JF Apex Securities ' HOLD ' TP RM 5.29

Highlights

• Marginal decline in normalised profit ' Axiata's 2Q11 net profit rose 15% YoY and 21% QoQ to RM663m. However, normalized net profit for the quarter fell 6% YoY and 0.5% QoQ.
• Revenue hit by higher ringgit ' 2Q11 revenue grew 5% YoY and 3% QoQ to RM4.05bn. The strengthening RM resulted 1H11 revenue to increase only 4% YoY instead of 8% (at constant currency).
• Consistent subscriber growth - Total regional subscribers hit 175.7m level in 2Q11, up 4.4% QoQ and 27% YoY., mainly due to its Indian market.
• Celcom ARPU lower ' Blended ARPU was lower at RM49 (vs 1Q11 RM50), postpaid ARPU fell to RM92 (1Q11: RM94) while prepaid ARPU also declined to RM36 (1Q11: RM37). Total subscribers increased 400k or 11% YoY and 1.13m or 4% QoQ to 11.73m.
• Celcom broadband sees slower growth ' Revenue from broadband was flat RM186m while subscribers added 3% QoQ to 900k. The management attributed the slower growth to competition.
• Turnaround in Indonesia ' XL's 2Q11 revenue added 2% QoQ to IDR4,608bn while net profit gained 1% QoQ to IDR767bn. The improvement came after a decline in 1Q11 due to seasonality. However, total subscribers slipped 1% QoQ to 38.9m.
• KPIs in doubt. Management said that exchange rates will continue to pressurize margins and therefore be challenging to achieve KPIs of 10% revenue growth and 10.3% EBITDA growth.
• Capex to weigh on cash and profit. Capex budget was raised to RM3.9bn from RM3.3bn previously due to network expansion. Management noted that Axiata's ability to pay out future dividends mainly depend on the performance of Celcom, which we see as stable.
• We keep our DPS forecast at 12 sen.
• Axiata has improved QoQ and we expect 2H11 to be better with higher contribution from non-voice revenue, namely data and broadband. As such, we are maintaining our FY11 earnings forecast.
• HOLD with target price of RM5.29 ' In our Sum Of Parts (SOP) valuation, we value Axiata at RM5.29. This implies a possible upside of 6.2% from the current price of RM5.00.