Period  4Q14/FY14 for XL Axiata (XL)

Actual vs. Ex ectations  XL’s FY14 reported NL of Rp891b came in within our (- Rp852b), but way off the street’s (Rp354b net profit), estimates. The loss in FY14 was mainly due to Axis’ acquisition cost as well as a weakened Rupiah.  On normalised basis, the group reported NL of Rp57b in FY14 vs. our Rp200b NL estimates and Rp331b net profit estimated by the street. The key positive deviation on our end was mainly due to its higher-than-expected unrealised forex loss.

Dividends  No dividend was announced during the quarter.

Key Results Highlights  YoY, FY14 revenue climbed 10% to Rp23.5T, mainly driven by higher Data & VAS (+43%), Voice (+3%) and SMS (+3%). Challenges in facing data shift trends are managed through a combination of periodic usage campaigns and price optimisation. Its EBITDA, however, was flat at Rp8.6T with margin declining to 36.6% (from 40.6% previously) due to higher operating expenses (+18%) on the back of higher infrastructure expenses (+37%) and salaries & employee benefits (+24%) which arose mainly from the integration of Axis’ acquisition. Its finance cost, meanwhile, also increased by 42% to Rp1.3T as a result of additional loan related to the acquisition of Axis. Cost reduction from the integration efforts of Axis saw a cost saving of c.Rp2T achieved since the signing of CSPA in October 2013.

 QoQ, XL’s revenue declined by 2% to Rp5.9T due to weaker Voice (-1%) and SMS (-6%) segments but partially cushioned by higher contribution from its data division (+3%). Despite lower revenue, the group’s EBITDA improved by 12% (to Rp2.3T) with higher margin of 39% (vs. 34% in 3Q14) due to cost saving from the integration of Axis.

 As at end 4Q14, XL hedged 63% of external USD loan (out of the total USD1.6T) while its total interest bearing debt stood at Rp29.6T, which implied a net gearing ratio of 1.6x with 2.6x net debt/EBITDA.

 Smartphones penetration continued to improve to 27% (FY13: 18%) raising the data revenue contribution to XL’s total usage revenue to 29%, surpassing the SMS revenue of 25% in FY14.

Outlook  XL expects FY15 annual revenue growth to come in within or better than the industry average (of 6.0% - 6.5% YoY). Its EBITDA margin, however, is expected to record at mid-to-high 30s due to stiff competition and loss of 3rd parties’ tower rental following the completion of the sale of 3.5k towers in December 2014. Meanwhile, the group also guided for a targeted capex of c.Rp7T in FY15.

Change to Forecasts  Unchanged, pending Axiata’s results due on 25th February.

Rating Maintain MARKET PERFORM Valuation  Maintained our Axiata TP at RM6.88 based on a targeted FY15E EV/forward EBITDA of 9.6x (+1.0x SD above its 4-year mean).

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

Source: Kenanga