Period  1Q14

Actual vs. Expectations Axiata’s 1Q14 core PATMI of RM624m (-5.1% YoY) came in within expectations and accounted for 23.1% of our full-year forecast and 22.3% of the street full-year estimate. Note that 1Q is generally a seasonally weak quarter and historically accounted for 20.3%-23.4% of its full-year result based on the past three financial years. The lower core PATMI on a YoY basis was mainly dragged down by lower XL contribution as a result of stiff competition and acquisition costs for Axis.

Dividends  No dividend was announced during the quarter.

Key Results Highlights YoY, the revenue was relatively flattish at +0.7% to RM4.5b driven by higher contribution from all its key operating companies except both Celcom (-3.8% to RM1.9b) and XL (-3.7% to RM1.5b). The former was mainly hit by lower voice and SMS revenue while the latter was affected by the strengthening RM against IDR. On a constant currency basis, the revenue would have grown 4.1%. Group EBITDA, meanwhile, climbed by +0.5% to RM1.8b while margin dipped by 1.0ppt to 39.6%. PATMI posted growth of 9.8% mainly due to forex gains of RM133m recorded by XL.

 QoQ, the turnover was flat mainly driven by higher contribution from XL, Robi, Dialog and Smart but offset by lower revenue at Celcom, primarily due to lower sales of devices. At constant currency, group revenue was down by 1.1%. EBITDA, meanwhile, improved by 4.6% while its margin climbed by 1.7ppt to 39.6%, thanks to lower operating costs in Celcom and Robi.

 Celcom’s subscribers base climbed to 13.3m (vs. 13.1m in 4Q13) pushed up by the continuous segmental acquisition drive. Blended ARPU was maintained at RM46, thanks to the incremental revenue from non-traditional segment. Its EBITDA margin, meanwhile, added 12ppt QoQ to 42.8% as a result of lower devices sale. Data revenue grew by 3% QoQ to RM304m as a result of higher contribution from smallscreen segment. Its voice and SMS revenue, meanwhile, declined by 2% QoQ and 14% QoQ to RM1.2b and RM165m, respectively, mainly impacted by seasonal factor and structural change in the latter segment. PATAMI was lower at RM440m (-28% QoQ) due mainly to absent of one-off tax reversal.

Outlook  Lowered revenue guidance to ‘high single digit’ from 10.1% YoY previously. Its EBITDA targeted annual growth rate, meanwhile, remained at 1.8% which suggest margin squeeze going forward.

Change to Forecasts We maintained our FY14-FY15E earnings forecasts for now, pending the result briefing today.

Rating Maintain MARKET PERFORM

Valuation  Maintained our TP for Axiata at RM6.57 based on targeted FY14 EV/Forward EBITDA of 9.0x, representing a 1.0x standard deviation above the mean of 3-year EV/forward EBITDA band.

Risks to Our Call  Regulation and currency risks in its overseas ventures.

Source: Kenanga