Period  4Q13/FY13 for XL Axiata (XL)

Actual vs. Expectations XL’s FY13 core NP of Rp1.8T (-37% YoY) came in below our expectation but inline with the market consensus, accounted for 94.4% of our and 97.4% of the street’s full-year estimates, respectively. However, the reported full-year NP plunged 63% YoY to Rp1.0T due mainly to: (i) unrealised forex loss of Rp1.0T (vs. Rp300b in FY12) and (ii) higher accelerated depreciation (Rp220b vs. Rp100b a year ago) that was led by the network modernisation on both 2G and 3G.

Dividends  No dividend was announced during the quarter.

Key Result Highlights YoY, XL’s FY13 revenue was flat at Rp21.3T, mainly driven by higher Data & VAS (+18%) and Roaming services (+15%) but offset by the lower SMS (-4%) and Voice (-7%) segments. With the growth in data, non-voice revenue now constitutes 54% of XL’s total usage revenue of Rp19.9T. XL’s smartphone users have reached 10.2m or 17% of the 60.5m total base.

 QoQ, XL’s 4Q13 revenue dipped by 1%, no thanks to the lower revenue contribution from both the Voice (-9%) and SMS (-11%) segments but partially offset by higher Data & VAS as well as Roaming Services. However, the reported NP, plunged by 53% to Rp117b as a result of higher forex losses.

 Meanwhile, the total operating expenses, increased by 12% YoY to Rp12.6T in FY13 due to higher interconnection and other direct expenses (+20% YoY to Rp3.7T) led by the introduction of a 4% SMS interconnection cost. Infrastructure expenses also climbed by 16% YoY, in line with the expansion of infrastructure on a lease model.

 The group’s FY13 EBITDA margin declined to 40.6% vs. 45.8% a year ago due mainly to: (i) the introduction of SMS interconnection charge, (ii) higher infrastructure costs as a result of leasing model, and (iii) a full-year impact of managed services fee. Excluding the impact of SMS interconnection, EBITDA margin in FY13 stood at 44%.

Outlook  XL expects FY14 annual revenue growth in low teens after the completion of Axis acquisition. Its EBITDA margin, however, is expected to drop to mid 30’s due to stiff competition and Axis acquisition costs. Meanwhile, the group also guided a targeted capex of Rp7T in FY14.

Change to Forecasts We have reduced our Axiata’s FY13E, FY14E and FY15E net profits by 0.5%; 0.8% and 0.8%, respectively, after lowering the earnings contribution from XL.

Rating Maintained at MARKET PERFORM

Valuation  Correspondently, our TP for Axiata is lowered to RM6.72 (from RM6.73 previously) based on an unchanged targeted FY14 EV/forward EBITDA multiple of 8.6x (+1.0 SD).

Risks  Regulation risks in its overseas ventures.

Source: Kenanga