Highlights

According to Reuters, Axiata’s Sri-Lankan outfit, Dialog has won the 4G spectrum license in the country and will roll out the country’s first 4G LTE network.

In the tender, Dialog outbid two local competitors with the price tag of SLR3.2bn (RM78.1m) for 10MHz band in the 1,800MHz spectrum. Financial Impact

Although the winning bid price came in at 4 times of the auction base price of SLR800m, we believe that Axiata has no issue in funding it with its huge cash pile of RM7.9bn as of end of FY12.

Comments

We are positive on this new development as it complements Dialog’s product portfolio and value proposition of being the one-stop integrated telco in Sri Lanka.

The awarded 1,800MHz band is the most popular LTE spectrum in the world and thus we do not expect any supply shortage in compatible mobile phone / smartphone with wide price range catering for different level of affordability.

However, with only allocation of 10MHz, the offered LTE service would not be a significant advantage (in terms of speed) over existing 3G / HSPA+ service.

Hence, we doubt Dialog’s ability in commanding 4G price premium over existing 3G’s and expect no significant ARPU uplift at this juncture.

Catalysts

• Higher smartphone penetration boosting data ARPU.
• Strong growth in low penetration developing markets.
• More cost savings from collaboration with DiGi.

Risks

Regulatory risks, FOREX fluctuations and competitive risks.

Forecasts

Unchanged.

Rating

HOLD TP: RM6.63

• Positives – Despite the challenging environment, Axiata’s main OpCo (Celcom, XL, Dialog) continue to execute well.
• Negatives – Exposure to Indian telecom market which is currently under close scrutiny by the government.

Valuation

Reiterate HOLD call on the stock based on unchanged SOP-derived TP of RM6.63

Source: Hong Leong Investment Bank Research - 29 Mar 2013