Axiata to fund future operations with more debts

Is this a smart move?

Malaysia’s Axiata unit to rely more on debt to fund growth

  • edotco could raise gross debt to 3.5% of ebidta from below 2.5% now, CEO says

KUALA LUMPUR (Nikkei Markets) — edotco Group, the telecommunication infrastructure unit of Malaysia’s Axiata Group, may rely more on debt to fund future expansion and finance acquisitions instead of raising fresh capital, its chief executive said Monday.

The most likely approach would be raising funds through syndicated loans and project financing, Suresh Sidhu told Nikkei Markets. The company could raise gross debt as a percentage of earnings before interest, tax, depreciation and amortization to 3.5 times from the current level which hovers below 2.5 times, he said.

“The plan is now to look at debt more holistically and increase our leverage closer to tower company benchmark,” Sidhu said. “Of course, we still have to work within Axiata’s debt covenant and profile.”

Axiata had initially considered an initial public offering of edotco by 2018 to unlock the value of its tower and infrastructure assets. edotco currently owns and manages more than 25,000 telecommunications towers across Malaysia, Bangladesh, Cambodia, Myanmar, Pakistan, and Sri Lanka.

edotco has been expanding its footprint through acquisitions since 2015. It recently announced purchase of 13,000 towers in Pakistan in a deal worth $940 million. On its part, edotco plans to fund the deal via $600 million debt and pump in $174 million as equity.

There is still unutilised cash from the company’s previous round of fund raising exercises, which is sufficient for small- to medium-sized acquisitions, Sidhu said. edotco has sufficient capital to tide over the next 24 months but may have to review its options if any larger acquisition comes along, he added.

The company remains open to prospects of more acquisitions and seeks to expand further, mostly in emerging and frontier Southeast Asian and South Asian countries, Sidhu said. “We’re patient, (the) deal has to be right (and) customers have to be right.”

Edotco, which was founded in 2012, has secured three new shareholders through a $700 million maiden equity private placement. Axiata remains the largest shareholder in edotco Group with a 62.4% stake following the entry of Innovation Network Corporation of Japan, Retirement Fund Inc and Malaysia’s state investment arm Khazanah Nasional. Axiata had said earlier that it wishes to retain a controlling stake in edotco Group.

Shares of Axiata ended 0.8% lower at 5.05 ringgit apiece, while the benchmark FTSE Bursa KLCI closed 0.2% down.


4th quarter results – win some, lose some

The end of results season in February uncovered an interesting trend for telecommunication (telco) players: different strategies gave way to different results.

Overall, the telco sector recorded a mixed bag of mixed fourth quarter of financial year 2016 (4QFY16) results, with Maxis Bhd (Maxis) emerging as the stronger player over its competitor Celcom Axiata Bhd (Celcom) and Digi.Com Bhd (Digi).

While Celcom’s parent company, Axiata Group Bhd (Axiata), ended the year with disappointing 4Q16 earnings, Affin Hwang Investment Bank Bhd (AffinHwang Capital) highlighted that Maxis held up pretty well operationally amidst shrinking sector revenue.

According to AffinHwang Capital, Maxis’ revenue market share – amongst the three celcos – ended at 39 per cent as at end 2016, the group’s second year of gain.

The growth in Maxis’ market share was, however, at the expense of Celcom and Digi’s shrinking revenue base.

“Combined revenue for the three celcos amounted to RM21.8 billion, down five per cent from 2015 and represents the third consecutive year of decline,” it said in its report earlier this week.

This can be largely attributed to non-listed fourth player, U Mobile Sdn Bhd (U Mobile), grabbing a recognisable chunk of market share.

Results round-up

Looking at the sector’s cellular subscriber base, AmInvestment Bank Bhd (AmInvestment Bank) said in a separate report that Digi remains the leading mobile subscriber.

“Since edging out Maxis with the largest mobile subscriber base in 2QFY16, Digi has retained the group’s pole position with 12.3 million users,” it said, adding that this translates to a market share of 34.8 per cent versus Maxis’ 33.7 per cent and Celcom’s 31.5 per cent.

“Its revenue has also grown to overtake Celcom by two per cent in 4QFY16; now the second largest after Maxis,” the research firm said.

Digi had in fact gained prepaid customers at Maxis and Celcom’s expense, it said.

Although mobile subscribers declined by 150,000 to 35.4 million in 4Q current year 2016 (4QCY16), Digi gained 50,000 subscribers in 4QCY16 while Maxis lost 120,000 and Celcom 80,000, largely in the prepaid segment which experienced a net attrition of 869,000 to 26.8 million.

Digi’s prepaid subscribers instead climbed 211,000, as both Maxis and Celcom removed inactive users from their database.

