Axiata Group (Axiata) posted encouraging FY12 earnings of RM2.7bn, beating our projections by 3.9% though it was within the market expectations. Surprisingly, management announced a final dividend payment of 15sen and a special dividend of 12sen, making a total of 107% YTD payout. Without the special dividend, it would still have exceeded our earlier forecast by 12.2%.

Revenue (Q-o-Q: -2.2%, Y-o-Y: +4.7%). All operating countries posted higher revenue; Malaysia (+2%), Sri Lanka (+2.2%), others (+22.8%) except Bangladesh (-0.3%) and Indonesia (-8.4%), which was hit by lower voice and SMS revenue growth despite higher data contribution (+2.5%) and lower operating costs (-6.6%). Malaysia‟s Celcom continued its healthy run with an 8% increase in subscriber growth driven by prepaid and broadband users, up 2% each. In Indonesia, XL recovered from a loss in 3Q to register an 8% subscriber growth in the current quarter, mainly led by smartphone users. Meanwhile, Bangladesh and Sri Lanka units both increased by 3% each. Total group subscribers inched 1.4% higher to 215.7m.

Core net profit (Q-o-Q: -10.8%, Y-o-Y: +11.3%). Bottomline was less impressive compared to the previous quarter mainly due to decreased earnings from major contributors; Malaysia (-10.1%), Indonesia (-25.7%), Sri Lanka (-81.4%) as well as continued losses in other operating countries despite a turnaround in Bangladesh (>100%).

Guidance for 2013. Management has guided for a total capex of RM4.5bn for FY13. More than 82% of this amount would be allocated for Indonesia and Malaysia while the remainder would be shared by other operating countries. Meanwhile, the group is also targeting a mid single-digit growth for topline and also EBITDA growth of 0.2% for this year. It also does not rule out possibilities of M&A exercises if any opportunities arise in Indonesia.

Neutral with an unchanged TP of RM6.61. Reiterate Neutral call on Axiata with unchanged target price of RM6.61 based on SOP valuations. At this juncture, we remain concerned on its Indonesian unit, which is being hit by stiffer competition and heightening cost pressures.

Source: PublicInvest Research - 22 Feb 2013