Period  3Q13/9M13 for XL Axiata (XL)

Actual vs. Expectations  XL’s 9M13 core NP of Rp1.5T (-35% YoY) came in within expectation and accounted for 76.9% of ours and 73.1% of the street’s full-year estimates. The reported NP, however, were plunged 58% YoY to Rp917b due mainly to (i) unrealised forex loss of Rp581b (vs. Rp48b in 9M12), and (ii) higher accelerated depreciation (Rp192b vs. Rp96b a year ago) that led by the network modernisation on both 2G and 3G.

Dividends  No dividend was announced during the quarter.

Key Result Highlights  YoY, XL’s 9M13 revenue was flat at Rp15.8T, mainly driven by higher Data & VAS (+18%) and Roaming services (+23%) but offset by the lower SMS (-4%) and Voice (-9%) segments. With the growth in data, non-voice revenue now contributed 54% of XL’s total usage revenue of Rp12.3T. XL’s smartphone users have reached 9.2m or 16% of the 58.1m total base.

 QoQ, XL’s 3Q13 revenue improved by 5%, thanks to higher contribution from the overall segments and subscribers base that led by higher A&P activities and attractive phone bundling offered. The reported NP, however, reduced by 31% YoY to Rp247b as a result of the lower EBIT margin and higher forex losses.

 The total operating expenses, meanwhile, increased by 14% YoY to Rp9.4T in 9M13 due to higher interconnection and other direct expenses (+32% YoY to Rp2.9T) led by the introduction of a 4% SMS interconnection cost. Infrastructure expenses were also up by 11% YoY, in line with its 3G network coverage expansion plan.

 The group’s 9M13 EBITDA margin declined to 40.4% vs. 46.8% a year ago due mainly to (i) the introduction of SMS interconnection charge, (ii) higher data segment contribution, and (iii) higher network costs.

Outlook  XL has once again lowered its FY13 annual revenue growth target to a low single digit (from previous guidance of a mid-single digit and 8%-9% that guided in end-1Q13). Meanwhile, the group maintained its EBITDA margin guidance at low 40% with a targeted capex spent of Rp8-9T.

Change to Forecasts  We have reduced our Axiata’s FY13E and FY14E net profits by 1.0% and 1.1%, respectively, after lowering the earnings contribution from XL.

Rating   Maintained at MARKET PERFORM

Valuation  Correspondently, our Axiata TP has lowered to RM6.66 (from RM6.70 previously) based on an unchanged targeted FY14 EV/forward EBITDA multiple of 8.5x (+1.0 SD).

Risks  Regulation risks in its overseas ventures. 

Source: Kenanga