Saturday March 30, 2013

Sri Lanka spectrum award to boost Axiata earnings

PETALING JAYA: Axiata Group Bhd's future earnings will get a boost with the company's Sri Lankan subsidiary, Dialog Axiata plc's 4G LTE spectrum win, analysts say.

Dialog Axiata sealed the spectrum deal by beating two local competitors with a 3.2 billion Sri Lankan rupee (about RM78.1mil) bid at an auction held by the Telecommunications Regulatory Commission. The commission set the base price for the spectrum auction at 800 million rupees.

“We view this positively for Dialog Axiata as the spectrum will be essential for its mobile broadband. However, we do not expect any immediate impact because of the low smartphone penetration in Sri Lanka,” CIMB Research analysts said.

While the price paid for the 4G LTE spectrum bandwidth was on the high side, Public Investment Bank analyst Chong Hoe Leong said that the award would enable Dialog to be the first player to roll out mobile 4G LTE network in the country and “gain first-mover advantage to further entrench its leadership”.

“Dialog is Sri Lanka's mobile telephony market leader with around 55% of market share in terms of revenue. In the financial year ended Dec 31, 2012, Dialog contributed 5.9% and 4.6% of the Axiata Group's earnings before interest, tax, depreciation, and amortisation and net profit respectively.”

Chong has maintained the company's 12-month target price of RM6.61 and “neutral” call on Axiata.

Hong Leong Investment Bank research head Low Yee Huap said that although Dialog Axiata's winning bid price came in at four times the auction base price, he believed that Axiata had no issue funding it with its huge cash pile of RM7.9bil as of end financial year 2012.

“We are positive on this new development as it complements Dialog's product portfolio and value proposition of being the one-stop integrated telco in Sri Lanka,” Low said.

He said the awarded 1,800MHz was the most popular LTE spectrum in the world and thus it did not expect any supply shortage in compatible mobile-phone/smartphone with wide price range catering for different level of affordability.

“However, with an allocation of only 10MHz, the offered LTE service would not be a significant advantage (in terms of speed) over existing 3G/HSPA+ service.

“Hence, we doubt Dialog's ability in commanding 4G price premium over existing 3G's and expect no significant average revenue per user uplift at this juncture,” Low said.

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