Axiata (BUY)

Celcom Breaking Up with U Mobile

'''' U Mobile has entered into Malaysia's first active 3G radio access network sharing agreement with Maxis.

'''' In a separate announcement, Celcom and TM jointly update that they have yet to conclude and finalize on the strategy in providing the fixed mobile convergence (FMC) solution.

'''' Comments: We think that this announcement marks the end of Celcom's 4-year relationship with U Mobile.

'''' As a result, Celcom will lose a long term revenue stream from U Mobile but we opined the impact to Axiata is negligible.

'''' In response to competition, we also foresee a high probability that Celcom would expand the current scope of collaboration with DiGi to include active 3G and LTE network sharing the near future.

'''' We update our estimates by tuning down Celcom's revenue very marginally starting from 3Q12 assuming U Mobile fully cutover to Maxis by then. Hence, our FY12 and FY13 EPS are revised by -1% respectively. Also, we updated Idea's market price used in SOP whereby it has decreased about 7% since our last report.

'''' SOP-based target price is lowered from RM5.48 to RM5.41 mainly due to lower market price for Idea.

''

Maxis (HOLD)

Maxis & U Mobile: "Yes, I do!"

'''' Maxis and U Mobile entered into a landmark multi-billion ringgit agreement to share Maxis' 3G radio access network (RAN) making the partnership the first active 3G RAN agreement to be deployed in Malaysia.

'''' The agreement also encompasses LTE sharing when the spectrum becomes available and rolled out.

'''' The agreement will be for a period of 10 years with an option to extend for up to another 2 years.

'''' Comments: Maxis has successfully wooed U Mobile by offering 3G domestic roaming (DR) on top of 2G DR which U Mobile is currently enjoying through tie-up with Celcom Axiata since June 2007.

'''' Win-win strategy: Maxis to enjoy long term revenue stream and increase asset utilization and productivity; U Mobile to avoid CAPEX at locations with low business viability (Sabah and Sarawak) while able to offer nationwide coverage.

'''' We update our estimates to reflect contribution from this collaboration assuming U Mobile fully cutover to Maxis from Celcom by 3Q12. As a result, our FY12 and FY13 EPS estimates are revised by +1.2% and +2.6% respectively.

'''' Our DDM-derived TP of RM5.39 remains unchanged.

''

September Inflation Report

'''' CPI growth inched up marginally to 3.4% yoy in Sep 2011 (Aug: +3.3% yoy), higher than the consensus estimate of 3.3% on account of faster annual increase in food prices (+5.0% yoy; Aug: +4.6% yoy).''

'''' The uptick in inflation rate was due entirely to base effect. Mom basis, the CPI growth had remained stable at 0.2% for the third consecutive month. However, the ongoing flood in Thailand and the upward revision in Thai rice may cause food prices to remain high in 4Q.

'''' As in the past, we expect the next round of subsidy rationalisation to be implemented in December. All-in-all, we retain our forecast that the CPI growth will average 3.2% in 2011.

'''' We expect inflation to ease marginally to 3% in 2012 driven by government's subsidy removal exercises and the new salary scheme for civil servants and pensioners.

'''' We expect BNM to hold the OPR at 3.00% until end-2012 as it focuses on growth agenda given the recent external developments while inflation is on moderation trend.

''

More profit taking near 1470 levels

'''' Asian markets and Bursa Malaysia are likely to open higher today, driven by Dow's strong gains last Friday amid optimism of a euro debt-crisis solution and a possible QE3 by the Fed.

'''' We continue to advocate risk-averse investors to sell into rally or trim positions when KLCI reaches our envisaged stiff resistance targets near 1470 (15-w SMA) and 1495 (20-w SMA). Immediate base building supports for pullbacks are 1411 (30-d SMA), 1405 (mid Bollinger band) and the 1400 psychological levels.

QL: Medium term upside targets at RM3.15-3.30

'''' As weekly technical readings are on the mend, QL's medium term resistance targets are at RM3.15 (38.2% FR) and RM3.30 (23.6% FR). Support levels are RM2.75 (mid Bollinger band-daily) and RM2.63 (lower Bollinger band-weekly). Accumulate now but stop loss below RM2.63.