Having achieved 8% revenue growth for FY10, we expect Celcom's revenue growth to moderate towards mid-single digits for FY11. Growth will come from data and expanding its range of device offerings. So far, we gather from management that competition has been rational. Despite YTL Communications' new product and pricing launches, we gather from management that the impact is not yet significant.
Similar to Celcom, XL's revenue growth for FY11 will moderate, and will likely be in line or above the industry (which management estimates at 8%), compared with the 27% increase achieved for FY10. Nonetheless, management is confident of at least 50% earnings before interest, tax, depreciation and amortisation (Ebitda) margin for FY11. Looking ahead, management believes competition in Indonesia would remain relatively stable, as mobile penetration is now relatively high at 86%. Hence, management believes a potential price war is unlikely.
We gather from management that Axiata does not rule out increasing its stake in Idea (currently 19%) at the appropriate price. Management opines that media reports of the Aditya Birla Group looking to sell its 47% stake in Idea are quite likely speculative, as the Aditya Birla Group has denied it was in talks to sell the stake.
We gather from management that Idea does not hold excess 2G spectrum. This should relieve regulatory risks in relation to the proposed excess spectrum fees.
Dialog completed a significant turnaround in FY10 on the back of 14% revenue growth which, however, will moderate to mid-single digitd in FY11. Management expects Ebitda margins to be sustainable while the competitive environment should remain stable.
The issue of spectrum renewal fee for Robi and the rest of the mobile operators continues to overhang. The exact fees have not yet been determined, though at present it could be about US$400 million (RM1.2 billion). Hence, management does not rule out a cash call from Robi. Nonetheless, management hopes to see a resolution in June, given that the licences expire in November.
We maintain our earnings forecasts with the following risks: (i) weaker-than-expected performance by Celcom as well as by regional telcos due to competition as well as macroeconomic factors (inflation and so on); and (ii) over-priced acquisitions.
We still like Axiata, which offers growth prospects albeit moderating this year. We see highest regulatory risks in Bangladesh, which could shave off 16 sen from our fair value. Nonetheless, we maintain our sum-of-parts fair value of RM5.75 for now, but upgrade to 'outperform' due to recent share price weakness. ' RHB Research.
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