Period  2Q14/1H14 for XL Axiata (XL)

Actual vs. Expectations XL’s 1H14 normalised NL of Rp501b came in below expectations, where the street’s estimates as well as ours were expecting Rp476b and Rp398b for the fullyear, respectively. The lower normalised bottom-line was mainly due to higher finance cost from additional loan for Axis’ acquisition and higher forex loss related to the weakening of the Rupiah.

Dividends  No dividend was announced during the quarter.

Key Results Highlights YoY, XL’s 1H14 revenue climbed 12% to Rp11.6T, mainly driven by higher Data & VAS (+42%), Voice (+5%) and SMS (+5%) segments. Its EBITDA, however, merely inched up 2% to Rp4.3T with margin declining to 37% (from 40% previously) due to higher operating expenses (+19% to Rp7.3T) on the back of higher infrastructure expenses (+43%) and salaries & employee benefits (+22%) which arose mainly from the integration of Axis’ acquisition. Its finance cost, meanwhile, also increased by 79% to Rp671b as a result of additional loan related to the acquisition of Axis.

 QoQ, XL’s revenue added by 10%, thanks to the double-digit growth in all the segments, partially offset by lower roaming and infrastructure revenue (-23% each). Its total OPEX, however, increased by 20% as a result of higher network cost and full-quarter impact from Axis. The higher OPEX coupled with the higher forex loss led the group to report a net loss of Rp861m in 2Q14.

 Hedging gain/(loss) has been accounted under forex gain/(loss) starting 2Q14 with total hedging cost in 1H14 amounting to Rp141b vs. hedging gain of Rp83b last year.

 With the growth in data, non-voice revenue now constituting 57% (vs. 53% a year ago) of XL’s total usage revenue of Rp9.2T. Its smartphone users, meanwhile, have reached 13.3m in the 1H14 or 21% of the 62.9m total user base.

Outlook  XL maintained its FY14 annual revenue growth target to come in at low teens after the completion of Axis acquisition by year-end. Its EBITDA margin, meanwhile, 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 27 August.

Rating Maintain MARKET PERFORM

Valuation  Our Axiata TP is maintained at RM6.96 based on a targeted FY15 EV/forward EBITDA multiple of 9.1x, representing a 1.0x standard deviation above the mean of 4-year EV/forward EBITDA band.

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

Source: Kenanga