Highlights

• 91.59%-owned Bangladeshi OpCo (JV with NTT DoCoMo), Robi is slated for IPO in 2016. This corporate exercise will have a higher priority than tower listing which require more time for profitability and efficiency improvements as well as regulatory clearances.

• Robi is Axiata’s 4 th largest contributor, with 11% of sales, 11% of EBITDA and 7.3% of PATAMI as of 9M14. Relatively small contributions, but improved tremendously since 2010 and has great potential to grow further.

• In Bangladesh, mobility is still at infancy stage dominated by prepaid voice and SMS. As of Nov 2014, mobile and data penetration rates stood at circa 72% and about 25% on the back of 166m population with both 3-year CAGRs projected at 12.0% and 19.2%, respectively.

• With circa 25% revenue market share (RMS), Robi is the 2 nd largest telco behind Grameenphone (GP) with about 52%. In terms of subs, Robi ranks 3 rd with circa 21% behind GP (about 42%) and Bangalink (about 26%). With 96% population coverage, its strongholds are Chittagong, Dhaka and Comilla (CDC). Data only contributes 5% of its total sales while smartphone penetration remains low at 5%.

• Mixed regulatory landscape: - High tax regime of about 50% including SIM taxes (new and replacement), USP (6% of sales) and corporate tax (45%). It will enjoy lower corporate tax of 40% as a public entity. - Positive initiatives to spur growth including reviewing of National Telecom Policy, Mobile Number Portability and spectrum auctions (1.8/2.1GHz in 2015/16 and 700MHz in 2016/17).

• Robi has vision to lead small screen data and become a strong number 2 in RMS by 2016 via simple and relevant offerings and enhance end-to-end experience.

Comments

• Positive development to unlock Robi’s true value. With GP trading at EV/E BITDA of 8.5x compared to HLIB ascribed value of 6.0x, this will enhance Axiata valuations (12 sen or 1.6% to RM7.71).

• An effective avenue to fund future CAPEX chiefly in data infrastructure and spectrums (auction price circa USD21m/MHz) allowing Robi to expand beyond CDC.

Catalysts

• Higher smartphone penetration boosting data ARPU.

• Strong growth in developing markets with low penetration.

• More cost savings from collaboration with DiGi.

Risks

• Regulatory risks, FOREX fluctuations and competitive risks.

Forecasts

• Unchanged.

Rating

BUY , TP: RM7.59

Positives

• mobile internet growth, margin improvementsthrough 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

• Reiterate BUY with unchanged SOP-derived TP of RM7.59

Source: Hong Leong Investment Bank Research - 12 Jan 2015