Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD
Research House: HWANGDBS

Axiata Group Bhd
(Sept 29, RM4.40)
Maintain buy at RM4.44 with higher target price RM5.10 (from RM4.95): Street projects 1H2010: 2H2010 earnings before interest, taxes, depreciation and amortisation (Ebitda) of 52:48 compared to 41:59 in 2009 and 50:50 in 2008. Competition peaked in 2H2008, and is unlikely to repeat in 2H2010. DBS Vickers projects 49:51 Ebitda for 1H2010: 2H2010, and estimates that XL's 2H2010 revenue could grow by 19% year-on-year (y-o-y), with Ebitda margin at 49%.

These may still be conservative against 1H2010 revenue growth of 35% y-o-y and 52% Ebitda margin.

With Telkomsel as quality leader in the market, XL and Indosat compete for price leadership. However, XL's focus on small screen data results against Indosat's focus on large screen data results in: (i) lower FY2010F capex-to-sales of 31% (against 44% for ISAT); and (ii) lower network costs as percentage of revenue of 31% (versus 36% for ISAT).

DBS Vickers raised XL's FY2010F to FY2012F net profit by 7% to 31%, and upgrades its fair value to IDR6,800 versus IDR5,900 previously.

We raise Axiata's FY2010F to FY2012F net profit by 2% to 7% after factoring in DBS Vickers' upgrades for XL. Axiata continues to do well in Malaysia, especially in the broadband segment, while it capitalises on economic recovery in Sri Lanka. In Bangladesh, Axiata has found an effective balance between subsidising and profit margin. ' HwangDBS Vickers Research, Sept 29


This article appeared in The Edge Financial Daily, September 30, 2010.