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 
Launching the broadband early in CY 2017:Amaysim Australia Ltd (ASX: AYS) is performing in line with the company’s expectation related to their ongoing organic growth in its subscriber base and low churn. AYS is going to launch the broadband early in the CY 2017, to take advantage of the ‘forced migration’ event presented by the roll-out of the National Broadband Network (NBN) across Australia. In FY17, the AYS expects its core mobile business to continue to grow organically by adding over 58,000 to 60,000 net mobile subscribers in the first half of FY17. This growth is expected to drive low-double digit net revenue growth in FY17. However, due to the full year impact of Vaya’s lower ARPU subscriber base, the AYS mobile FY17 ARPU is expected to be lower than FY 16. The downward pressure to ARPU will be over in the first half of FY17 while ARPU is expected to gradually increase in the second half of FY17. Moreover, FY 17 gross profit margins are expected to be over 32% to 33% and the FY17 operating efficiency is expected to be around $50 million which is flat as compared to FY16.

 

Future Plans (Source: Company Reports)
 
Crossed more than 1 million subscriber milestone in November 2016:AYS reported a closing subscriber base of 966,000 during 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). However, in November 2016 the company achieved a milestone by crossing more than 1 million subscriber milestone. Moreover, FY 16 results include the acquisition of Vaya and launch of the dual brand strategy in the second half of 2016. Vaya broadband offering will come by 1H FY18.On the other side, AYS has launched device store in November 2016, with devices available outright or through an integrated third-party finance option. Moreover, the company also launched Christmas offer across their range of 12-month prepaid mobile plans.

 

Financial Performance highlights for fiscal year of 2016 (Source: Company Reports)
 
Diversifying business via acquisition of Australian Broadband Services: AYS has recently finished the acquisition of Australian Broadband Services (AusBBS), which would offer them with the subscriber management technology it needs to simplify the complex process of setting up broadband connections. AYS has already paid the first tranche of consideration for the acquisition while the final tranche of the consideration, would be an additional 839,569 ordinary shares in AYS which would be issued one year after acquisition completion. This would be 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 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 has been timed to 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 has established subscriber base and subscription-based recurring revenue model: AYS had reported a strong subscriber growth of 966k as at June 30, 2016 and over 985k as at August 18, 2016. 83 per cent 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. Meanwhile, the group’s fiscal year of 2016 subscriber churn rate reached 2.5% which fell over 100 basis points as compared to fiscal year of 2015.
 

Established Revenue Model (Source: Company Reports)
 
Strategic NSA between AYS and Optus: AYS has a strategic NSA (Network Service Agreement) with Optus for a long-term profitability and competitiveness till December 2024. There is no requirement for AYS to invest in the development or maintenance of Optus network while Optus has to offer 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 AYS while AYS will have access to the future mobile services technologies that are generally available to other Optus wholesale customers.

 

NSA with Optus (Source: Company Reports)
 
Asset Light Model:AYS has asset light MVNO (mobile virtual asset operator) 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. The group is synergistically integrating the smaller players and has a major leverage in cross-selling broadband and new products to the existing subscriber base. Meanwhile, the group has price and value leadership in the BYO segment. This dual brand strategy enables 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.
 

Dual brand strategy (Source: Company Reports)
 
Focusing on customer experience: AYS is now focusing on 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. Over 89% customers said that they would recommend the group to family, friends or colleagues via word-of-mouth recommendation. The group also witnessed a 10% rise in customer conversion rate via their new website. 91% of the customers are self-serving in their site, while only 9% of customers are calling them post visiting their Help and support page, which is again down by 30% in November 2016 as compared to September 2016. This indicates that the group’s investment in customer care is generating a better response time and overall experience. Amaysim is also pursuing cross-selling and upselling opportunities via NBN closed trials of Amaysim broadband offerings.
 
FY 17 Priorities: AYS has plans to launch new digital acquisition channels to increase subscriber growth. AYS will continue the development of technology platforms and automate processes to improve efficiencies. Moreover, AYS will increase share of customer wallet through the expansion of offerings and continue to drive loyalty in the base. On the other side, the group has only 12% of the prepaid market share, indicating a potential opportunity going forward.
 
Amaysim competitive edge against peers (Source: Company Reports)
 
Stock Performance: AYS stock has risen7.53% in the last one month (as of January 20, 2017) and is having a decent dividend yield. AYS is well-positioned for FY 17 with their growing subscriber base and subscription-based recurring revenue model. The group made a strategic NSA for long-term profitability and has a competitive edge. The group is targeting a dual-brand strategy while has potential growth opportunities given the rising share of customer wallet. The group will announce its 2017 first half results in February 2017. The stock has, however, fallen over 33.3% in the last one year and is now available at attractive levels. Further, levers such as cost controls and a pick-up in subscriber growth trends have taken over some bit of disappointment owing to re-base in ARPU, and this is a good sign. We give a “Buy” recommendation on the stock at the current price of – $ 2.04

 
AYS Daily Chart (Source: Thomson Reuters)

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