Result

• Improved quarter - Axiata’s 4Q17 normalised PATAMI grew 170% YoY to RM209m due to improved earnings in all Operating Companies (OpCos) except Ncell (Nepal). Quarterly revenue increased 8.2% YoY to RM6.26b following improved sales in all divisions except Smart (Cambodia).

• Bad Idea – 4Q17 normalised PATAMI plunged 40.6% QoQ due to widening losses from associate Idea Cellular (India) despite higher profit from other divisions. Quarterly revenue was flat after rising 1% QoQ.

• Record revenue - In FY17, normalized PATAMI dropped 15% YoY to RM1.2b due to losses from associates of RM875m (RM450m from Idea) and loss in Robi (RM56m). Twelve months’ revenue grew 13.2% YoY to a record RM24.4b as all OpCos improved except for a flat Celcom.

• Higher subscribers – All OpCos achieved more subscribers except for Celcom which suffered continuous churn since 3Q15.

• KPIs met – Axiata achieved its 2017 KPIs and introduced its 2018 KPIs (at constant rate) - revenue growth of 6.3%, EBITDA growth of 5.8%, ROIC of 5.0%-5.5% and ROCE of 4.5%-5.0%.

Earnings Outlook/Revision

• Earnings below expectation – FY17 normalized PATAMI came below our expectation after accounting for 79% of FY17 estimate as we underestimated the magnitude of losses from associates. Twelve months’ revenue of RM24.4b exceeded forecast after making up 104% of FY17 forecast.

• Forecast reduced – Revenue estimates are maintained but we slash our EPS forecast for FY18 and FY19 by 18% and 13% respectively to account for the higher-than expected loss from associates.

• Management cited challenges being the delay in Idea Vodafone merger and continued deterioration of market condition in India. Following the merger, there could be a non-cash impairment of RM1.2-1.8b.

• Steady gearing - Total borrowings was flat at RM19.2bn as net debt/EBITDA was held steady at 1.34x vs 1.35x in 3Q17.

• Dividend – Axiata proposed an interim dividend of 3.5 sen/share, taking full year dividend to 8.5 sen, translating into a yield of 1.5%.

Valuation & Recommendation

• Maintain HOLD with an unchanged target price of RM5.20 based on Sum-Of-Parts (SOP).

Source: JF Apex Securities Research - 23 Feb 2018