Special note: Axiata adopted the new MFRS 15 accounting standards in FY18. However, no retrospective adjustments were made for FY17 figures. Thus, our 1Q18/FY18 review is based on pre-MFRS 15 figures and at constant currency basis.

• Axiata’s 1Q18 core earnings fell 31% yoy and 4% qoq to RM200m amidst startup losses in new investments and stiff competition in key markets.

• Revenue growth was encouraging driven mainly by Dialog and XL while Celcom continue to see strengthening ARPU in 1Q18.

• Against our estimates, 1Q18 EBITDA was largely inline at 22% but core earnings trailed ours and consensus at 14%. No changes for now as we expect better quarters ahead.

• Maintain HOLD with an unchanged SOP-derived TP of RM5.55. Management retained its guidance and remained positive on the outlook of Celcom and XL.

Encouraging growth for XL and Dialog

While Axiata’s core earnings performance failed to impress, at the EBITDA level, improvements at its opcos (Operating Companies) were fairly impressive, recording a 4% yoy growth. This was underpinned by strong performance at XL following its successful dual-brand strategy and investments in ex-Java. Additionally, Dialog (Sri Lanka) also rang in an impressive performance with revenue growth across all products.

Partially negated by Smart and NCell

Smart continues to face intense competition while management also noted that it faced regulatory challenges in 1Q18. NCell continues to be hampered by lower ILD (International Long Distance) revenues amidst the transition to data-led revenue growth.

Celcom recovery on track

The domestic operation continues to see encouraging recovery signs. Celcom’s service revenue rose 2% yoy, resulting from its strategy to focus on high-value customers. ARPUs for both postpaid and prepaid segments grew by RM6 and RM4 to RM87 and RM34 respectively. Its 4G and LTE-A population coverage hit 88% and 76% although this had impacted margins in the near term.

Maintain HOLD with an unchanged TP of RM5.55

We retain our HOLD call on Axiata with an unchanged SOP-derived TP of RM5.55. A weaker ringgit could be a boon to Axiata while positive consumer sentiment bodes well for Celcom’s recovery.

Source: BIMB Securities Research - 23 May 2018