• Axiata’s 9MFY16 normalised PATMI of RM1,341m is inline with our expectation, making up 80% of our full year forecast but lower than consensus (66%).

• YTD normalised PATMI declined 19.1% resulting from higher operating expenses and depreciation charges as well as lower income from associates.

• We maintained our FY16 earnings forecasts while reducing FY17 and FY18.

• Our target price is revised to RM4.70 from RM5.47.

• Maintain HOLD. New sources of income. YTD revenue and EBITDA grew by 8.6% and 15.3% respectively mainly due to the earlier than-expected consolidation of its new acquisition, Ncell1 (Nepal), in 2Q 2016. Nonetheless, performance in Malaysia, Indonesia and Bangladesh remained weak as a result of stiff competition in the cellular market.

Lower 9M earnings. Despite decent revenue growth of 8.6%, normalised PATMI fell by 19.1% due to lower share of profit from associate and JV, higher accelerated depreciation, Indonesia and Bangladesh (+28% for the group) as well as amortisation of intangibles assets arising from acquisition of Nepal operation.

Financials. We maintained our FY16 forecasts at RM1,663m while reducing FY17 and FY18 earnings to RM1,734m (-4.2%) and RM1,791 (-3.4%) respectively by factoring higher network costs as a result of weakening MYR; and operating costs particularly staff and network costs.

Maintain Hold. Our target price is revised to RM4.70 (RM5.47 previously) using SOP valuation. We believe the outlook for Axiata group to remain challenging due to strong competition particularly in Malaysia and Indonesia. Maintain HOLD.

Source: BIMB Securities Research - 25 Nov 2016