Axiata REPORTS

Page 1 of 8

Fundamental Analysis for AXIATA GROUP BERHAD Company Name: Stock Code (Bursa): Bloomberg: Industry: Sub-Sector: Company Description: Date of Analysis: Financial Year: Investment Strategy: Averaging Down Method:

Management

AXIATA GROUP BERHAD Board: Main Board AXIATA FBMKLCI: TRUE AXIATA:MK Reuters: AXIA.KL TRADING SERVICES TELECOMS INFRA AND NETWORK SERVICES PROVISION OF MOBILE COMMUNICATION SEV. & NETWORK TRANSMISSION RELATED SEV. 26-Feb-12 Price: 5.15 2010 31/12/2010 Momentum Investing Position Lump Sum + Top Up Strategy: Not Applicable Stock Grade: Large Capital Growing

Profitability 5 4 3 2 1 0

Economic Moat

Financial Health

Bear Case

Growth

Profitability Economic Moat Financial Health Growth Bear Case Management

4 5 5 4 3 5

Fundamental Analysis - Momentum Investing All figures in millions of Ringgit Malaysia except per share values and ratio

Measures

I

R Comments

Profitability N/A N/A

N/A

N/A

N/A

N/A

N/A

N/A

2008 @ 2008/12/31 11,348

Consistently increasing Net Income After N/A Tax Consistently increasing EPS N/A

N/A

N/A

N/A

N/A

N/A

N/A

498

1,653

1,770

N/A

N/A

N/A

N/A

N/A

N/A

0.13

0.22

0.21

Consistently increasing sales revenue

N/A

N/A

N/A

N/A

N/A

N/A

Dec-10 Consistently increasing revenue in the last 5 quarters. Consistently increasing net profit in the last 5 quarters. Consistently increasing EPS in the last 5 quarters The current quarter's EPS ≥ 15% from the same quarter the year before.

Mar-11 4,017

Jun-11

2009 @ 2009/12/31 13,105

2010 @ 2010/12/31 15,621

Sep-11

Dec-11

3,940

4,049

4,195

4,264

(367)

548

663

590

545

(0.04)

0.06

0.08

0.07

0.06 250%

Economic Moat N/A

N/A

N/A

N/A

N/A

N/A

N/A

2008 @ 2008/12/31 2,359

2009 @ 2009/12/31 4,682

2010 @ 2010/12/31 5,923

Consistently increasing Net Cash from Operations Consistently high ROE > 15%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

4%

9%

9%

Consistently ROTA > 1.2%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

1.33%

4.45%

4.65%

Free Cash Flow / Sales > 5%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

-26%

11%

19%

2008 @ 2008/12/31 0.36

2009 @ 2009/12/31 0.56

2010 @ 2010/12/31 1.39

Financial Health N/A Current Ratio > 1

N/A

N/A N/A

N/A N/A

N/A N/A

N/A N/A

N/A N/A

N/A N/A

Although below 15%, it is increasing

Growth N/A Quality of Historical Growth

N/A

N/A

N/A

N/A

N/A

N/A

2008 @ 2008/12/31

2010 @ 2010/12/31

No sufficient historical data for analyzing quality of growth, but so far, the figures are positive.

- Revenue Growth:

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

- Operating Income Growth:

N/A

N/A

N/A

N/A

N/A

N/A

Avg: N/A

N/A

- EPS Growth:

N/A

N/A

N/A

N/A

N/A

N/A

Avg: N/A

N/A

- Net Cash From Operation Growth:

N/A

N/A

N/A

N/A

N/A

N/A

Avg: N/A

N/A

Avg: Strong future growth drivers

2009 @ 2009/12/31

- Higher smartphone penetration boosting data ARPU. - Strong growth in low penetration developing markets. - More cost savings from collaboration with DiGi.

15% 17%

19% σ:

62% 35%

σ: 63%

29%

39% -5%

σ: 98%

63%

3% 7%

48% 27%

σ:

51%

The Bear Case Potential Risks

Idea Cellular’s (which Axiata has 19.7% stake) 13 licenses will be revoked along with competitors’ including Unitech Wireless (22 licenses), Loop Telecom (21 licenses), Videocon Telecommunications (21 licenses), Estisalat DB Telecom (15 licenses), S Tel (6 licenses), Sistema Shyam Teleservices (21 licenses) and Tata Teleservices (3 licenses). These licenses were issued in 2008 under the influence of bribery and violation of rules. As a result, cost the government as much as US$36b in lost revenue. On the bright side, Idea may be allowed to continue operation for the next 4 months, until regulators come out with new market rules or new auctions are conducted. Other risks: Regulatory risks, FOREX fluctuations & competitive risks.

