Company Overview - Amaysim Australia Limited is an online-led mobile service provider (MSP), with over 966,000 subscribers. The Company is engaged in providing mobile telecommunication services. The Company offers a range of subscriber identity module (SIM)-only mobile phone plans and data plans, which are provided by the Optus Mobile Network. It contracts directly with its subscribers, providing in house created mobile voice and data plans under the amaysim brand name, which uses the Optus third generation (3G) and fourth generation (4G) networks. Its range of 4G plans are powered by the Optus 4G Plus network, and it also offers AS YOU GO plan and FLEXI plan. Its data plans include 2.5 gigabyte (GB) Data Plan, 4GB Data Plan and 10GB Data Plan, and its mobile plans include UNLIMITED 1.5GB, UNLIMITED 3GB, UNLIMITED 7GB and UNLIMITED 9GB. The Company offers prepaid and postpaid options for all plans, and its SIM packs are available online at www.amaysim.com.au and from over 12,000 retail outlets.

AYS Details
Subscriber base growth for FY 16 ahead of the prospectus forecasts: Amaysim Australia Ltd (ASX: AYS) reported the group closing subscriber base of 966,000 for fiscal year of 2016, including the amaysim and Vaya brands, which is in line with May 2016 guidance and is ahead of the prospectus forecasts (which did not include the Vaya acquisition). This is a 34.5% rise during the year as compared to the same period of last year.  The statutory net revenue grew 19.2% to $253.5 million during the period while the underlying NPATA grew 118.6% to $22.3 million against FY15. In addition, AYS has posted the underlying EBITDA growth of 115.9% driven by net revenue growth and strong gross profit margin of 33.7%. The gross profit grew stronger than the revenue growth, which reflects robust NSA and improved online activations. But, the ARPU fell by 3.4% to $25.24 in FY16 as compared to $26.12 in FY15 on the back of a broader product suite giving the group access to the sub-$30 market and market movements. Moreover, the fiscal year highlights include the acquisition of Vaya coupled with launch of the dual brand strategy in the second half of the 2016 as well as announcement of maiden interim dividend and final dividend. The group reported an unfranked final dividend of 5.3 cents per share, leading to a total dividend to 8.3 cents per share, indicating a payout ratio of over 70% of underlying net profit after taxation but before amortization. AYS targets to maintain their dividend payout ratio in the range of 60%-80% of amaysim’s Underlying NPATA subject to available profits and the financial position of the business. AYS Gross profit reached $85.4 million during the period as compared $59.5 million in prior corresponding year driven by solid NSA, rising online engagement and platform scalability.

 
Financial Performance highlights for fiscal year of 2016 (Source: Company Reports)
 
Acquisition of Australian Broadband Services: AYS has recently finished the acquisition of Australian Broadband Services, which would offer AYS with the subscriber management technology that is required to simplify the complex process of setting up broadband connections. AYS has already paid the first tranche of consideration for the acquisition and the final tranche of the consideration, being an additional 839,569 ordinary shares in AYS, would be issued one year after completion. This is subject to the customary warranty claims and the successful integration of AusBBS’ proprietary platform into AYS’s business. Moreover, this is the first step of diversification with a focus on increasing the share of the household wallet. AusBBS accelerates AYs’s launch into the fixed broadband market in time for the expected exponential growth of the NBN and other fibre networks. In addition, there is an opportunity to offer broadband services to the highly engaged subscriber base. Therefore, the recent move into broadband timed would capitalize on the critical churn event when the existing network is switched off and replaced by NBN.

 
Growing share of customer wallet (Source: Company Reports)
 
AYS subscription-based recurring revenue model promises consistency: AYS has witnessed a strong subscriber growth of 966k as at 30^th June 2016 and over 985k as at 18^th August 2016. The group reported that 44% of customers activate online across the group while 83% of the customers pay online, leading to the consistent monthly revenue. Moreover, the online subscription payment method is consistent with the global industry disruptors. In addition, the transaction costs for customers transacting online are significantly lower than traditional telco channels.

 
Established Revenue Model (Source: Company Reports)
 
Strategic NSA between AYS and Optus:AYS has entered a strategic NSA (Network Service Agreement) with Optus up to December 2024 for long term profitability and competitiveness. There is no requirement for the AYS to invest in the development or maintenance of Optus network and Optus has to provide the same quality of coverage as it provides to Optus’ retail customers. There is an appropriate wholesale pricing from Optus with fixed annual price review supplemented by the additional review at either party’s discretion. Additionally, there is an independent retail product and price setting by the AYS and AYS would access to the future mobile services technologies that are generally available to other Optus wholesale customers.

 
NSA with Optus (Source: Company Reports)
 
AYS Business model: AYS has asset light MVNO model, which means that it has limited network capex and no large mobile network upgrades. AYS has limited working capital given the attractive payment terms and regular customer payments. Meanwhile, the group is synergistically integrating the smaller players and has significant leverage in cross-selling broadband and new products to the existing subscriber base. Moreover, AYS has price and value leadership in the BYO segment. This dual brand strategy allows AYS to broaden the value leadership while maintaining the profitability. There is a strong demand for BYO plans as 65% of people switching providers are choosing no lock-in contract plans and over 85% of Australians now own a smart device. Going forward, the group intends to focus on its subscription-based revenue model, strengthening its dual-brand strategy while leveraging their Network Services Agreement with Optus. Moreover, the group is also making efforts to improve their position in Australian households by expanding offerings into broadband. To leverage National Broadband Network exponential growth, the group intends to make nine million premises ready for NBN service in FY2018 by buying Australian Broadband Services.

 
AYS milestones (Source: Company Reports)
 
Varying product mix to cater broad customer base: AYS is launching plans to cater the wide addressable market, which comprises price-points ranging from $15 to $50 for the data. Accordingly, the group acquired Vaya, a price-fighting brand in the sub-$30 segment, which is on track to their strategy of focusing on $25-50 price points. The group reported that their customer focus led to decrease in churn levels across the group, which declined to 2.5% year-on-year from 3.5%, while the amaysim brand has high customer satisfaction levels. Meanwhile, AYS has also has an award-winning customer experience underpinned by technology. AYS’s DIY led customer experience platform underpins the leadership position in the customer satisfaction. Moreover, AYS has continued investment in the mobile-first approach to user experience and self-service. Therefore, AYS has lowest level of telco industry complaints and there is ongoing churn reduction for increasing the customer lifetime value.

 
Competitive pricing of Amaysim (Source: Company Reports)
 
Stock Performance: The shares of AYS have fell over18.9% during this year to date (as of October 21, 2016) as the group reported mixed interim results. On the other hand, the stock recovered over 33.5% in the last six months as the group came out with decent fiscal year of 2016 result. AYS is constantly making efforts on enhancing efficiencies via several initiatives like online-driven business model and technology-led scalability. AYS solid Recurring online subscription based payments which comprised 83% of their payments in FY16, indicate their consistent revenue generating capabilities. Moreover, investors need to note that the group’s LiveChat customer satisfaction on a month-on month average exceeded 94% while more than 89% of the group’s subscribers reported that they would endorse the brand to their friends and family. This indicates that the group’s online business model has more potential. The group will hold its AGM on November 17, 2016. AYS stock surged over 8.8% in the last four weeks and we believe the positive momentum in the stock will continue in the coming months. Based on the foregoing, we give a “Buy” recommendation on this dividend yield stock at the current price of $ 2.19

 
AYS Daily Chart (Source: Thomson Reuters)

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