Period

1Q15

Actual vs. Expectations

Axiata’s 1Q14 core PATMI of RM556m (-11% YoY) came in within expectation and accounted for 23.8% of our, and 21.6% of the street’s, full-year estimate. Note that 1Q is generally a seasonally weak quarter and historically accounted for 20.3%-30.0% of full-year results for the past four financial years.

The lower core PATAMI on a YoY basis was mainly due to Celcom (lower EBITDA) and XL (lower EBITDA, higher D&A expenses and forex losses) but partially cushioned by the higher contribution of Smart, Dialog and Idea.

Dividends

No dividend was announced for the quarter.

Key Results Highlights

YoY, the revenue improved by 5.2% to RM4.8b mainly driven by higher contribution from Dialog (mobile and television), Robi (data and device sales) and Smart (voice and data). On a constant currency basis, the revenue growth rate would have narrowed to 2.3%. Group EBITDA, meanwhile, weakened by 2.7% to RM1.7b while margin dipped by 300bps to 36.6% as a result of the lower performance in Celcom (higher content provider charges and device costs) and XL (higher network costs arising from Axis integration).

QoQ, the turnover declined by 1.3%, no thanks to the slimmer contribution of Celcom (lower voice and SMS) and XL (lower voice and SMS). At constant currency, group revenue was down 3.9%. EBITDA, meanwhile, weakened by 1.5% while its margin was relatively flat at 36.6%.

Challenges continued at Celcom due to its IT transformation project, which is now at the final stages of being resolved. Celcom recorded a total of 688k negative subscriber’s net adds in 1Q15, reducing its total subscriber base to 12.8m. Blended ARPU was maintained at RM46, mainly fueled by uplift in data revenue. Its reported EBITDA margin, meanwhile, declined to 37.1% from 39.7% in 4Q14 (1Q14: 42.8%) as a result of the higher devices sale. On the normalised EBITDA over service revenue basis, Celcom’s EBITDA margin has weakened 140bps QoQ to 44.5% in 1Q15.

Outlook

After reported a lukewarm 1Q15 result (revenue: +5.2% but +2.3% at constant currency level; EBITDA: - 2.7% YoY), management believes it would face a challenging time ahead to meet its 2015 KPIs (a target of 4% annual growth for both the revenue and EBITDA). Its capex, meanwhile, is expected at RM4.8b (FY14: RM4.0b).

Change to Forecasts

We are keeping our FY15E and FY16E earnings forecasts unchanged for now pending the result conference call today.

Rating

Maintain MARKET PERFORM

Valuation

Under review. Our current TP for Axiata is at RM6.82 based on targeted FY15E EV/forward EBITDA of 9.7x (+1.0x SD above its 4-year mean).

Risks to Our Call

Higher-than-expected competition, regulation and currency fluctuations risks.

Source: Kenanga Research - 20 May 2015