We attended Axiata’s Analyst & Investor Day 2014 yesterday and came away  feeling  more  upbeat  on  the  group’s  growth  prospects notwithstanding our NEUTRAL call due to limited  upside (+3.8%) based on  our  MYR7.30  SOP  TP.  Nonetheless,  Celcom  is  prepared  to  return with a bang  with a slew of new products, while XL has made excellent progress on its integration with Axis. Competition remains a key risk.

Celcom to return with a bang.  After almost a year of no new product launches, Celcom has lined up a slew of new products to be launched in the coming weeks.  Management said the IT transformation issues that had plagued Celcom for much of the year  have  been  largely  resolved, and is confident  the  much-improved business support system  will give it a  leg  up  against  its  peers  by  streamlining  its  dealership,  automating back-end systems and shortening customer response time. Management is also preparing a host of events to gain back dealers’ confidence.

XL Axiata in a strengthening position.  The XL Axiata (XL) (EXCL IJ, NEUTRAL, TP: IDR6,280) and Axis  integration is proceeding  faster  thanexpected, management said. This has allowed XL to reap significant cost savings and improve its network quality by quickly reaping the benefits of additional spectrum. Nonetheless, we believe XL’s growth expectations may  remain  tempered  by  the  risk  of  not  properly  monetising  data. Competition remains fairly intense  –  which  is a risk to XL should it try to raise headline data prices too quickly.  

Patience needed for edotco. We think the market will need to be a little more  patient on  the  potential  monetisation  of  the  group’s  tower  assets via  edotco  group  (edotco).  We  gather  that  for  the  next  year  or  two,edotco  will  focus  on  improving  operational  efficiencies  by  boosting revenues  (increasing  tenancy  ratios)  and  cutting  costs  (improving procurement processes). edotco currently has about 12,700 towers in its portfolio and is eyeing Pakistan as the next growth market.

Investment case.  We remain NEUTRAL on Axiata, with an unchanged SOP-based TP of MYR7.30. While we are more upbeat on Celcom and XL’s  growth  prospects  in  2015,  we  believe  these  factors  are  relatively priced in. Both of these operating companies have laid the foundation for future  growth,  but  competition  remains  a  key  risk  to  earnings  growth,given the lack of visible signs of diminishing competitive intensity. 

Source: RHB