We maintain Neutral on the sector as valuations are not cheap but we believe there may be some value in DiGi and TM, which have retraced from their highs. The sector should see fairly sustained revenue growth driven primarily by data in 2013, although margins may come under some pressure from handset subsidies in view of intense competition. Nonetheless, dividends should remain intact.

-  TdC to complete dividend-in-specie exercise soon. The catalyst for TdC is the dividend-in-specie exercise (6 DiGi shares for every 25 TdC shares held) targeted for completion in 2Q13. The exercise appears on track following the High Court approval on 18 March.

-  Cautious near-term outlook for Axiata. We believe management is being conservative with its FY13 EBITDA growth target, which is unsurprising primarily due to margin pressure in XL. XL’s performance will depend on how long Hutch remains aggressive in the market.

-  DiGi revisiting the large screen market. DiGi has among the highest revenue growth expectations (5-7%) in 2013. While smartphones and of late tablets have been DiGi’s main focus to grow data revenue, management believes there is a viable market in the large screen market.

-  Maxis eyeing recovery in revenue growth. After a challenging 2012, management sounded more upbeat on prospects for 2013 with a midsingle digit revenue growth target. The key driver in revenue growth will be U Mobile’s RAN sharing and nationwide 2G roaming fees, we believe.

-  TM keeping a tight lid on cash. After a strong 2012, management sounded more cautious on 2013 due to margin pressure. Management expects its capex intensity to decline just marginally in FY13, but we note that TM has room to gear up. This opens the possibility of special dividends in the future.

-  Neutral on sector. We only have a Buy call on TdC for its cheaper valuations compared to its domestic peers and good growth prospects in the regional bandwidth business.

Source: RHB