Shazalli says the network collaboration with DiGi has been successful.
BEING one of the biggest Asian telecommunications companies with operations across ten countries, Axiata Group Bhd has flexed its muscles to firm its grip on the Cambodian market. It is present in Malaysia, Indonesia, Sri Lanka, Bangladesh, Cambodia, India, Singapore, Iran, Pakistan and Thailand.
After the acquisition of its rival Latelz Co Ltd, the second-largest mobile operator with a 21% market share in the Indochinese nation, Hello Axiata, Axiata's Cambodian unit will emerge as the second-largest player there from its current fourth position.
Post-merger, the enlarged entity will have a combined market share of 34%, marginally lagging behind the leading telco in that country, Metfone, which held 35% of the total pie as at June 2012.
From reports, CIMB Research analyst Kelvin Goh views the acquisition positively due to its strengthened position and synergies while OSK Research analyst Jeffrey Tan calls the move “logical and timely”.
However, analysts also noted that the acquisition might have minimal impact to Axiata at the group level.
Affin Investment Bank Research analyst Kevin Low notes that the purchase, tagged at RM473mil, is pricey while it has limited meaningful impact to the group's bottomline besides being earnings before interest, taxes, depreciation and amortisation (EBITDA) dilutive.
Low says: “(The company's) management believes that implied enterprise value over EBITDA (EV/EBITDA) is 10 times against Axiata's own EV/EBITDA of 7.3 times. This transaction is thus at the higher end, potentially pricing in the growth prospect for this (Cambodian) market.”
On the other hand, CIMB Research's Goh opines that the valuation will be lower after factoring in operational expenditure savings.
Analysts also note that the telco is targeting a revenue or subscribers market share of over 30% in the near future and anticipates enhancement in EBITDA margin from high-teens to the low 30%.
The company says the move is in line with its long-term strategy and financial objectives, especially on the backdrop of a crowded industry with eight players fighting for a share of the Cambodian population of 15 million. It also expects the merged entity to become earnings accretive within the first year of operations.
Axiata reckons that the market there is going to witness further consolidation which will see the number of players shrink to three to five in the future. The deal is still subject to the approval from Cambodian authority.
Also on Axiata's drawing board is its plan to enter Myanmar, labelled as the last greenfield telecoms turf in Asia. The untapped market is a relatively large playground with a population of 60 million which is also eyed by other global telco giants like Telenor from Norway, Digicel which operates in the Caribbean, Vietnam's VNPT-Fujitsu, Russia's VimpelCom and Sweden's TeliaSonera AB. It was reported that four telecom licences would be dished out.
At the group level, its local operation Celcom Axiata Bhd is still the major contributor to its top and bottomline followed by Indonesian outfit XL Axiata.
Celcom was reported to contribute about 68% to the parent's profit for the first half of the financial year ended June 30.
Meanwhile, the development in Malaysia is getting interesting when the Malaysian Communications and Multimedia Commission (MCMC) allocated Puncak Semangat Sdn Bhd 40 MHz of the 2.6 GHz spectrum which allows it to provide 4G services. Seven other telcos, including Axiata, received 20 MHz each. It was said that the 20 MHz does not allow for optimum operation unless players pair up to share the long-term evolution infrastructure.
MCMC Datuk Mohamed Sharil Tarmizi was reported as saying that the entry of Puncak Semangat would invigorate competition in the market as well as promote network sharing between old and new players.
The heightened competition would push players to form innovative business models and alliances in order to hold their fort and grow further.
Nonetheless, infrastructure sharing is not novel to the players in the industry.
Celcom Axiata chief executive officer Datuk Seri Shazalli Ramly was quoted as saying that the network collaboration agreement with DiGi Telecommunications Sdn Bhd, a wholly-owned unit of DiGi.Com Bhd, had been very successful.
Celcom had also signed an agreement with U Mobile Sdn Bhd to share its network.
Besides that, it has partnered with mobile virtual network operator (MVNO) like Tune Talk Sdn Bhd, XOX Bhd and Merchantrade Asia Sdn Bhd to ride on its network to provide niche services to their respective target customers. Celcom Axiata expects the MVNO business to contribute 10% to its revenue in 2015 from 6% now.
Adhering to the dividend play in the Malaysian telecoms scene, Axiata has doubled its dividend payout from 30% two years ago to 65% this year, making it more attractive compared to its local peers who are also generous in rewarding their shareholders.
CIMB Research's recent report shows that Axiata's core price to earnings for calendar year 2012 at 19.5 times is still lower than the Malaysian weighted average of 23.4 times. Axiata is research house's top pick in the sector.