Highlights

• A dialogue session was hosted mainly to address issues from its 2 largest OpCos, namely Celcom and XL.

• Celcom: Resolutions of the new business support system’s (BSS) shortcomings was prolonged till 1Q15 and currently in stabilization stage. Faults were mainly related to handshake protocols, orders handling and hardware instability. BSS will be further enhanced to include new features, high availability and integration with CRM (Siebel). Leveraging on this system, subscriber/service provisioning is far more efficient with single centralized screen while the business intelligence function provides in depth analytics on trades and customer behavior for more targeted sales and marketing executions.

• This state-of-the-art BSS has also empowered new sales and marketing strategies, including: 1. Simplifying products value propositions; 2. Improve trade confidence among 300 territory managers with new KPIs, responsibilities and demarcation; 3. Introduction of ad-hoc tactical ground team; and 4. Extending reach through modern / alternate channels such as online.

• XL: Refreshed C-level under the leadership of Dian Siswarini (replacing long serving Hasnul Suhaimi who is retiring) and will embark on new business strategy over 3-wave transformation from FY15-17.

• Volume to value game: With mobile penetration rate at circa 130% and diminishing demand elasticity, XL is shying away from the high gross add model and shifting focus towards subs profile with mid to high values. Will differentiate itself via branding (dual brands – XL and Axis), modernization of sales channel, introduction of digital services and customer service.

• In turn, Axiata is seeing near term revenue impact with 1H15 under pressure along with a hopeful recovery in 2H15.

• However, we are not overly concerned and remain confident on Axiata’s prospect over the longer term. We opine that both are on the right tracks to regain market share.

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

BUY , TP: RM7.52

Positives

• mobile internet growth, margin improvements through collaborations/sharing, recoups prepaid tax via GST, unlock value through tower listing, resolution of Celcom IT issue and XL-Axis to regain market share.

Negatives

• OTT substituting voice and SMS, unable to monetize data.

Valuation

• Maintain BUY on the back of unchanged SOP-derived TP of RM7.52 (see Figure #2).

Source: Hong Leong Investment Bank Research - 2 Apr 2015