Period  4Q14/FY14

Actual vs. Expectations  Axiata’s FY14 core PATAMI of RM2.2b (-18.9% YoY) came in below expectations and accounted for 92.1% of our full-year estimate and 91.5% of the street’s expectations. Nevertheless, revenue and EBITDA were within our expectations.

 The key negative variance on our end was mainly due to higher-than-expected tax rate (24.7% vs. 23.1%) as well as the minority interest.

Dividends  A 14.0 sen tax exempt DPS was declared, bringing its fullyear DPS to 22.0 sen (vs. 22.0 sen in FY13) which implied a payout ratio of 84%.

Key Results Highlights  YoY, the group’s FY14 turnover improved marginally by 1.9% to RM18.7b (vs. 4.4% at constant currency level), mainly driven by higher contribution from all key operating companies except Celcom (-3.6% to RM7.7b) and a relatively flattish performance in XL (0.5% to RM6.5b). The former was impacted by the poor SMS (-27%) and voice revenue (-5%), no thanks to the poor network quality issues caused by system related issues and absence of new product launching prior to October. The latter, meanwhile, was affected by the strengthening RM against IDR. Group EBITDA, meanwhile, eased by 3.7% to RM7.0b with a lower margin of 37.4% (vs. 39.6% a year ago) due to the impact of the acquisition of Axis and weaker performance of Celcom.

 QoQ, 4Q14 turnover improved by 3.4%, thanks to higher revenue recorded in all key OpCos. At constant currency, group revenue would have registered a higher 4.4% increase. EBITDA, meanwhile, was up by 4.0% while margin inched higher by 0.2 ppts to 36.7%. PATAMI, however, dipped 5.7% due mainly to the absence of oneoff gain on disposal of SIM (RM116.7m) that was recorded in 3Q14.

 Celcom’s service revenue declined 1.4% YoY (or +2.1% QoQ) to RM1.8b in 4Q14, no thanks to lower Voice (-5% YoY to RM4.3b) and SMS (-27% YoY to RM540m) revenue but mitigated by higher advanced data segment (16% YoY to RM2.4b) contribution. Group’s normalised EBITDA dipped 6% YoY to RM3.3b with a lower margin of 42.9% (FY13: 44.2%). Celcom recorded a total of 277k negative subscriber's net adds in 4Q14, reducing its total subscriber base to 12.9m. Blended ARPU, meanwhile, improved RM2 to RM46 while broadband ARPU continued its downtrend to RM46 (vs. 3Q14: RM49; 4Q13: RM54).

Outlook  Axiata has introduced its FY15 KPIs, where the group targets to achieve revenue and EBITDA annual growth rates of 4.0% each (at constant currency level). Its capex, meanwhile, is expected at RM4.8b (FY14: RM4.0b).

Change to Forecasts  Post-results, we have lowered our FY15E earnings by 17% after: (i) lowering both Celcom and XL’s revenue growth assumptions, (ii) raising interest cost and MI, and (iii) taking management’s latest earnings guidance into consideration. Meanwhile, we also take this opportunity to introduce our FY16 estimates.

Rating Maintain MARKET PERFORM

Valuation  Lowered our TP for Axiata to RM6.82 (from RM6.88 previously) based on an unchanged targeted FY15E EV/Fwd EBITDA of 9.7x, representing a 1.0x standard deviation above the mean of 4-year EV/forward EBITDA band.

Risks to Our Call  Higher-than-expected competition, regulation and currency fluctuations risks.

Source: Kenanga