Management Management and Institutional Investors KHAZANAH NASIONAL BHD and EMPLOYEES PROVIDENT FUND BOARD are the major shareholders. are Holding/Buying Stock Character Is management candid about its mistakes? How promotional is management? Can the CEO retain high-quality talent? Does management make tough decisions that hurt results, but give a more honest picture of the company? Running the business Performance Follow-through Candor Self-confidence Flexibility

Yes Yes Yes Yes Yes Yes Yes Yes Yes

I - Importance; R - Rating Good Normal Bad

Important Neutral Not Important

Market Timing Criteria - Momentum Investing Buy Criteria

Criteria

MI Remarks

1. The current quarter's EPS is up more than 15% from the same quarter the year before. 2. Price is below Graham Intrinsic Value 3. Estimated by Forecast EPS and 5-Y Median PE 4. Current EY% or Rolling 4Q EY% > 6% 5. Stock price breaks out of consolidation/dip on an uptrend. 6. Company owner, EPF, Khazanah and PNB heavily buying Sell Criteria

Criteria

MI Remarks

1. Current EY% or Rolling 4Q EY% < 6% for more than 2 years 2. Quarterly EPS drop for 5 consecutive months 3. Fundamental of business turns unattractive or 4. Found a better opportunity to replace this stock 5. The stock drops near to my average cost or hit my stop loss 6. Long term trend changed from bullish to bearish 7. Company owner, EPF, Khazanah and PNB heavily selling. 8. Did I make a mistake? 9. Has the stock risen too far from its intrinsic value? Important Neutral Not Important Ignore

Valuation - Momentum Investing 1. Graham Valuation Fair Value Actual M.O.S Buy Under 4.37 0% 3.28 2. Estimated by Forecast EPS and 5-Y Median PE Year

Forecast EPS Custom EPS

2011E 2012E

0.23 0.24

Price Target 5-Y Median PE/R-4Q PE 18.59 4.20 18.59 4.53

3. Discounted Cash Flow Valuation Fair Value Actual M.O.S. Buy Under Selection

3-Y

5-Y 3.79 -36% 3.04

10-Y 3.96 -30% 3.17

4.19 -23% 3.36

P

3-Y: Fast-growing company; operates in highly competitive, low margin industry 5-Y: Solid company; operates with advantage such as strong marketing channels, recognizable brand name, or regulatory advantage 10-Y: Outstanding growth company; operates with very high barriers to entry, dominant market position or prospects

4. Current EY% or Rolling 4Q EY% > 6% CU EY%:

4.06

Rolling 4Q EY%:

5.38

16

Discounted Cash Flows Valuation

29

14 Shares Out.

Default Value Custom Value

M. O. S.

Growth %

8445.15

Market risk premium

Risk free rate

Discount % Terminal %

2010 FCF

Excess Cash

Intangibles Assets

20%

8%

7.73%

3.43%

16%

2%

2958.96

3043.56

7605.50

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

3,195.67

3,451.33

3,727.43

3,931.05

4,220.38

4,531.00

4,864.48

4,808.02

5,108.81

5,428.42

Projection of Future Free Cash Flow

Yearly Growth 8%

3-Y Valuation Discounted Perpetuity Value Present Value Shares Outstanding Fair Value Desired M.O.S. Buy Under Current Price Actual M.O.S.

17,478.87 32,039.13 8445.15 3.79 20% 3.04 5.15 -36%

5-Y Valuation Discounted Perpetuity Value Present Value Shares Outstanding Fair Value Desired M.O.S. Buy Under Current Price Actual M.O.S.

14,719.52 33,467.90 8445.15 3.96 20% 3.17 5.15 -30%

10-Y Valuation Discounted Perpetuity Value Present Value Shares Outstanding Fair Value Desired M.O.S. Buy Under Current Price Actual M.O.S.

9,032.61 35,426.67 8445.15 4.19 20% 3.36 5.15 -23%

Intangibles% Decay Rate add to DCF (Yr4E-Yr7E) 50%

8%

Extra Decay (Yr8E-Yr10E) 15%

Graham Valuation 5 Default Value Custom Value

Shares Out. M. O. S. Growth % Forecast EPS Corp Bond 8445.15 25% 8% 0.23 4.32

Calculation Normal Earnings Growth Rate Corp Bond Rate Per Share Value MOS Purchase Price Current Price Actual Discount

Valuation 0.23 8% 4.32 4.37 25% 3.28 5.15 0%

Current Price Fair Value

5.15

4.37

Buy Under Actual M.O.S

3.28

0%