News      22 bidders have applied for the two nationwide mobile licences in Myanmar (please refer overleaf for the names of the bidders) according to the country’s telecommunications operator tender evaluation and selection committee (“Committee”).

The initial license term will range between 10 to 20 years with the possibility of future renewal.

Both the new and also existing licensees are expected to enter into infrastructure and facilities sharing arrangements in order to achieve a rapid and cost efficient network deployment.

The Committee said it expects to release a list of Pre-qualified Applicants, who would be eligible to participate in the licensee selection process, on 11 April 2013 with a final decision on the winning bidders to be announced on 27 June.

Comments      The group’s chances of winning the license remain tough in view of the highly competitive bidders list. Nevertheless, funding will not be an issue in our view should Axiata be successful in getting the license. As at end-FY12, Axiata has a cash pile of RM7.9b with a gross debt/EBITDA ratio of 1.7x. The ratio is still below its optimal capital structure of 2.0-2.2x gross debt/EBITDA level, suggesting that Axiata still has room to leverage up its balance sheet if needed.

We understand that the main goals for the issuance of two new nationwide mobile licences by the Myanmar’s authority are to increase the overall tele-density of the country from 75% to 80% by 2015-2016, and to make telecommunications services available to the public at affordable prices in both the urban and rural areas.

Based on our understanding, the mobile penetration rate in Myanmar, which has a population of 60.3m or two times larger than Malaysia, is estimated at approximately 9%-10%, thus suggesting that there is ample room to grow for newcomers to the sector. Nevertheless, the new investment opportunity may also come with some unforeseeable risks given that the political situation in Myanmar is still dicey, at least in the short to medium term.

Outlook      The group’s data business is expected to continue to be its main growth driver in 2013, especially in the more mature markets. Axiata’s consolidation and market ‘rebalancing’ strategy in some OpCos countries (i.e. Cambodia) is expected to start bearing fruits in FY13. Meanwhile, we believe the competitions are intensifying in both Robi (Bangladesh) and Dialog (Sri Lanka) while XL (Indonesia) may continue to face challenges due to the changing industry dynamics there.

Forecast       No changes in our FY13-FY14 earnings forecasts.

Rating       Maintain MARKET PERFORM

Valuation       Maintaining our target price at RM6.60 based on an unchanged targeted FY13 EV/forward EBITDA of 8.4x (+1.5SD).

Risks      Regulation risks in its overseas ventures.

Source: Kenanga