Results

FY13 core net profit of RM2.76bn matched expectations, accounting for 99.1% and 95.1% of HLIB’s and consensus full year estimates, respectively. Dividend

Recommended single tier tax exempt final dividend of 14 sen per share (4Q12: 15 sen) subject to shareholders approval.

YTD dividend amounted to 22 sen per share (FY12: 35 sen) representing 75% payout ratio.

Highlights

Celcom: drastic churn with a loss of 354k subscribers as prepaid segment face regulatory scrutiny in bulk provisioning of migrant subscribers (-338k subs) while postpaid segment was mainly due to dongle / large screen user attritions.3G coverage reached 83% of population and target to expand the current 700 LTE sites to 1,200 covering 30% population by end of FY14. Smartphone and tablet users data consumption are 0.7GB and 1.8GB per month, respectively.

XL: Revenue was flat with data & VAS the fastest growing services with double digit growth of 16% and 34% respectively, while voice and SMS declined by 7% and 4% respectively.

FY14 headline KPI and guidance:

1. Turnover growth of 10.1% taking into consideration of Axis consolidation. Breakdown: Revenue growth EBITDA growth Celcom Low-mid single digit Flat with lower margin XL Low teens Mid-30s Dialog High single digit High single digit Robi High single to low teens High single digit

2. EBITDA growth of 1.8% with flat margin.

3. ROIC of 9.3% and ROCE of 7.8%.

4. CAPEX of RM4.4bn (Celcom: RM1bn, XL: RM1.8-1.9bn, Robi: RM700m, Dialog: RM500m, Smart: RM150m and others: RM200m).

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

Updated model with latest operating data which led to FY14- 15 EPS revision by -4.6% and +3.1% respectively.

Rating

HOLD, TP: RM6.92

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 but we lowered our fair value by 1.8% from RM7.05 to RM6.92 due to our reduced FY14 forecast, despite rolling forward our SOP valuations (see Figure #9).

Source: Hong Leong Investment Bank Research - 21 Feb 2014