Investment Highlights

• We maintain our HOLD call on Axiata Group (Axiata) pending further progress on the group’s proposed value-enhancing merger with Telenor Asia, based on an unchanged FV of RM4.05/share — a 25% holding company discount to our unchanged SOP-based FV of RM5.14/share. This implies an FY19F EV/EBITDA of 5x, 2SDs below its 2-year average of 7x due to its multiple overseas risk exposure.

• Pending the analyst briefing later today, we maintain our FY19F– FY21F earnings as 1QFY19 normalised net profit of RM226mil (preMFRS 16 lease accounting adjustment which excludes forex and exceptional gains from the disposal of XL towers, M1 stake and noncore digital assets) came in generally within expectations, accounting for 18% of our FY19F estimates and 17% of consensus.

• As a comparison over the past 5 years, Axiata’s 1Q core earnings accounted for a wide 18%–33% range to its full financial years due to the volatility of the group’s multiple regional operations and one-off impairments. Axiata did not declare any interim dividend as expected.

• As Axiata views its 1QFY19 results on target, management maintains its FY19F EBITDA growth of 5%–8%, capex target of RM6.8bil and revenue increase of 3%–4%.

• Although Axiata’s 1QFY19 revenue rose 4% YoY largely from overseas operations, its normalised net profit fell 27% YoY due to the absence of M1 contributions following its disposal on 27 February this year to Konnectivity Pte Ltd and lower contributions from Celcom (-18%) and NCell (-8%)

• Celcom’s 1QFY19 revenue slid 5% YoY as subscribers fell by 649K (- 7% YoY) to 8.9mil, partly offset by average revenue per user (ARPU) improving by RM2/month YoY to RM49/month.

• The forward momentum which Celcom’s postpaid segment had shown over the 4 quarters last year appears to be reversing with a sequential decline of 10K in 1QFY19, after a surprisingly strong 102K QoQ increase in 4QFY18. Together with higher depreciation, Celcom’s 1QFY19 normalised net profit fell 18% YoY to RM141mil.

• XL’s prospects are brightening as its 1QFY19 revenue rose 9% YoY while EBITDA outpaced on a faster 13% growth, which halved YoY its losses to only RM8mil. However, Nepal-based Ncell’s 1QFY19 revenue slid 5% YoY from lower interconnection fees and service charge, which caused EBITDA to drop 5% YoY and core net profit to slide 8% YoY.

• Bangladesh’s Robi managed to turn around sequentially from a loss on the back of a revenue growth of 4% QoQ while Sri Lanka-based Dialog’s 1QFY19 posted a growing subscriber base (+483K QoQ) which fuelled an impressive 8% QoQ revenue growth.

• Cambodia-based SMART net profit fell 2% YoY on higher regulatory costs despite a 15% revenue growth while edotco’s core earnings grew 8% YoY on an expanding tenancy base and tower portfolio.

• Axiata currently trades at a bargain FY19F EV/EBITDA of 6x vs. Maxis’ 12x amid potentially mitigated overseas risk exposure if the proposed merger with Telenor’s Asia operations is completed. Nevertheless, the government’s intention to reduce Khazanah Nasional’s holdings in GLCs casts shadows of a share overhang.

Source: AmInvest Research - 29 May 2019