Investment Highlights

• We maintain our BUY call on Axiata Group (Axiata) with unchanged forecasts and sum-of-parts-based fair value of RM6.05/share, which translates to an FY19F EV/EBITDA of 6.5x, 40% of Maxis’ 11x.

• Axiata’s 66.4% owned PT XL Axiata Tbk, has proposed a new bond and Islamic Sukuk Ijarah programme, which could reach a combined nominal value of up to IDR5tril (RM1.4bil) over 5 tranches valued at IDR1tril (RM279mil) each.

• For the first stage, the company targets proceeds of IDR1 tril (RM279mil) over a 2-year period.

• These bonds and sukuk will be divided into 5 tranches: i) A series with 370-day tenor and interest coupon of 8%-8.5%, ii) B series with 3-year tenor and interest coupon of 8.75%- 9.5%, iii) C series with 5-year tenor and interest coupon of 9.25%- 10.25%, iv) D series with 7-year tenor and interest coupon of 9.85%- 10.5%, and v) E Series with 10-year tenor and interest coupon of 10%- 10.65%.

• The proceeds are earmarked for capital expenditure to increase XL’s capacity, expand its network and improve service quality, largely targeting Base Station Subsystem expansion and fiber optic transmission.

• In 2QFY18, XL’s Base Transceiver Stations grew 20% YoY to 11,786, aiming to expand the network coverage outside Java.

• This development is not a surprise and in line with XL’s targeted capex of IDR7tril (RM2bil) for this year. In 1HFY18, XL has already spent RM14bil or 70% of its FY18 target.

• Although XL accounts for 9% of Axiata’s SOP, we note that it has the largest share at 44% of Axiata’s 1HFY18 capex of RM3.2bil.

• Nevertheless, XL’s gearing levels has improved with annualized net debt/EBITDA falling to 1.4x in 1HFY18 from 1.6x in 1HFY17 against the backdrop of improving operational performance.

• Axiata’s FY18F capex guidance of RM6.7bil is likely to be maintained, with 1HFY18 accounting for 48%. Hence, XL’s bond programme will not impact our assumptions for Axiata’s FY18F-FY20F debt levels.

• With revenue growth prospects improving for Celcom, XL, NCELL, Dialog and SMART, Axiata currently trades at a bargain FY19F EV/EBITDA of 6x, way below its 2-year average of 8x vs Maxis’ 11x.

Source: AmInvest Research - 14 Sept 2018