• Axiata’s 1QFY17 normalised PATMI of RM291m is below our expectation, making up 20% of our full year forecast (consensus: 18%).

• Yoy normalised PATMI declined 37.3% mainly due to higher depreciation charges.

• We reduced our FY17 and FY18 earnings forecasts respectively.

• Our SOP derived target price is reduced to RM4.35 from RM4.37.

• Maintain HOLD.

Weaker earnings than expected.

Despite a decent 1Q17 revenue growth of 17.4% yoy, the Group’s normalised PATMI fell by 37.3% due to higher accelerated depreciation in Malaysia, Indonesia and Bangladesh (+RM352.9m or 30.3% higher yoy for the group); amortisation of intangibles assets arising from acquisition of Nepal operation; and share of losses from associates & JV (loss of RM30.5m vs profit of RM69.5m yoy). Subscribers for Celcom fell by 10.2% yoy to 10.2m at the end of March 2017.

Operating profit still growing

EBITDA saw healthy growth of 14.9% yoy, inline with revenue growth. Nonetheless, performance in Malaysia, Indonesia and Bangladesh remained weak as a result of stiff competition in the cellular market.

Earnings revised lower.

We revised our FY17 and FY18 earnings forecasts downwards to RM1,291m (-10.3%) and RM1,297m (-10.7%) respectively by factoring higher depreciation charges and lower income from associate & JV. We introduced our FY19 net profit of RM1.32bn.

Maintain HOLD. Our target price is revised marginally to RM4.35 (RM4.37 previously) using SOP valuation. We believe the outlook for Axiata group will remain challenging due to strong competition in the cellular business particularly in Malaysia and Indonesia. Maintain HOLD.

Stiff competition in Malaysia affected Celcom.

Celcom experienced a 3.4% revenue decline yoy mainly due to falling subscribers (-15.2% to 10.2m). As a result, net earnings fell by 33.4% to RM191m, compounded further by higher network costs (+20%); accelerated depreciation charges and lower share of profit from associate and JV. On qoq basis, prepaid ARPU fell slightly from RM31 to RM30 (yoy: RM29), while postpaid ARPU saw a slight improvement, from RM80 to RM81. We believe the ARPU trend in the next quarter small remain stable due the company’s current strategy of offering higher internet data instead of competing with lower monthly charges. This will prevent ARPU – and revenue – from falling further from our estimates.

Indonesia still in red but improving.

XL’s 1Q revenue fell marginally by 0.1% mainly due to translation impact of a strengthen IDR against ringgit while normalised net loss decreased to RM21m to RM43m mainly resulted from lower Sales & Marketing costs (-10%) and Staff expenses (-15%). Any subscriber numbers?

Mixed results in other countries.

Bangladesh made a net loss of RM59m (1QFY16 net profit: RM20m) as a result of higher regulatory and network costs. Sri Lanka’s profit fell by 29% to RM49m higher depreciation and amortisation charges from new assets acquired, increase in net finance costs and forex translation losses. New business operation in Nepal has contributed 9.7% to the Group’s revenue and registered net earnings of RM136m for 1QFY07

Source: BIMB Securities Research - 26 May 2017