Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD
Research House: AMMB
Telecommunication sector
Maintain neutral: With the investment in 3G entering its third year, companies are beginning to see a significant financial impact on their revenues. Broadly, the latest quarterly reports of the major players witnessed a more than 25% year-on-year growth in revenue. Much of that was due to the intensity in 3G services take-up.
India boasts one of the largest mobile markets in the world with over 800 million subscribers, and growth is still strong given that penetration lags behind other countries with large populations. According to consultant Frost and Sullivan, the mobile market is expected show a compound annual growth rate in the range of 11.4% over the 2011/16 period.
Out of this total subscriber base, more than 70% use voice solely. They have not 'discovered' the full potential of mobile connectivity. By a rough calculation, fewer than 200 million (less than 14% of the total population) use data services at least once a month. Because of this, the impact of 3G services will become greater in the next two to three years.
Not even 2% of the country has proper Internet connections of any type. If you consider the broadband connections the figures are even more dismal. Thus, the untapped potential of Internet access demand is great. And that is why the next Internet revolution is said to take place on phones ' which offer a more flexible access to users.
This is also the reason the mobile handset market, especially the smartphone segment, expects revenue to rise from US$255 billion (RM772.6 billion) to US$350 billion. The smartphone market is expected to grow tenfold to 30 million units by 2016 from just about 2.9 million units currently.
Axiata Group Bhd stands to benefit as Indians use more and more 3G services. We foresee a heated price war in the near term. This would in turn suppress unit prices of 3G data packages. Despite this, given the tremendous size of the population, in the medium term, the financial impact would still be healthy for Idea Cellular Ltd.
We prefer to see Axiata increase its stake in Idea from the current 19%, leading to equity accounting of the stake in Axiata's books which would allow for a consolidated accounting. There is a need for Idea to raise more money to finance its capex for 3G business, which may be contributed by Axiata in the form of more equity.
We maintain our recently downgraded view of'' 'neutral' on the telecommunication sector. We propose a switch of focus to our top pick in the sector, Axiata ('buy'; fair value: RM6.24), from Telekom Malaysia Bhd ('hold'; FV: RM4), which we downgraded recently. Our view on DiGi.Com Bhd ('hold'; FV: RM27.35) and Maxis Bhd ('hold', FV: RM5.49) remains. We believe the sector's performance would be sustained by the lack of decent yielding big-cap stocks on Bursa Malaysia, following the privatisation of PLUS Expressways Bhd. ' AmResearch, April 4
This article appeared in The Edge Financial Daily, April 6, 2011.
Company Name: AXIATA GROUP BERHAD
Research House: AMMB
Telecommunication sector
Maintain neutral: With the investment in 3G entering its third year, companies are beginning to see a significant financial impact on their revenues. Broadly, the latest quarterly reports of the major players witnessed a more than 25% year-on-year growth in revenue. Much of that was due to the intensity in 3G services take-up.
India boasts one of the largest mobile markets in the world with over 800 million subscribers, and growth is still strong given that penetration lags behind other countries with large populations. According to consultant Frost and Sullivan, the mobile market is expected show a compound annual growth rate in the range of 11.4% over the 2011/16 period.
Out of this total subscriber base, more than 70% use voice solely. They have not 'discovered' the full potential of mobile connectivity. By a rough calculation, fewer than 200 million (less than 14% of the total population) use data services at least once a month. Because of this, the impact of 3G services will become greater in the next two to three years.
Not even 2% of the country has proper Internet connections of any type. If you consider the broadband connections the figures are even more dismal. Thus, the untapped potential of Internet access demand is great. And that is why the next Internet revolution is said to take place on phones ' which offer a more flexible access to users.
This is also the reason the mobile handset market, especially the smartphone segment, expects revenue to rise from US$255 billion (RM772.6 billion) to US$350 billion. The smartphone market is expected to grow tenfold to 30 million units by 2016 from just about 2.9 million units currently.
Axiata Group Bhd stands to benefit as Indians use more and more 3G services. We foresee a heated price war in the near term. This would in turn suppress unit prices of 3G data packages. Despite this, given the tremendous size of the population, in the medium term, the financial impact would still be healthy for Idea Cellular Ltd.
We prefer to see Axiata increase its stake in Idea from the current 19%, leading to equity accounting of the stake in Axiata's books which would allow for a consolidated accounting. There is a need for Idea to raise more money to finance its capex for 3G business, which may be contributed by Axiata in the form of more equity.
We maintain our recently downgraded view of'' 'neutral' on the telecommunication sector. We propose a switch of focus to our top pick in the sector, Axiata ('buy'; fair value: RM6.24), from Telekom Malaysia Bhd ('hold'; FV: RM4), which we downgraded recently. Our view on DiGi.Com Bhd ('hold'; FV: RM27.35) and Maxis Bhd ('hold', FV: RM5.49) remains. We believe the sector's performance would be sustained by the lack of decent yielding big-cap stocks on Bursa Malaysia, following the privatisation of PLUS Expressways Bhd. ' AmResearch, April 4
This article appeared in The Edge Financial Daily, April 6, 2011.
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