“This drove prepaid average revenue per user (ARPU) by RM0.67 per month quarter on quarter (q-o-q) to RM35.70 per month,” the research firm said.

“Amidst increasingly larger data quotas and improved features offered to customers, the postpaid segment rose at a faster pace by 201,000 q-o-q and 255,000 y-o-y to eight million while ARPU increased RM3 per month to RM88 per month.”

Prepping up on prepaid, postpaid

On the other hand, AllianceDBS Research Sdn Bhd (AllianceDBS Research) opined that Maxis was the better performer in the prepaid segment for 2016.

The research house explained that despite losing 574,000 subscribers, prepaid revenue did not fall much as Maxis managed to offset it with higher ARPU (from RM39 to RM42).

“DiGi defended its prepaid subscriber base well but it came at the expense of lower ARPU, which we think was also largely due to the weak migrant workers sub-segment.

“Celcom suffered a whopping 1.85 million subscriber loss while ARPU had remained stagnant,” the research house said.

As for the postpaid segment, AllianceDBS Research noted that Digi gained market share in the postpaid segment in 2016 albeit from a lower base, with a 10.6 per cent revenue growth versus flattish growth for peers.

This was mainly achieved through subscriber gains, which AllianceDBS Research believed was reflective of improving customers’ perception of Digi’s network quality from the group’s aggressive rollout of 4G LTE network.

“To our surprise, Maxis defended its premium subscribers of the postpaid market quite well in 2016 (ARPU of RM104 vs RM80 for DiGi and Celcom), despite the more aggressive and attractive pricing by peers,” the research house said.

Affin Hwang reckoned that the growth in the sector’s postpaid subscribers vis-à-vis the prepaid segment is being underpinned by growth in demand for data and hence better demand for packages that offer a larger data plan.


Summary: Digi and Maxis are fighting it out to be the number one telco in Malaysia while Celcom performance is not that great compared to both market leaders. Oh dear, pity Celcom!

Who should buy up Digi and Maxis?

Last post for 2016.

Big telco stake sale in Malaysia

PETALING JAYA: Two foreign shareholders of large stakes in leading Malaysian telecommunications companies (telcos) are exploring the possibility of divesting their stakes, indicating that the industry could be maturing here.

Reports also indicated that these parties might be more keen on investing in higher-growth markets such as Indonesia and Vietnam.

In other parts of Asia, investments by foreign cellular companies (celcos) into Asian telcos had dried up.

Over the past few days, reports had emerged that Norwegian telco, Telenor ASA, might be considering a sale of its stake in Digi.Com Bhd, and Saudi Telecom Co was said to be exploring options to dispose of its indirect stake in Maxis Bhd.

CIMB Research pointed out recently that in the second quarter of the year, the telco industry mobile revenue fell 2.4% quarter-on-quarter due to competition.

However, while these parties may be exploring a divestment of their stakes in Malaysian telcos, the big question is whether there will be takers for the stakes, considering the state of the industry in Malaysia.

Digi is trading at a price earnings (PE) multiple of 23.39 times and offers a yield of 4.26% at its current price of RM4.81, while Maxis’ PE is at 24.40 times, with a yield of 3.25% at its current price of RM6.15, Bloomberg data revealed.

In comparison, Singapore Telecom-munications Ltd is trading at a less demanding PE of 16.3 times and offers a decent yield of 4.41% too.

An added complication is the concern investors would have if an owner like Telenor decides to sell down.

“Without Telenor’s insights, Digi may no longer look as attractive,” pointed out an industry player.

Maybe EPF should buy it after they have dropped FGV from their portfolio? Any other suggestions?




Stiff competition for telcos in 2016

But How About 2017?

We feel that the Malaysian market needs at least one more telco company to really give more value to the customers. These telcos have been squeezing the Malaysian public for the past decade with their arrogant customer service, pricey data charges and lopsided contracts.

It is payback time!

Kuala Lumpur: A year of price war for mobile telecommunication companies or telcos best sums up the sector in 2016, as stiff competition in a saturated market prompted them to source new streams of income to sustain their businesses moving forward.

Current Analysis Group’s Senior Analyst for Asia Pacific Alfie Amir said mobile telcos saw a declining trend in their revenues and Average Revenue Per User (ARPU), as well as total subscribers.

As of October this year, the average ARPU for telcos stood at RM41.50 compared to RM43.03 last year, and this was expected to decline further next year with a compound annual growth rate of -2.6 per cent from 2016 to 2021, he told Bernama.

Revenue peaked in 2013 but was stagnant in 2014 before starting to decline in 2015 and this year it is expected to decline even more significantly.

