Axiata (HOLD)

Much Anticipated Disengagement

• Local daily reported that U Mobile has submitted arequest to terminate its domestic roaming (DR) agreement with Celcom Axiatalast week.
• Celcom's earnings to be eroded by RM150-200m annually.
• Comments: This news did not surprise usat all as we have flagged this concern in our report titled 'Celcom Breaking Upwith U Mobile' dated on 24^th Oct 2011.
• This event is very much anticipated as it is technically more feasible(less network signaling load and unnecessary handover) and operationally moreeconomical (lower fixed monthly connection rental) to engage with one DR partnerrather than two who have overlapped coverage.
• U Mobile's 10-year partnership with Maxis which also include future LTErollout has created conflict of interest in its current relationship withCelcom who has teamed up with DiGi.
• We do not expect Celcom to terminate this agreement earlier as paymentfrom U Mobile contributes directly to its bottom line with negligible OPEX.
• We reiterate our HOLD call with unchanged target price of RM5.02 as wehave factored this into our model.