Period      1QFY13 for XL Axiata (“XL”)

Actual vs. Expectations     XL’s 1Q13 core NP of Rp340b was below expectations and accounted for 11.9% of ours and 11.1% of the street’s full-year estimates. The culprits were mainly due to 1) price changes in the voice segment, 2) higher interconnection cost and 3) higher infrastructure expenses as a result of its 3G network coverage expansion.

Dividends     No dividend was announced during the quarter.

Key Result Highlights     YoY, XL’s 1Q13 revenue rose marginally by 2% YoY to Rp5.0T, driven by higher contributions across all its services, particularly the Data & VAS (+19%) and Roaming services (+76%) but partially offset by the lower SMS (-6%) and Voice (-11%) segments. With the growth in data, non-voice revenue now contributed 53% of XL’s total usage revenue of Rp3.9T. XL’s data users now accounted for 60% of the group’s total subscribers of 49.1m with most of its users committed to either the Pay Per Use or Volume-based data plans.

QoQ, the revenue was lower by -5% due to a lower voice revenue (-12%). The core net profit dipped to Rp340m (-41%) as a result of the lower turnover coupled with a weaker EBIT margin (13.9% vs. 18.8%) due to a higher interconnection charge (+12%).

The total operating expenses, meanwhile, has increased by 20% YoY to Rp3.0T in 1Q13 due to higher interconnection and other direct expenses (+75% YoY) led by the introduction of a 4% SMS interconnection cost. Meanwhile, infrastructure expenses were also up by 12% YoY, in line with its 3G network coverage expansion plan.

The group’s 1Q13 EBITDA meanwhile was lower at 40.1% vs. 48.3% a year ago due mainly to 1) the introduction of SMS interconnection charge, 2) higher data segment contribution and 3) higher network costs.

Outlook    XL is maintaining its 8%-9% targeted turnover growth in FY13 despite the lacklustre 1Q13 result. Meanwhile, the group is targeting to record an EBITDA margin in the low 40% range in FY13 as a result of higher data contribution and the impact of the interconnection rate.

Change to Forecasts    We have lowered our Axiata’s FY13 and FY14 net profits by 3.2% and 2.7%, respectively.

Rating     Maintain at MARKET PERFORM

Valuation     However, our TP is raised to RM6.95 (from RM6.60 previously) after rolling over our valuation base year to FY14 with an unchanged targeted EV/forward EBITDA multiple of 8.4x (+1.5 SD).

Risks     Regulation risks in its overseas ventures.

Source: Kenanga