Highlights

Last week, Myanmar’s Ministry of Communications and Information Technology (MCIT) has shortlisted a dozen applicants who are pre-qualified for two nationwide telecommunications licenses from 22 initial bidders, eliminating big names including STT Communications, China Telecom, True Corp, PT Telkom, Orascom and SK Telecom.

By pre-qualifying, Axiata has proven that it has satisfied all the objective standards including the requisite resources, financial strength, operating skills and experience to design, implement and operate a public telco network.

Next, all pre-qualified applicants will be required to submit their applications to the evaluation committee by June 3 in order to proceed into the third and final stage of the license award process. Two successful bidders will be announced on June 27.

Comments

As much that we hope for Axiata to win, this greenfield oversea expansion will be a very challenging battle.

At this selection stage, we think that judgments will take into account of non-telco specific elements, such as political ties, economic relationships and historical implications which are sincerely treasured especially for a nation which has been sanctioned for many years.

Myanmar’s bilateral trade data may provide a glimpse from this perspective. Although Malaysia is ranked as 7th largest Myanmar’s trading partner in 2011, this is not solid enough for Axiata to be favored as a frontrunner.

We do not discount that nationalism may also come into play, biasing decisions towards those who have local partners in the consortiums. Among the 12, four have local participations while Axiata is independent.

We are not too concern if Axiata does not secure Myanmar which in our view is still a very high exposure venture, including political risk, demanding rollout timeline (before SEA Games), high investment which may weigh down on dividend distribution and more.

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 - 15 Apr 2013