Axiata (HOLD)
Much Anticipated Disengagement
- Local daily reported that U Mobile has submitted a request to terminate its domestic roaming (DR) agreement with Celcom Axiata last week.
- Celcom’s earnings to be eroded by RM150-200m annually.
- Comments: This news did not surprise us at all as we have flagged this concern in our report titled “Celcom Breaking Up with U Mobile” dated on 24th Oct 2011.
- This event is very much anticipated as it is technically more feasible (less network signaling load and unnecessary handover) and operationally more economical (lower fixed monthly connection rental) to engage with one DR partner rather than two who have overlapped coverage.
- U Mobile’s 10-year partnership with Maxis which also include future LTE rollout has created conflict of interest in its current relationship with Celcom who has teamed up with DiGi.
- We do not expect Celcom to terminate this agreement earlier as payment from U Mobile contributes directly to its bottom line with negligible OPEX.
- We reiterate our HOLD call with unchanged target price of RM5.02 as we have factored this into our model.
Source: HLIB Research 26 March 2012
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