Highlights 

Monetizing  data:  strong  emphasis  to  improve profitability of data  revenue.  To  achieve  that,  Axiata  practices  a disciplined pricing  methodology  /  bundling  and  device  push.  Recently, data  margins  have  clearly  improved  at  Celcom  and  XL  as  a result of efficient  CAPEX  initiatives.

Centralized  procurement:  by  leveraging  on  group  synergy (volume  purchase),  Axiata  has  almost  concluded  its  global price  book  (GPB)  which  sees  a  significant  savings  of  14% compared  to the current contract value.

Open platform:  launching MIFE with selected standard APIs which compliant to GSMA OneAPI initiative and will be live in most  of  its  footprint  by  end  of  2014  /  early  2015.  MIFE  will allow  developer  /  3 rd party  platforms  to  be  connected  to Axiata  network,  easing  introduction  of  fut ure  new  application or services, including OTT,  M2M, cloud computing, etc.

edotco:  to  complete  SBU  carve  out  for  all  assets  by  Dec 2014  involving  Malaysia  (~3.3k  towers),  Bangladesh  (~3.7k torwers),  Cambodia  (~1.5k  towers)  and  Sri  Lanka  (~2.0k towers).  Separately,  Axiata  also  awarded  conditional  license by  regulator  in  Pakistan  and  plan  to  be  operational  by  Dec 2014.  Average  tenancy  ratio  is  ~1.35.  Embarked  on  several cost  optimization  measures  including  the  introduction  of global  procurement  strategy,  new  tower  structure  design (overall  reduction  in  tower  tonnage),  reduction  of  cabinet footprint  and implementation  of remote monitoring  systems.

XL-Axis consolidation:  on track and touted to be one of the fastest integration  ever  conducted in mobile industry :

• Organization  integration  done  in 60 days post -closing;
• Operational  integration  85% completed just 6 months post closing, 100% by end of 2014;
• OPEX  reduced  by over  60% yoy; and
• Meaningful  quality  improvement  already  enabled  by  new spectrum. XL  is currently operating  near to breakeven  point.

Celcom:  after  11  months  without  new  product  launches due to IT system transformation, Celcom is planning to play catch up and confident to make a strong comeback.

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 

• Maintained.

Rating  HOLD, TP: RM6.92

• Positives  –  mobile  internet  growth,  margin  improvements through  collaborations/sharing,  recoups  prepaid  tax  via  GST, unlock value  through  tower listing.
• Negatives  –  Challenging  operating  environment  in  Indonesia, Axis  to  weigh  down  XL  in  the  short  term,  OTT  substituting voice  and SMS, unable to monetize data.

Valuation 

• Maintain  HOLD  with  unchanged  SOP-derived  TP  of  RM6.92

Source: Hong Leong Investment Bank Research - 9 Oct 2014