Investment Highlights

• We maintain our BUY call on Axiata Group (Axiata) with an unchanged sum-of-parts-based fair value of RM5.32/share, which translates to an unchanged FY19F EV/EBITDA of 6x, 1SD below its 3-year average of 7x.

• Axiata’s forecasts are maintained as 9MFY18 normalised net profit of RM967mil (pre-MFRS 15), excluding RM3.7bil impairment from the deconsolidation of India-based Idea from group accounts together with a RM176mil loss on dilution and RM257mil other provisions, came in within our expectations, making up 87% of our FY18F earnings but above consensus.

• While 4QFY18 tends to be weaker, we highlight that the normalised results were already 4% away from street’s expectations. As a comparison, 9MFY17 accounted for 83% of FY17 normalised net profit.

• Axiata did not declare an interim 3QFY18 dividend as expected with management previously affirming that the FY18F payout will normalise and match 85% in FY15, before the group drastically cut its distribution following FY16 spectrum fee outlays.

• Axiata’s 3QFY18 normalised net profit rose 38% QoQ to RM364mil from one-off edotco share disposal gains from Bangladesh’s Robi and Celcom’s lower subscriber acquisition costs following its cost optimisation programme, amid a decent 2% revenue growth.

• However, the group’s 9MFY18 normalised earnings was slightly lower 3% YoY as Robi’s gain was largely offset by weaker bottom lines from the rest of the group’s operations.

• Celcom’s 3QFY18 revenue marginally slid QoQ as subscribers declined by 394K to 9.2mil, after rising for the past 2 quarters. Even though Celcom’s ARPU has risen RM1/month to RM49/month, its traction in drawing prepaid subscribers appears to have dissipated, partly offset by the 53K rise in the postpaid segment to 2.9mil. In a QoQ comparison, the overall subscriber base for Digi rose 144K while Maxis added 73K.

• Notwithstanding the flattish revenue, Celcom’s 3QFY18 normalised net profit rose 31% QoQ to RM205mil due to the one-off internal staff restructuring charge in 2QFY18. For now, we remain conservative for Celcom’s margin assumptions.

• XL’s prospects are brightening as its 3QFY18 loss improved to RM14mil from RM22mil in 2QFY18 in tandem with a 29% increase in revenue, driven by its subscriber base increasing by 955K QoQ following the pre-paid SIM registration exercise in 2QFY18 in its postpaid segment.

• Nepal-based NCELL’s revenue rose 8% QoQ as its domestic data business more than offset the declines in international long-distance services which accounts for 26% of income. However, its core earnings slid 5% QoQ to RM164mil due to increased corporate tax rate, one-off prior year tax adjustment and asset impairment.

• Sri Lanka-based Dialog’s net profit halved QoQ from higher depreciation and network costs, despite a 159K increase in subscribers and 4% improvement in ARPUs.

• Cambodia-based SMART net profit slipped 4% QoQ to RM55mil on higher regulatory costs notwithstanding a 6% EBITDA improvement from rising data-driven subscriber growth.

Source: AmInvest Research - 26 Nov 2018