Axiata Group : Expanding XL connectivity with Thaicom BUY

STOCK FOCUS OF THE DAY

Axiata Group : Expanding XL connectivity with Thaicom                  BUY

We maintain our BUY call on Axiata Group (Axiata) with an unchanged sum-of-parts-based fair value of RM6.30/share, which translates to a FY17F EV/EBITDA of 6.7x, half of Singapore Telecommunications (SingTel). Axiata's wholly-owned Axiata Business Services S/B has entered into a 4-year multi-transponder contract with Thai-listed Thaicom PCL to purchase up to 7 KU-band shaped and spot beams on the Ipstar-1 broadband satellite located at 119.5° east for the provision of broadband services in Indonesia. This includes broadband access direct to residential and enterprise premises and cellular network backhaul. The deal involves Axiata buying the remaining capacity on Ipstar-1, wholly owned by Thaicom and launched in 2005, to deliver over 1Gbps high throughput satellite (HTS) capacity of broadband to Axiata’s 66%-owned PT XL Axiata (XL).

XL, which currently accounts for 12% of Axiata's SOP, has significantly increased its subscriber base by 4.6mil, or 11% YoY in 4QFY16. This stemmed largely from prepaid subscribers which rose 1.4mil QoQ to 45.9mil while postpaid increased 22,000 QoQ to 533K. However, monetisation of rapidly growing data revenues failed to outpace the loss of voice and SMS, which caused XL's blended 4QFY16 ARPU to fall by Rp2,000 QoQ and Rp8,000 YoY to Rp34,000. Nevertheless, after adjusting for one-off accelerated depreciation, forex, tax and capital lease gains, XL's 4QFY16 core net profit of Rp41bil was a welcome relief following 5 consecutive quarters of normalised losses. Axiata currently trades at a bargain FY18F EV/EBITDA of 6x, way below its 2-year average of 8.1x and less than half of SingTel's 14x. We continue to be bullish on the stock on expectations of a value-enhancing re-merger with TM, which will continue the re-rating process to bridge the valuation gap with SingTel.

Others :

Ikhmas Jaya Group : Bags RM62mil piling job in Terengganu         BUY

TH Plantations : More disposal of assets?                                              HOLD

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