News    Celcom Axiata entered into a Master Collaboration Agreement with Altel Communications S/B on developing and managing shared infrastructure to provide communication services in Malaysia.

Both companies would pool their respective 2 x 10MHz bandwidth of the LTE2600 spectrum into a common pooled spectrum for the exclusive use of both parties. 

Altel which has been awarded by the MCMC 2 x 20MHz of the LTE2600 MHz spectrum band will consider the request by Celcom for use of the remaining 2 x 10 MHz spectrum band from Altel.    

They plan to establish, operate and maintain a wireless business running on or using the LTE technologies. 

Altel will appoint Celcom as the exclusive infrastructure and wholesale provider of the Mobile Virtual Network Operator (“MVNO”) services to enable the former to operate as a MVNO in Malaysia.

The rationale of this collaboration is to establish a smart alliance that will benefit both Celcom and Altel in achieving their short and long-term business goals.

Comments    We welcome the above collaboration as it will allow Celcom Axiata to further leverage its current 2G/3G infrastructures. Meanwhile, the pool of both parties respective 2 x 10 MHz LTE spectrums will provide an equal competition landscape that similar to its rival, Maxis, which has a same size of a pool LTE spectrum after collaborated with Redone International Berhad in last July. We understand that the 2 x 20 MHz LTE spectrum could provide a 4G speed that up to 150Mbps.       

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. Nevertheless, heightened competition and cost pressure (mainly from product pricing, SMS interconnection rates and continuing data network investments) have put XL’s profitability under pressure. 

Forecast   No changes in our FY13-FY14 earnings forecasts. 

Rating   Maintain MARKET PERFORM

Valuation    Maintaining our target price at RM6.72 based on an unchanged targeted FY14 EV/forward EBITDA of 8.2x (+1.0SD). 

Risks    Regulation risks in its overseas ventures.

Source: Kenanga