Highlights

• Newswires reported that Axiata is interested in taking part to privatize MobiFone, Vietnamese state-owned celco. Axiata’s Head of Corporate Development, Annis Sheikh Mohamed has recently met with Vietnam’s Deputy ICT Minister, Le Nam Thang in Hanoi to discuss on this matter.

• By acquiring a stake, a long-term cooperative relationship can be established where Axiata can offer valuable technology transfer. Furthermore, Axiata believes that it is in a good position to help and guide this corporate exercise based on its experience.

• The ICT ministry expects to complete the final proposal of this deal and obtain government approval by this year.

• Other international telcos including Telenor and Comviq are also eyeing this opportunity to penetrate int o Vietnam.

• Vietnam’s foreign investment law allows foreign investment in a company up to 49% stake. MobiFone’s current parent, state-owned VNPT, will be entitled to hold up to 20% of the private entity.

Comments

• If materialize at the right price, this is a great opportunity for Axiata to further strengthen its regional leadership.

• According to Business Monitor 2013 report, mobile adoption in Vietnam is expected to be saturated at 141% in 2014 mainly dominated by prepaid voice and SMS.

• Despite that, data usage is still at its infancy stage with penetration rates for 3G, internet and broadband users for 2014 forecasted only at 31.8%, 36.1% and 5.4%, respectively. Data ARPU is expected to grow at 5-year CAGR of 21.2%

• As of 3Q12, MobiFone is the third larges t celco in Vietnam with 16.7% subscriber market share, behind sister-company Viettel (41.8%) and VinaPhone (29.9%). In terms of 3G subscribers, MobiFone was the leader with 42.2% market share, followed by VinaPhone (35.9%) and Viettel (21.2%).

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 - 13 Jan 2015