We attended Axiata’s post-3Q13 result conference call yesterday. The key highlights of the meeting were on: (i) structural challenges in SMS markets and the mitigating factors, (ii) new products/revenue growth areas, (iii) capex guidance, and (iv) update on the Axis acquisition. Post-result meeting, there are no change in our FY13 and FY14 earnings forecasts, and we introduce our FY15E numbers. We reiterate our MARKET PERFORM rating on Axiata with an unchanged target price of RM6.73, based on a targeted FY14 EV/forward EBITDA of 8.5x (+1.0x SD).
Launch new SMS product to mitigate the pressure. Malaysian telco incumbents’ SMS revenue continued to face challenges since 2Q12 given that subscribers now tended to use more OTT applications to communicate messages over than the traditional methods. Celcom recorded the biggest decline of 10% (to RM181m) in its SMS revenue in 3Q13 in contrast to Maxis (-8% QoQ to RM275m) and Digi (-6% QoQ to RM162m). To mitigate the negative factor, Celcom is planning to reposition itself in the SMS market by launching a new SMS product in 1Q14. While management refused to elaborate more on the upcoming SMS product due to commercial reason, Celcom hinted it will cooperate with OTT brand to customize the product and cater for different subscribers’ needs.
Celcom is expecting to surpass the industry growth next year. While Axiata has yet to announce its FY14 KPIs, Celcom is expecting to perform better than industry average growth rate of 3%-5% in FY14, underpinned by more customised packages and plans targeted to be launched in the next few months to attract more subscribers. Top of the list will be its new broadband plan to be unveiled in mid-December. Management indicated that the product is meant to cater for those subscribers who require a constant high broadband speed and will cover the Home as well as LTE services. Focus will be on further leveraging its current platform and capitalising the data services.
Capex guidance for FY13 and FY14. Axiata is expecting its FY13 capex of c.RM4.1b as opposed to the earlier RM4.5b target. The revised lower capex number was mainly due to lower capex spending in Indonesia as the group expects significant savings upon the completion of Axis acquisition. The group’s capex stood at RM2.6b as of 9M13, of which RM1.45b was spent on XL, followed by Celcom (RM473m), Dialog (RM329m), Robi (RM234m), Hello (RM86m) and other OpCos (RM13m). Going forward, management expects its capex to come in at between 20%-21% of turnover in FY14, implying a targeted capex spend of RM4.0b-RM4.2b.
Axis acquisition updates. Axiata indicated that the target to complete the Axis acquisition (by XL Axiata) by end-March 2014 is still on-track. While shareholders generally support the proposed acquisition, it is still subject to obtaining all relevant regulatory approvals (includes Ministry of communications and informatics of Indonesia (MCIT), Badan Koordinasi Penanaman Model (BKPM), and Komisi Pengawas Persaingan Usaha (KPPU)). Besides that, we also understand that the success of the proposed acquisition is very much dependent on spectrum retention where the authorities have to approve both Axis and XL Axiata to retain their respective spectrum post merger. Note that, XL currently has the 7.5MHz in 1.8GHz band and 15MHz in the 2.1GHz band while Axis owns 15MHz and 10MHz in the above-mentioned spectrums, respectively. The country’s current regulation prohibits two similar companies, which have comparable frequency in one spectrum, to pull their respective spectrum together to create a monopoly situation.
Source: Kenanga
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