Company Name: AXIATA GROUP BERHAD
Research House: MIDF
Axiata Group Bhd
(Oct 7, RM4.50)
Maintain buy at RM4.48 with revised target price of RM5.30 (from RM5.10): It was reported in the media yesterday that Axiata's associate in Singapore, M1, will receive a capacity boost.
Singapore's Infocomm Development Authority (IDA) has announced that it is allotting additional spectrum to the three existing telecommunications companies, foregoing the auction of a fourth 3G spectrum.
We view this as positive news for M1, as not only will the additional spectrum be beneficial as it allows better offerings of its services, especially in the smartphone market, but it also means there will be no new entrant into a saturated market. This would negate any pressure on its margins.
The news report also states that M1 will now be able to offer pay-TV, competing with other Singaporean telcos already offering the service. This is due to a new ruling by Singapore's Media Development Authority, which requires pay-TV providers to share previously deemed exclusive content.
We do not expect the extra spectrum for M1 to have a significant impact on Axiata's net profit as it is only at an associate level. For 1H10, its associate contributed only 3% and we expect that given the additional spectrum, the contribution will increase to 4% or 5% at most.
We expect growth for Axiata will come from its other overseas markets, especially Indonesia and Bangladesh. These two markets contributed 39.3% and 7.6% to 1H10 revenue, while growing 49.3% year-on-year (y-o-y) and 24.8% y-o-y respectively.
We maintain our 'buy' recommendation for Axiata due to its diversified exposure and growth potential especially in Indonesia and Bangladesh. Hence, we are adjusting our target price to RM5.30 (from RM5.10), based on a slightly higher EV/Ebitda of nine times.
Although, there will be minimal impact from M1, we believe that Axiata could increase its presence in Singapore as it has the most potential to grow compared with its peers there.
This will be consistent with Axiata's efforts to nurture its overseas investments. ' MIDF Research, Oct 7
This article appeared in The Edge Financial Daily, October 8, 2010.