We attended Robi Axiata’s (“Robi”) analysts’ day last Friday and walked away with a NEUTRAL view. The key highlights of the briefing were: (i) Bangladesh’s macro and regulatory issue, (ii) industry and business trend, and (iii) vision and strategy moving forward. Management also provided some colours on its upcoming IPO, which has been delayed to 2016. Meanwhile, Robi also provides some guidance on its financial trend moving forward although we believe it may be subject to review given that the sector is expected to face some structural changes in 2015/2016. There is no change in our FY14-FY15 earnings forecasts postbriefing. We reiterate our MARKET PERFORM rating on AXIATA with an unchanged target price of RM6.88, which is based on a targeted FY15 EV/forward EBITDA of 9.6x (+1.0x SD above its 4-year mean).

Delaying IPO until 2016. Robi has decided to seek more time for its IPO until the 2H16 as the current business conditions are not favourable. Management cites uncertainty over acquiring spectrum via auction this year, an unsettled issue of ‘SIM replacement’ tax with the National Board of Revenue, as well as perceived insufficient incentives for listing to shareholders due to the existing corporate tax (45% corporate tax) regime as the main cause of the delay. Having said that, we understand Robi is eyeing to list the entity at EV/EBITDA of 6x-8x range, should the IPO materialise. Note that, the licensing guidelines issued by the local authority (Bangladesh Telecommunication Regulatory Commission) in 2011 had reiterated that all six cellular licensees must float their shares on the local stock market and any operator listing a minimum of 20% shares through an IPO could receive a 10% rebate on total tax in the year of transfer.

Structural change in 2015/2016. The country’s telecom sector is expected to face some structural changes in 2015/2016, where the authority has scheduled to implement/review (i) the national telecom policy, (ii) 1800MHz/2100Mhz auctions in 2015/2016, and (iii) 700MHz spectrum in late 2016/early 2017. While the review of the regulatory landscape could potentially cause some hiccups during the near-term, these positive government initiatives could stimulate the sector growth over the longer run.

To become the industry leader by 2016. Robi believes the county’s mobile industry still provides ample rooms to grow judging from the current low mobile data (25%) and unique sub penetration (46%) rates. The group’s 2G/3G population coverage stood at 98%/24% in CY14 which are expected to further widen to 99%/30% in CY15 followed by >40% a year later. Targeted focus districts/areas will continue to remain at Chitagong, Dhaka and Comilla, where the group’s majority of turnover (c.80%) was generated from. With the enhanced network coverage to provide better customers experience via simple and relevant offerings, Robi reckons it can lead mobile Internet services in Bangladesh by 2016 and become the top service provider in ‘small screen’ data as well as the second top operator in terms of revenue market share.

Financial trends towards FY17. The current low unique penetration and robust mobile Internet growth are expected to further drive the country’s mobile industry moving forward. With the skyward industry trend coupled with more effective cost management, Robi believes its revenue/EBITDA/PAT could achieve 7-year CAGR of mid-10%/high-10%/mid-to-high 20% in FY17, translated into c.BDT69b/BDT26b/BDT5b (vs. BDT45b/BDT16b/BDT3.7b in FY13), respectively. EBITDA-margin wise, Robi expects to further widen its margin to mid-40%s in FY17 from 35.4% in FY13 following a series of effective cost management. Note that, Robi has contributed 11%/11%/7.3% to Axiata’s total revenue/EBITDA/normalised net profit as of end-9MFY14.

Source: Kenanga