- Axiata’s 1Q14 results were in line with expectations. The group reported a core net profit of RM624mil, which accounted for 23% of our FY14F earnings and 22% of consensus.

- On normalised currency basis, XL’s revenue increased by 10% YoY, largely driven by data services (+28% YoY). Voice and SMS also increased by 3% and 2% YoY respectively. EBITDA increased by 9%.

- We suspect that XL’s core results (excluding Axis) were strong due to stabilising price competition as Hutch seems to have become less aggressive in the last nine months while the CDMA operators continue to struggle.

- However, given the weaker IDR, XL’s reported revenue was down by 4% and reported EBITDA was down by 5%.

- 1Q14 saw the inclusion of only 12 days of Axis’ results, but 2Q14 would be a better reflection of the earnings drag from the unit and is a key earnings risk which enticed us to downgrade Axiata.

- Axis is estimated to have contributed to a negative IDR64bil impact to EBITDA and negative IDR125bil impact to earnings, or a 3% and 25% impact respectively to XL’s 1Q14 result for the 12 days consolidation.

- Celcom saw deterioration in revenue (-3.7% YoY, -5.3% QoQ) due to lower device sales and lower USP revenue, while service revenue was stable. However, this still resulted in a 4% YoY EBITDA contraction. SMS revenue dropped by 24% YoY and was partially offset by a rise in data revenue (+16% YoY). Celcom’s bottomline was also weaker due to expiry of last mile benefits.

- Robi and Hello performed well. Robi (accounts for 11% of group EBITDA) saw strong revenue (+18% YoY) and EBITDA growth (+25% YoY) despite heightened competition while data revenue had specifically doubled. Hello saw 39% YoY revenue growth (for combined entity) while EBITDA and PAT saw >100% growth driven by voice, VAS, and data (+23%, +64%, and >100% respectively).

- Maintain HOLD on Axiata at unchanged fair value of RM7.00/share. A post-results conference call is scheduled today.

Source: AmeSecurities