Axiata’s associate, Idea Cellular (9% of Axiata’s SOP valuation),  posted a good set of 2QFY14 results in a seasonally weaker quarter.  We view the continued improvement in voice pricing trends in India  as positive. While  sequential  subscriber  growth  is  moderating,  there  are  still opportunities  in  the  rural  areas.  Data  is  the  next  growth  driver  but  a challenging one as the industry struggles to price data correctly.

• Another  good  quarter  from  Idea.  Axiata’s  associate,  Idea  Cellular  – contributing  9% of Axiata’s SOP valuation  -  reported a surge in 1HFY14 net  profit  to  INR10,109m  (+39.8%  y-o-y)  that  comprises  55%  of consensus’ FY14 estimates and marginally beat expectations. Q-o-q, net profit eased 3.3% due to seasonality.
• Sustaining  positive  trends  in  India.  Despite  a  seasonally  slow 2QFY14,  Idea  continued  to  see  pricing  improvements  as  average revenue per minute  (ARPM)  rose  6.4%  q-o-q  despite lower voice usage and average revenue per user (ARPU).  This was due  to  better tariffs  as well as  fewer discounted minutes.  Management sees more potential for voice usage to grow, especially in rural areas (35% SIM penetration).
• Potential in data but low pricing a concern. Idea sees vast potential in the mobile data business as consumers turn to smartphones  for Internet access, since  fixed line infrastructure remains poor.  Currently,  only 26% of Idea’s 127.2m subscribers use data (either through EDGE and/or 3G) while mobile data contributes just 8.7% of service revenue. Nonetheless, a  concern  to  Idea  is  that  some  competitors  are  offering  data  at  below cost,  which  is  a  challenge  in its  efforts  to  monetise  data  effectively  as Idea’s  data  traffic  volume  has  surged  rapidly  (+85.7%  y-o-y)  although data ARPU has remained flattish for the last six months.
• Investment  case.  We  maintain  NEUTRAL  with  an  unchanged  SOPbased FV of MYR6.55. While Axiata’s future earnings growth  will remain challenging due to: i)  XL’s current underperformance,  and  ii) the latter’s potential earnings dilution arising  from acquiring Axis, proper execution should boost earnings in the longer term while capex savings could allow XL (and, in turn, Axiata) to pay more dividends. Monetisation of its tower assets is a longer term catalyst for Axiata.

Financial Exhibits

SWOT Analysis

• Axiata, via its subsidiary Hello Axiata, acquired Latelz in Dec 2012, whereby the combined entity would be one of the largest players in Cambodia

Company Profile
Axiata is one of the largest Asian telecommunication companies with controlling interests in mobile operators in Malaysia, Indone sia, Sri Lanka, Bangladesh and Cambodia.

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Source: RHB