Maintain NEUTRAL and a SOP-based TP of MYR6.40 (7% upside). Weemerged from Axiata’s briefing feeling more cautious over its near-term prospects, with earnings growth being fairly muted going into 2016. Capex is expected to remain high, at around MYR4bn-5bn amidst ongoing investments in back-end systems and network infrastructure –which should benefit the group over the medium to longer term.

Moderate growth over the medium term. Management guided formoderate mid-single digit growth over the medium term, due to a protracted recovery in Celcom’s and XL Axiata’s (XL) (EXCL IJ, BUY, TP: IDR5,100) performances amidst stiff market competition. It expects the performance of the other operating companies (opcos) to remain fairly stable, with selected inorganic growth potential from M&As (eg Robi-Airtel and edotco-Myanmar Tower Co or MTC) and new business opportunities. Total group capex is expected to remain high at MYR4bn-5bn, focused on broadening its 4G/LTE network coverage, fiberisationand improving back-end systems, which should benefit Axiata over the medium to longer term.

Opcos recovery slow but steady. Celcom’s recovery would be driven by a 3-pronged strategy of acquiring new subscribers, retaining itssubscribers and monetising new/existing ones. More data-centric plans would be launched over the coming months, although we note that the intensifying competition in the market could hamper ongoing efforts to acquire new subscribers. XL’s post-merger recovery is on track, with3Q15 revenue and EBITDA growth expected to be very encouraging. XL’s unhedged USD-denominated debt of USD590m has now been largely converted to IDR to manage its forex risks.

Other updates. Management is positive on the proposed acquisition of the 75% stake in MTC by edotco. This would allow it to gain a foothold inMyanmar’s growing mobile market. Edotco is likely to seek furtherinorganic growth opportunities with a target of expanding its existing portfolio to over 20,000 towers (from 14,712 towers currently) before it goes for listing. Axiata also introduced its digital services unit, geared towards promoting stickiness, enhancing data and increasing wallet share through an enhanced user experience.

Maintain NEUTRAL. We make no changes to our earnings and retain our NEUTRAL rating on Axiata, with an SOP-based TP of MYR6.40.