• 2Q18 core earnings fell 21% yoy while that of 1H18 declined 24% arising from new accounting standards, higher staff costs as well as dilution from realized forex losses.

• At the EBITDA level, earnings fell 10% yoy in 2Q18 and 8% over the 1H18 period to make up only 40% of our FY18 estimates. Our earnings are currently under review.

• Similarly, our HOLD and RM5.55 TP are currently under review.

Trying times

Axiata’s core earnings performance failed to impress as 2Q18 fell 21% yoy while 1H18 core posted a 24% drop. Revenues in 2Q18 came in weaker; the decline was partly due to unfavourable forex. As a result, XL and NCell reported lower revenues. Robi also noted weaker revenue but this was largely on accounting treatment of device sales.

Weaker EBITDA across the board

Overall, EBITDA declined 10% in 2Q18 and 8% over the 6-month period on weaker performance across most operating companies (op cos) due to higher opex (ie. Celcom saw higher staff cost) and depreciation charge (ie. for XL on the back of its 4G expansion).

Idea-lly an investment

With Axiata’s position in Idea reduced to just a simple investment, it impaired its stake in the telco giant by RM3.4bn. Adjusting for this and other one-off expenses/gains, the group’s 1H18 core earnings fell 24% and trailed our estimates at only 40%.

Under review

We have put our estimates and recommendation under review pending a revisit to our earning outlook on the stock. While the weakening of the Ringgit should provide some earnings respite in the near term, we believe its exposure to other emerging markets may see limited gains from favourable forex.

Source: BIMB Securities Research - 27 Aug 2018