Axiata Group Bhd; Fully Valued; RM6.65
Price Target: RM5.90; AXIATA MK

Axiata Group announced that Celcom has entered into a master collaboration agreement with Altel Communications Sdn Bhd to share their respective 2600MHz 4G LTE spectrum (2x10MHz from Celcom, 2x10MHz from Altel) as well as for Celcom to be the exclusive infrastructure and wholesale provider of Mobile Virtual Network Operator (MVNO) Services to Altel. Altel would also consider a request by Celcom to share the remaining 2x10MHz spectrum it had received from the SKMM. We understand Altel is a company owned by Puncak Semangat.

Celcom’s collaboration with Puncak Semangat had previously been reported by a local news weekly in regards to spectrum sharing, and is not entirely unexpected. Nevertheless, this is positive for Celcom, as it would now have more leeway to offer higher LTE speeds and have greater capacities, as well as new revenue generating opportunities in the form of roaming and RAN sharing revenues from Puncak Semangat, which could now be considered an MVNO akin to U-Mobile.

However, this also adds an additional competitor into an already saturated market under challenging operating conditions. Puncak Semangat would likely have to offer services at competitive rates to grab some subscription market share, which would also dilute the incumbents’ subscription growth as well as revenue growth. The larger operators would likely need to rely more than ever on increasing usage of data, voice and SMS on existing subscriptions to fuel top line growth when Puncak Semangat rolls out its products. We maintain our earnings forecast and recommendation of Fully Valued at an SOP-based RM5.90 price target.

Source: HwangDBS Research - 5 Jul 2013