Axiata Group; Fully Valued
Price Target: RM5.30; AXIATA MK

XL’s 1Q13 revenue declined 5% q-o-q, after falling 7% q-o-q in 4Q12 as XL lowered its price points sharply in Nov 2012 to rebuild its image as an affordable brand. EBITDA margin dropped to 40.1% versus 43.5% in 4Q12 as infrastructure costs continued to increase due to network roll out. 1Q13 EBITDA of Rp2025bn was 12% below our estimate due to the sharply lower price points. Net profit (excl EI and forex) tumbled 41% q-o-q due to a rise in depreciation and amortisation costs.

XL raised its price-points in Feb 13 and plans to adjust them upwards in small steps without harming its perception as an affordable brand. While we expect a rebound in EBITDA from 2Q13 onwards, our FY13F/14F EBITDA is lowered 5%/3% on lower margin assumption of 42.2%/41.8%, resulting in a 11%/5% cut in our FY13F/14F forecast for XL. Management has maintained its guidance of EBITDA margin to be in the low 40s in FY13 as it expects a rebound in revenue and slow rise in infrastructure costs. We are skeptical if XL can beat industry growth of 8-9% and project 7.4% revenue growth in FY13.

XL’s dismal 1Q13 performance would lead to Axiata Group’s 1Q13 earnings coming in lower than our estimates. We reiterate our Fully Valued call and maintain our RM5.30 SOP-based price target on Axiata Group for now pending the release of Dialog Axiata and Axiata Group’s earnings in the next two weeks.

Source: HwangDBS Research - 03 May 2013