos and we expect this to continue for coming quarters. The recent ban on Huawei phone by US government could be a major drawback in future device bundle plans due to low demand and possible high subsidy pricing.

Portfolio rationalization on track but major risk remains

For the last 5 months, Axiata has rationalised its portfolio by divesting M1 and Axiata Digital non-core business and also skipped Idea’s right issue. On its merger plan, we reiterate our positive opinion as it could create synergy value by sharing its resources and networks domestically and seamless collaboration between OpCos and Global TowerCo regionally. Nevertheless, its risk exposure in emerging market remains high amidst heightened regulatory risk. It also recently seeked for arbitration on Nepal government on CGT charges issues.

Maintain HOLD and TP of RM4.25

We maintain our HOLD recommendation and TP of RM4.25. Although we are upbeat on its merger plan, we believe the risk of it being called off remains high since it is still in preliminary stage pending due diligence and stakeholder approvals. We opine that regulatory approvals is the most challenging given that Axiata and Telenor are dominant in certain markets i.e Malaysia and Bangladesh.

Source: BIMB Securities Research - 29 May 2019