News The
media reported that the Myanmar government had issued a notice yesterday to
invite all investors to express their interest (by Jan 25th) in two new telecom
licences.
The tender bid is
expected to open in February with the licences expected to be issued by the end
of June.
The licences to be
issued will be for a 10-to-20 year period with players required to commit on
providing reasonable tariffs and low initial registration fees to facilitate
the accessibility and increase the tele-density targets in both the rural and
urban centres.
The Myanmar
government’s objective is to increase the overall tele-density rate to 75%-80%
by 2015-2016.
Alongside Axiata, it
was reported that several telcos from Europe, China, Japan and even Singapore
were also set to express interest on the two licences.
Comments Myanmar
has a population of 60.3m, two times larger than Malaysia, and its
telecommunications sector is dominated by the state-owned monopoly telephone service
provider, Myanmar Posts and Telecommunications (MPT). With the military government’s
conservative approach to structural reform, it would not be surprising that MPT
will continue to maintain its monopoly on the sector.
Based on our
understanding, the mobile penetration rate in Myanmar was estimated at
approximately 9%, thus suggesting that there is ample room to grow for newcomers
to the sector. Nevertheless, the new investment opportunity may also come with
some unforeseeable risks given that the political situation in Myanmar is still
uncertain, at least in the short to medium term.
Funding is not an
issue in our view should Axiata manage to penetrate into this new market. As of
3QFY12, Axiata has a cash pile of RM8.6b with a gross debt/EBITDA ratio of
1.8x. The ratio is still below its optimal capital structure of 2.0-2.2x gross
debt/EBITDA level, which suggests that Axiata still has room to leverage up its
balance sheet if needed. We estimate that Axiata can raise up to RM3.1b if the
company decides to maximise its optimal capital structure.
Outlook The group’s outlook has improved somehow
recently despite the competitions at both its local and overseas ventures
continuing to remain strong. Nevertheless, the prolonged regulation issues in
both India and Bangladesh may continue to put barriers in its operations going
forward. Furthermore, the expected continuing strengthening of Ringgit
Malaysia, following the release of QE3, may result in the group bearing some
currency translation losses going forward.
Forecast No changes in our FY12-FY14 earnings
forecasts.
Rating Maintain MARKET PERFORM
Valuation Maintaining our target price at RM6.81 based
on an unchanged targeted FY13 EV/forward EBITDA of 8.3x (+2SD).
Risks Regulation risks in its overseas ventures.
Source: Kenanga
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