Results

Axiata’s 1H13 core net profit of RM1.32bn came in within our expectations, accounting for 50.8% of HLIB’s full year forecast and but slightly shy of consensus estimate by 5.2% if annualized.

Deviations

In line.

Dividend

As expected, declared an interim single tier tax exempt dividend of 8 sen per share (2Q12: 8 sen).

Highlights

Celcom’s revenue grew 2% qoq and 5% yoy even though net adds took a dive with 125k prepaid attritions which was partly offset by 25k prepaid acquisitions, shrinking subscriber base to 12.96m with the split of 77.5% prepaid and 22.5% postpaid. Prepaid ARPU stabilized qoq but contracted RM2 yoy at RM35 while postpaid ARPU which advanced RM1 qoq to RM88 was not enough to match the RM90 recorded in 2Q12. YTD blended MOU (excluding domestic roaming) improved by 9.3% yoy spurred by effective initiative implemented in reviving traditional voice usage. Broadband acquisition regained momentum in 2Q13 by adding 61k (+6% qoq) subs and nullified the churn of 20k in 1Q13 elevating total base to new high of 1.1m subs while broadband revenue grew in tandem by 4% qoq to RM265m on the back of stable ARPU of RM60.

XL maintained momentum in subscriber acquisition with 5.1m net adds reaching a base of 54.2m subscribers which remains 99% prepaid-dominated. Blended MOU advanced marginally as prepaid ARPU was unchanged at IDR27k and postpaid ARPU gained 10.2% to IDR140k.

Lucrative messaging product in Malaysia continue to be under great pressure due to OTT dragging group wide’s SMS revenue by 6.7% even though all other OpCo registered growth.

Idea has recently issued a notice for a capital call for ~USD600m. Axiata has an option to subscribe to its share, which may result in a cash outflow of ~USD120m in 3Q13.

Catalysts

• Higher smartphone penetration boosting data ARPU.
• Strong growth in low penetration developing markets.
• More cost savings from collaboration with DiGi.

Risks

Regulatory risks, FOREX fluctuations and competitive risks.

Forecasts

Unchanged.

Rating

HOLD, TP: RM6.63

Positives – Despite the challenging environment, Axiata’s main OpCo (Celcom, XL, Dialog) continue to execute well.

Negatives – Exposure to Indian telecom market which is currently under close scrutiny by the government.

Valuation

Maintain HOLD call on the stock with unchanged SOP TP of RM6.63 (see Figure #9).

Source: Hong Leong Investment Bank Research - 2 Sep 2013