News     The Myanmar government has shortlisted 12 bidders for the two new telecommunication operator licences in the country. This was down from the 22 companies and consortium that initially expressed interest in the licences.

The 12 qualified bidders were India-based Airtel, Malaysia’s Axiata Group Berhad, Digicel, Vadafone + China Mobile, Milllicom International Cellular S.A., Qatar’s Ooredoo, France Telecom-Orange with Marubeni, Vietnam’s Viettel Group, Singtel + KBZ and local operator M-Tel, MTN Consortium, Telenor and a consortium led by Japan’s KDDI and Sumitomo.

To qualify for the second round of bidding, operators needed to show that they had the necessary financial resources and technical expertise to troll out networks and services.

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

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

All qualified 12 bidders must submit detailed bids to the special committee at Myanmar’s ministry of communications and IT by 3 June, and the final winners are expected to be announced by 27 June.

Comments     Despite Axiata having managed to enter the final stage the licensing process, the group’s chances of winning the license still remain tough in our view given the highly competitive final bidder list. Nevertheless, we reiterate our view that 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.

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 that 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