We think management will step up efforts to monetise data, in light of the recent steady decline in SMS revenues for both Celcom and EXCL. While we expect Axiata’s revenue growth to moderate, management remains committed to cost management initiatives, which should help keep margins stable. Its commitment to progressively pay higher dividends should support the stock. Maintain NEUTRAL.

- Celcom. While management has yet to guide for 2014, we sense that it would be increasingly difficult for Celcom’s revenue to grow above mid-single digits. Annual overall data growth is moderating to the low single digits, as SMS revenue (a subcomponent of overall data) continues to decline in the high single-digit range. Although management has several initiatives in place (such as introducing its own SMS social networking service) to keep SMS decline in check as over-the-top (OTT) usage rises, monetising data is still a challenge. It highlighted that sensible data pricing is key to ensure that data is monetised properly going forward.

- XL Axiata (EXCL IJ, NEUTRAL, TP: IDR4,100) is also facing pressure on its SMS revenue (9MFY13: - 4%). With SMS traffic volume expected to remain on the decline and data pricing still suboptimal in Indonesia, it was unsurprising that EXCL revised its revenue growth guidance to low single digits, from mid single digits. Just like Celcom, EXCL’s management highlighted that data pricing needs to be higher as margins are still too low. However, as the competitive environment is still intense, it does not expect data prices to rise significantly in the short term.

- Robi. Tailwinds for Robi appear intact in the short term, largely due to the reduced SIM tax (to BDT300 from BDT605 since 16 May 2013), which should see it continuing to register strong y-o-y earnings growth.

- Investment case. We maintain NEUTRAL on Axiata, with an unchanged SOP-based FV of MYR6.55. Its future earnings growth outlook remains challenging due to: i) XL’s slow but sustained recovery, and ii) the latter’s potential earnings dilution from acquiring Axis. However, proper execution should boost longer-term earnings 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.

Source: RHB