Period  2Q14/1H14

Actual vs. Expectations Axiata’s 1H14 core PATAMI of RM1.25b (-3.3% YoY) came in largely within expectations and accounted for 47% of our forecast and 46% of the street’s full-year estimate. The lower core PATAMI on a YoY basis was mainly due to lower Celcom performance (as a result of the on-going IT transformation, and network quality issue) and XL due to Axis integration costs.

Dividends  Declared 8.0 sen dividend (1H13: 8.0 sen).

Key Results Highlights YoY, the group’s 1H14 revenue climbed to RM9.2b (+1.5%) driven by higher contribution from all key operating companies except Celcom (-3.5% to RM3.9b) and XL (-0.9% to RM3.2b). The former was impacted due to issues related to the on-going IT transformation, network quality issues and the suspension of promotion via short code. The latter, meanwhile, was affected by the strengthening RM against IDR. On a constant currency basis, the revenue would have grown 4.9%. Group EBITDA, meanwhile, declined by 3.1% to RM3.5b with a lower margin of 38.2% (vs. 1H13: 40.0%) due to impact of the acquisition of Axis. PATAMI fell 11% as a result of lower EBITDA and forex losses at XL but partially off-set by higher profits from Sri Lanka (Dialog), Bangladesh (Robi) and Cambodia (Smart) operations.

 QoQ, the turnover improved 4.8% mainly fuelled by XLAxis integration and MVNO revenues in Celcom. At constant currency, group revenue was higher by 5.0%. EBITDA, meanwhile, eased by 2.6% as a result of Axis acquisition cost while the PATAMI (-33%) was significantly impacted by forex losses at XL.

 Celcom’s data revenue is growing encouragingly (7.9% QoQ to RM587m), cushioning the decline in basic voice (-1.3% QoQ to RM1.1b) and SMS revenue (-7% QoQ to RM138m). As such, compared to the prior quarter, service revenue grew 1% to RM1.8b. Group’s EBITDA inched 0.1% to RM846 with a lower margin of 43.4% vs. 44% in 1Q14. Celcom’s subscriber base grew moderately to 13.4m (vs. 13.3m in 1Q14) on the back of effective acquisition drive and retention initiatives. Blended ARPU, meanwhile, stayed at RM46 while broadband ARPU continued its downtrend to RM51 (vs. 4Q14: 53; 2Q13: 60).

Outlook  Lowered revenue guidance again to ‘mid-single digit’ from ‘high-single digit’ given end-1Q14 and 10.1% YoY which was set for 2014 KPI. Its EBITDA targeted annual growth rate, meanwhile, remained at 1.8% with an unchanged targeted capex at RM4.4b.

Change to Forecasts Post-results, we have lowered our FY14-15E earnings forecasts by 1.7% and 1.9%, respectively, after taking management latest earnings guidance into consideration and lower earnings forecast from XL.

Rating Maintain MARKET PERFORM

Valuation  Lowered our TP for Axiata to RM6.92 (from RM6.96 previously) based on targeted FY15 EV/Forward EBITDA 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