• Lower profit – Axiata’s 3Q18 PATAMI dropped 45% YoY to RM132m due to higher depreciation and finance costs while normalised PATAMI dropped 28% YoY to RM322m. EBITDA declined 3% YoY to RM2.4b mainly due to Celcom’s one-off Employee Life Plan.

• Steady revenue - Quarterly revenue increased 2.5% YoY to RM6.4b as all operating companies (OpCos) recorded higher revenue except XL and Ncell.

• Better QoQ – 3Q18 normalised PATAMI increased 57% QoQ on the back of a 10% QoQ growth in revenue while EBITDA rose 14% QoQ with ongoing cost efficiencies.

• Lower YTD – 9M18 normalised net profit dropped 25% YoY to RM967m due to higher depreciation, finance costs and digital investments. Nine months’ revenue grew 4% YoY to RM18.9b while EBITDA increased 2% YoY to RM7b.

• Higher gearing - Total borrowings was slightly higher at RM19.5b (vs RM18.7b in 2Q18) while cash declined to RM6.0b from RM6.2b in 2Q18. As a result, net debt/EBITDA inched higher to 1.61x vs 1.52x in 2Q18, which is still manageable.

Earnings Outlook/Revision

• Earnings within expectation – 9M18 normalized PATAMI of RM967m (-25% YoY) came within our expectation after accounting for 84% of FY18 estimate. Nine months’ revenue of RM18.9b (+4% YoY) is also within forecast after making up 75% of our FY18 forecast.

• Forecast maintained – As such, we are keeping our forecasts for FY18 and FY19.

Valuation & Recommendation

• Upgrade to BUY from HOLD with an unchanged target price of RM4.95 based on Sum-Of-Parts (SOP) as value re-emerges following the recent selldown in share price. Future growth will be driven by earnings momentum as OpCos continue to outperform in the industry as well as ongoing operation efficiencies as management has achieved RM1.3b of cost savings YTD out of its FY18 target of RM1.4b.

Source: JF Apex Securities Research - 26 Nov 2018