Analysts cautious on Axiata despite XL strategy shift

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KUCHING: Axiata Group Bhd (Axiata) recently revealed a three-year profitability centred strategy shift of its Indonesian-based PT XL Axiata (XL) but analysts remain cautious in general on the group’s full-year performance.

In a recent dialogue session, Axiata unveiled XL’s new management team as well as a new business strategy which revolves around driving XL’s profitability by shifting towards mid-value and high-value subscribers.

The transformation strategy is expected to last three years, under three phases which the management believed would have a short-term impact to its top line and earnings before interest, tax, depreciation, and amortisation (EBITDA).

“All in all, XL believes the new business strategy will have a short-term negative impact to its top-line and EBITDA given there is a risk of cannibalisation of revenue from existing subscribers and higher churn rate,” said the research arm of Kenanga Investment Bank Bhd (Kenanga Research).

The group has also decided to implement a targeted customers approach through a dual band strategy with Axis focusing on the affordable segment while leveraging on the XL brand to cater for the mid-to-high-end market, it added.

Nevertheless, Kenanga Research said it was cautious of the group as these latest developments could lead to Axiata’s financial year 2015 (FY15) key performance indicators (KPIs) kept in check in the coming quarters.

In a separate note, AllianceDBS Research Sdn Bhd (AllianceDBS Research) said FY15 seems to be another muted year again for Axiata, as the change in XL business will result in short-term pressure on revenue.

“We caution that there is downside bias to our and consensus revenue growth forecast of five to six per cent for FY15 versus Axiata’s guidance of four per cent growth currently,” it said.

Meanwhile, on Axiata’s Malaysian Celcom business, Kenanga Research noted that Celcom is targeting to resolve its information technology (IT) transformation issue by the end of the first half of 2015 (1H15).

“Despite Celcom having already completed the bulk of its IT transformation, it is still facing two main issues in the business support services (BSS), namely network interface and data migration.

“The group is currently taking an aggressive approach to resolve the issues and has received encouraging outcome thus far.

“Moving forward, Celcom is planning to revamp its products by providing more simplified features in contrast to its peers, which the group deemed is more fitting under the current market dynamics,” Kenanga Research explained.

AllianceDBS Research said Celcom would likely still be weaker in 1H15 to as it would take some time to recover momentum against its competitors.

“It may be difficult to raise data pricing if competitors with similar network quality and product offerings price themselves competitively. With Maxis bolstering its marketing and distribution efforts, Celcom could lose some footing in the prepaid segment,” it noted.

The research firm added, that the domestic mobile telecommunications climate is competitive, with aggressive pricing by smaller players and pressure from incumbents in acquiring new customers.

“This also places pressure on data pricing, particularly in the prepaid segment where subscribers are more price sensitive,” it said.

However, it believed, with the new BSS platform now in the stabilisation phase, and Celcom’s training and engagements with its dealers for feedback, Celcom should be able to regain the confidence of its dealers.

Aside from that, AllianceDBS Research pointed out that Axiata’s plan to consolidate its regional tower assets for an eventual initial public offering (IPO) listing could take time due to the myriad of regulatory and operational issues involved.