In terms of total subscribers, mobile operators recorded 46 million subscribers in 2015 and the number was expected to go down to 44.9 million this year and to 44.5 million in 2017, Alfie said.

Amid this challenging environment, the telcos, namely the top three players Maxis, Celcom and Digi – have been on a price war and are also increasingly giving more values to attract more customers especially from their rivals.

In tackling the price war, Maxis had, instead of reducing the price, put more emphasis on enhancing its product values and stressing on customer experience to position itself as a premium product against competitors, he said.

“As a result, they are losing the subscribers’ market share but in terms of ARPU, they are more stable as they lost only the lower-value subscribers but managed to retain higher-value customers compared to its competitors,” said Alfie.

Looking at the telco’s third-quarter results this year, another analyst said Maxis, which has maintained its premium pricing with a blended ARPU of RM100, showed a turnaround with its earnings gaining momentum, outperforming its peers in terms of margin.

Moving into 2017, Alfie said he hoped the telcos would realise that a price war did not really work in Malaysia and was only effective for certain segments.

He said the telcos needed to explore new ways to be relevant in the market by leveraging the use of Internet of Things and Big Data Analytics (BDA).

Meanwhile, another highlight of the year was the surprise move announced by the Malaysian Communications and Multimedia Commission in February that it would reallocate and directly assign the 900MHz and 1800 MHz bands to four operators, namely Maxis, Celcom, Digi and U-Mobile.

Alfie said the spectrum reallocation would exacerbate the already intense competition as the top operators would be at a level playing field.

In this exercise, Digi and U-mobile will gain more access to this valuable capital expenditure-efficient spectrum while Maxis and Celcom would need to give back the some that they own.

Alfie pointed out that the spectrum fee charged to the telcos was expected to put a dent on the their total service revenue by between 10 and 15 per cent of their earnings’ margins.

“The telcos would have to find ways to optimise the spectrum by attracting more customers to monetise their investments going into 2017, as well as strategizing their sources and operate efficiently by improving their back-end processes like utilising more BDA,” he maintained.

Moving forward, he expected 2017 to see a battle among ‘converge players’ after Telekom Malaysia Bhd ™ launched its mobile arm ‘webe’, formerly known as Packet One Networks, on September 30 this year.

“This will allow TM to provide converge services of both fixed line and mobile.

“Before webe, Maxis was the only player to offer fixed-line and mobile services but is progressing slowly in terms of innovating the convergence of both services,” he said.

Celcom has also entered the play after a soft launch of its fixed-line services early this year for selected customers and expected to finalise the offerings to end-users next year.

Consequently, there will be three big players to offer converged services which will ultimately intensify the competition and undoubtedly drive innovation.

Alfie explained that entering into the fixed-line space would be a way to explore new source of income for mobile telcos but TM would benefit more as most of the fixed-line infrastructure belonged to the company.

Hence for other operators to offer fixed-line services, they have to do these via wholesale agreement with TM.

On the enterprise segment, he said TM continued to be the dominant player this year in this segment which provided more fixed-line services rather than mobile, with the other player TIME dotCom Bhd trailing far behind due to coverage limitation.

In the fixed-line market, TM currently owns about 85 per cent share, TIME about 5.0 per cent and the balance shared between TM, Maxis and the rest, he said.

“TM is also on the right journey to transform the company by tracking the telcos in advanced countries to move beyond connectivity into the information technology (IT) providers’ space in the enterprise market.

“Telcos globally are now offering cloud solutions, data centre, cyber security, software services network…the solutions that IT providers are offering,” he said.

Interestingly, 2017 will see the growth of smaller players like XOX Bhd, Tune Talk Sdn Bhd, Red One Network Sdn Bhd, PT Telekomunikasi Indonesia International (M) Sdn Bhd (Telin Malaysia), webe sdn bhd, YTL Communications Sdn Bhd’s Yes, and those with subscribers of below one million, to eat into the market share of the big players by catering to the needs of niche market and emerge as a new threat.

An example to ponder is the presence of Telin Malaysia, a subsidiary of a big telco in Indonesia, which is already here to offer services to a niche market for Indonesian migrant workers in Malaysia, also an important segment for the big telcos. –


All telcos post earnings within market expectations, except for…


PETALING JAYA: Telecommunications (telco) companies reported earnings in the recently concluded corporate results season were largely in line with expectations except for Axiata Group Bhd.

The other telco firms listed on Bursa Malaysia – Maxis BhdTelekom Malaysia Bhd (TM) and DiGi. Com Bhd (DiGi) – posted earnings within market expectations.

According to Affin Hwang Research, Axiata’s earnings were a negative surprise while the other players’ results were broadly in line with expectations.

