Another fulfilling quarter. Axiata' 3QFY12 results reflected the solid execution across most  OpCos  in  highly competitive  markets.  Overall group  revenue  and  EBITDA growth of  9% and  5%  for 9MFY12  trumped  its  relatively  conservative  KPI  targets  of  5.3%  and 1.8%  respectively  for  the  second  straight  quarter.  Against  our  revenue  and  EBITDA growth projections of 7.2% and 4.5% for FY12, it would seem that our assumptions are achievable. We deem the overall results in line with our forecast but above the market's.

Mixed  showing  from  OpCos.  Key  operational  highlights  in  3QFY12  were:  i)  core EBITDA  margins  improved  across  most  OpCos,  except  XL  which  contributed  a  -1.5% margin  impact on  the group  from  the  SMS  interconnect  ruling  in  June  (XL  was  a slight outpayer of SMS), and ii) the solid double-digit y-o-y revenue expansion for Dialog and Robi.  Dialog  posted  core  PATAMI  growth  of  6%  q-o-q  as  EBITDA  expanded  5%  while Robi's core earnings (stripping  out  the  SIM  tax  impact)  more  than  doubled  q-o-q alongside a 8% q-o-q subs growth. The group's core EBITDA was flat q-o-q, with a 43% margin for 9MFY12. 

Celcom rules. Celcom continued to perform well with revenue and EBITDA up 8% y-o-y and  2%  q-o-q,  outflanking  Maxis  and  Digi.  This  reaffirms  the  success  of  its  customer segmentation  strategy  in  Malaysia,  a  major  marketing  lynchpin.  After  coming  behind Maxis  and  Digi  for  the  past  five  years,  it  has  since  claimed  the  top  spot  in  the  youth segment and continues to make inroads into the mid-urban and suburban areas.     

XL  to  dictate  capex  for  2013.  Axiata  said  group  capex  intensity  for  FY13  hinges  on spending at XL, which in turn, is a function of data productivity and demand in Indonesia. Given the strong pick-up in data adoption, XL has upped its capex guidance for FY12 to IDR9trn-IDR10trn  (vs  IDR7trn-IDR8trn  previously)  after  front-loading  some  of  its  FY13 capex. The higher capex for XL has contributed to the RM0.6bn increase in FY12 capex guidance  to  RM5bn,  implying  a  further  RM1.5bn  in  spending  in  4Q12  (the  bulk  of  this from XL).

OTHER HIGHLIGHTS  

Hints  of  capital  management.  With  the  rapid  build-up  in  FCF  and  the group's commanding  cash  board  of  over RM8bn, we think a more aggressive management of its capital will come sooner than later. Axiata has maintained its  progressive  dividend  outlook,  in  keeping  with  its  65%  dividend  payout  ratio.  We  have  maintained  our  DPS assumptions.

Limited scope for M&As. Axiata views its M&A prospects as low, alluding to the intense pursuit for mobile licenses in Myanmar, a market where firm interests have been lodged by more than 10 telcos. We gather from management that  at  least  five  major  operators  are  competing  aggressively  in  the  pre-bidding  process. Axiata  said  that  industry consolidation in Cambodia is ongoing with weaker operators being weeded out, merged or ceased operations. 

 Source: Kenanga