We maintain our forecasts and BUY call on Axiata Group (Axiata) with an unchanged sum-of-parts (SOP)-based fair value of RM6.45/share, which implies a FY16F EV/EBITDA of 7x – half of

We maintain our forecasts and BUY call on Axiata Group (Axiata) with an unchanged sum-of-parts (SOP)-based fair value of RM6.45/share, which implies a FY16F EV/EBITDA of 7x – half of Singapore Telecommunications Ltd’s present 14x. The group’s wholly-owned Celcom Axiata has launched the prepaid Xpax Turbo which offers up to 10GB free Internet Burung Hantu per month from 1am to 7am, as long as customers remain as subscribers.

For more internet quota, Xpax customers can select 5 internet plans which offer free Facebook and YouTube ranging from RM5 to RM80. The plans include a 3-day plan at RM5 with 300MB data, weekly plan at RM10 with 1.5GB data and monthly plan at RM30 for 4GB, RM50 for 9GB and RM80 for 15GB. As a comparison, U Mobile’s RM30 UMI plan offers 2.5GB internet plus 2.5GB Video-Onz, while Digi Prepaid Live offers an internet plan at RM28 for 2GB. Maxis’ Hotlink offers a RM30 monthly pass for 2GB plus 2GB YouTube.

For 1HFY16, Celcom was impacted by revenue contraction from value added services (-39%) and overseas foreign workers (-26%) against the backdrop of a 841,000 subscriber drop to 11.2mil.

This stemmed from the prepaid segment which had lost 897k subscribers QoQ and 2.2mil since 2Q2014 as Celcom’s IT infrastructure revamp delays had prevented the launch of new products as quickly as its competitors. As a comparison, Maxis lost 61,000 net subscribers QoQ while Digi gained 10,000 during the same quarter. Among the three main celco players, Celcom’s subscriber market share has slid to 31% currently from 33% in 1QFY16.

With its IT issues now largely resolved, Celcom's launch of new prepaid packages are milestones to watch out in the ongoing struggle for mobile market share. We expect the industry to continue to raise the ante as competition continues to elevate against the backdrop of a matured domestic market and declining voice revenues. For Axiata, we expect the recent commencement of Nepal-based NCELL to mitigate the margin pressures in Malaysia while Celcom’s domestic roaming arrangement with TM will enable the group to offer a more converged and unified package to customers. Axiata currently trades at a bargain FY17F EV/EBITDA of 6x, below its 2-year average of 8.6x. Additionally, dividend yields are attractive at 3.8%.