Period  1Q14 for XL Axiata (XL)

Actual vs. Expectations XL’s 1Q14 normalised NL of Rp14b (vs. Rp340b NP in 1Q13) came in below expectation, where the streets as well as ours are expecting the group to record Rp779b and Rp483b net profit for the fullyear. The lower normalised bottom-line was mainly due to the unrealised forex gain of Rp524b. Its reported net profit, meanwhile, was stood at Rp379b (+20% YoY) as a result of the higher revenue and net forex gain.

Dividends  No dividend was announced during the quarter.

Key Results Highlights YoY, XL’s 1Q14 revenue climbed 9% to Rp5.5T, mainly driven by higher Data & VAS (+29%), Voice (+3%) and SMS (+2%) segments. The group has succeeded to mitigate the decline in Voice and SMS through innovative plans and attractive packages. With the growth in data, non-voice revenue now constitutes 56% (vs. 53% a year ago) of XL’s total usage revenue of Rp5.1T. XL’s smartphone users have reached 13.6m or 20% of the 68.5m total base.

 QoQ, XL’s revenue added by 1%, thanks to the marginal improvement in all the segments, partially offset by lower SMS division (-2.1%) contribution.

 In tandem with the higher revenue growth, the group’s total OPEX increased by 11% YoY to Rp3.3T in 1Q14. The higher OPEX was mainly led by 1) higher salary and employee benefits (+15%), due to adjustment in employee benefits to align with the increase in fuel price as well as annual salary increment; and 2) infrastructure expenses (+31%), mainly driven by higher number of leased sites as a result of higher data demand. This, however, was partially offset by lower sales and marketing expenses (-10%) as well as infrastructure costs (-10%).

 Its EBITDA, meanwhile, improved to Rp2.2b (+9% YoY) with margin maintained at 40%. Depreciation and Amortization, on the other hand, was increased by 17% YoY to Rp1.6b, followed the preliminary impact from Axis integration.

Outlook  XL maintained its FY14 annual revenue growth target to come in at 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 maintained its capex guidance of Rp7T in FY14.

Change to Forecasts Maintained pending Axiata’s results due on 28 May.

Rating Maintain MARKET PERFORM

Valuation  Our TP is maintained at RM6.57 based on a targeted FY14 EV/forward EBITDA multiple of 9.0x, representing a 1.0x standard deviation above the mean of 3-year EV/forward EBITDA band.

Risks  Regulation and currency risks in its overseas ventures

Source: Kenanga