Axiata Group Bhd
(Dec 9, RM4.56)
Reiterate buy call with an unchanged target price of RM5.35: We attended Axiata Group Bhd’s annual investor day, which included presentations on its near- and medium-term strategies. Having endured the perfect storm in 2016, 13 “needle moving” initiatives were highlighted, of which nine are expected to be achieved in 2017. The turnaround at the group’s regional units — Celcom Axiata and XL Axiata — will be central to its plans. 

Celcom will move back to the basics as it seeks to regain its network leadership position. XL will need to refine its transformation efforts, which include incentivising its dealer network and creating a clear brand proposition for XL. 

Healthy revenue and earnings before interest, taxes, depreciation and amortisation (Ebitda) growth is expected in 2017. But due to increased investments, competition and merger costs, revenue is expected to grow faster than Ebitda.

Share prices for Axiata, XL, Idea Cellular and M1 Ltd hit five-year lows. Affected by both external and internal factors, Celcom and XL fell below expectations. Idea and M1 were affected by expectations of new competitors in India and Singapore. 

The primary attention will be placed on regaining lost ground from its previous network leadership position. Network quality is rated highly as part of a customer decision criterion. Increased investments will be placed on its network, with a focus on network modernisation activities, upgrading existing long-term evolution (LTE) sites, expanding LTE coverage and fiberisation of sites. 

By 2017, it targets to achieve an LTE population coverage and site fiberisation of approximately 90% and 50% respectively. Aspiring to deliver the best video experience, objectives include a 98% video play success rate, less than five seconds video launch and over 99% no buffering. 

Sharing internal timelines, Celcom is expected to stabilise between the fourth quarter of financial year 2016 (4QFY16) and 1QFY17, grow faster than the industry within 2QFY17 and 4QFY17 and achieve sustainable growth from between 2018 and 2019 onwards.

For XL, efforts will be on improving communication for its XL brand proposition and revamping its traditional distribution channels. Referencing its dual-brand strategy, Axis Telekom Indonesia has been performing well, with its appeal to cost conscious customers clearly defined. On the other hand, XL has been struggling. While targeted at middle-class heavy data smartphone users, its proposition is unclear and mixed. Its products are neither here nor there, appealing to all segments. 

To address this, increased communication and branding strategies will be enacted to clearly distinguish both brands. XL aims to differentiate itself by providing priority experience, status, excitement and appreciation to its target market of white-collar wealthy individuals, blue-collar workers and housewives. 

Issues were also identified within its traditional distribution channels, which still forms 99% of its acquisition activities. This includes less attractive trade incentives and programmes, smaller reach in terms of outlets and weaker availability and visibility of its products. Improving its efforts, it will revamp its key performance index and commission schemes. Also, steps will be taken in dominating retail outlets to improve its availability, visibility and advocacy. — TA Securities, Dec 9