“This was due to continued earnings disappointment from its key operating companies coupled with higher depreciation charges. Sector earnings are weaker both on a quarter-on-quarter and year-on-year basis dragged down by Axiata’s disappointing performance both regionally and locally (price competition),” Affin said.

Maxis, which has emerged as the seventh most valuable component stock of the FTSE Bursa Malaysia KL Composite Index (FBM KLCI), posted a decent set of results for the third quarter and regained some market share. It has a market capitalisation of RM45.06bil.

Digi saw its net profit rose to RM438.4mil from a year ago, despite a 3% drop in revenue to RM1.62bil TM’s earnings fell to RM160mil from RM166.87mil a year ago in the third quarter. Revenue was flat at RM2.92bil for the quarter.

Meanwhile, Axiata’s net earnings in the third quarter ended Sept 30 fell by 71.2% to RM256.56mil from a year ago while revenue grew by 2.8% to RM5.5bil.

PublicInvest said Celcom was the only operator posting lower customer base for both prepaid and postpaid segments.

Now who is to be blamed here? Choose one from these three, or choose all of them:

Chairman Celcom Tan Sri Jamal.
Chairman Celcom Tan Sri Jamal.
CEO Celcom Michael Kuehner
CEO Celcom Michael Kuehner
Deputy CEO Celcom, Azwan Khan
Deputy CEO Celcom, Azwan Khan

Vincent Tan: U Mobile is not for sale


U Mobile not for sale, says Tan

KYOTO, JAPAN: BERJAYA Group founder Tan Sri Vincent Tan has ruled out selling U Mobile Sdn Bhd, Malaysia’s fourth-placed mobile network operator, which recorded RM1.43 billion revenue last year. Responding to market talk about a possible sale, Tan, who holds 6.2 per cent stake in the seven-year-old U Mobile, said he and other shareholders planned to keep the company for the long term.

“There are a lot of rumours that we want to sell. Selling the business is very simple. If somebody makes you an offer that you can’t refuse, (of course) you would sell. “If you buy something for RM300, and after three to five years it is worth RM600, RM700 or RM900, you have to think carefully and seriously consider to sell. If you make money why not? That is business,” said Tan.

The major shareholder of U Mobile is Straits Mobile Investments Pte Ltd (49 per cent), followed by U Telemedia Sdn Bhd (21.46 per cent), Johor Ruler Sultan Ibrahim Sultan Iskandar (15 per cent), Magnum Bhd (6.33 per cent) and Berjaya Infrastructure Sdn Bhd (2.01 per cent). U Mobile is Malaysia’s fastest- growing full-fledged mobile operator that offers data, voice and messaging services via innovative prepaid, postpaid and broadband plans. In less than five years, the company has grown its subscriber base from less than 50,000 to over four million through its market-leading product innovation and value proposition.

Tan plans to grow the business and aims to replace either Maxis or Digi as the country’s second or third largest telco in the near future. “It is achievable given that U Mobile has a fair share in the telco market,” said Tan after the official opening of the Four Seasons Hotel & Hotel Residences, here, last week.

U Mobile took the market by surprise when it was offered a big chunk of the 900 MHz spectrum by the government. “The government has been very fair. Because of our challenger status where we brought prices down, the government loves it and they have given us a fair share of the spectrum. “In fact, we think the government should give us more share of the spectrum as we are helping to bring prices down.

The bigger players consider us a threat in the market but we are here to help people. “They fear us because each time they drop prices, we will drop ours further. Our aim is to continue to offer the lowest price in the market and win more customers,” said Tan. Tan said U Mobile is still in the red and he anticipates that the company will be profitable in the next one to two years. “We are not profitable currently but we are going to do well. We are still investing in the business. With more spectrum we can cover a bigger area and be more competitive. “Fortunately for us, we have a strong partner, which is a subsidiary of Singapore’s Temasek Holdings,” he said.

U Mobile is here to stay in Malaysian hands. But unless their Malaysian shareholders decided to sell off their stake to foreigners. With the advent of the depreciating Ringgit, let’s face it, only foreigners have the money to buy whatever assets Malaysians have over here.

But having a Singaporean counterpart to pick up our slack is such a nervy venture. Who knows, maybe SingTel will finally have its subsidiary in our local market.

Another piece of news that could peak the local interests is this:

“Maxis is marginally the market leader with 12.1 million connections, or a 28.8 per cent share, with Digi a very close second with 12 million connections (28.5 per cent share) and Celcom Axiata third with 11.2 million connections (26.7 per cent share)”

U Mobile can very well position themselves to be in the top three by next year. Why not? They have deep pockets and a white knight on standby mode. Digi and Celcom will have to watch their backs very carefully.