News  Bloomberg reported that Axiata is planning to raise at least USD500m by listing its telecommunications towers assets through an IPO in Bursa Malaysia by 2014.

 It was further reported that Axiata is working with CIMB Group Holdings Bhd., Goldman Sachs Group Inc. and JPMorgan Chase & Co. on the IPO.

Comments  The news came as no surprise given Axiata had previously indicated that it has a plan to consolidate its tower infrastructure across seven nations. However, no timeline was committed by the management.

 We continue to view the news positively given that the move to consolidate and list the tower infrastructure assets could potentially unlock its value as well as create synergies from the various joint monetisation opportunities.

 However, given the different regulatory settings across multiple jurisdictions, we believe Axiata could face great challenges in the execution process.

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, pending the upcoming 2Q13 result release.

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