Period

2Q/1H15 for XL Axiata (XL) Actual vs. Ex expectatio ns

XL’s 1H15 normalised NP of Rp84b came in above expectations, where the street’s estimates as well as ours were targeting net profit of Rp210b and Rp151b for the full-year, respectively.

Positive signs are emerging from its transformation agenda after shifting its focus to value creation. These include improving subscriber mix, higher ARPU as well as recovering EBITDA and margin. Having said that, XL believes the total transformation (which kicked off since the beginning of 2015) will need to take another 6-12 months to complete.

Dividends

No dividend was announced during the quarter.

Key Results Highlights

YoY, 1H15 revenue was lower by 4% to Rp11.1T, as the growth in the Data and VAS segment (+16%) was offset by the lower Voice (-2%), SMS (-14%) and Cellular Interconnection & International Roaming Service segment (-19%). The shift of focus to the higher-value customers has led its blended ARPU to rise 25% to Rp30k from Rp24k a year ago. EBITDA, however, declined 9% with lower margin of 35% (vs. 37% in 1H14) due to the impact of the consolidation of Axis as well as higher tower leasing costs post tower sale in December 2014. XL recognized Rp851b net loss in 1H15, mainly due to the weakening of the Rupiah. Stripping off the unrealised forex loss of Rp1.2b and Rp312m tax impact, the group’s 1H15 bottomline stood at Rp84m on a normalised basis.

QoQ, XL’s revenue improved by 2%, the first positive QoQ growth since 2Q14, on the back of higher Voice (7%), Data & VAS (2%) and other telecommunication services segments (+6%). EBITDA, meanwhile, also advanced, by 7% with margin improving to 35.5% (vs. 34.1% in 1Q15) as a result of the higher cost efficiency and better customer mix.

Outlook

XL expects the transformation journey to last another 6- 12 months. Having said that, the recent 2Q15 result has begun to show some positive signs, thus prompting management to expect its FY15 revenue to stay flat on a YoY basis. Its EBITDA margin target, meanwhile, remains at mid-to-high 30s in FY15 with capex spend likely to come in at c.Rp6.5b.

Change to Forecasts

Unchanged, pending Axiata’s results due on 20th August.

Rating

Maintain MARKET PERFORM

Valuation

Maintained Axiata’s TP at RM6.55 based on a targeted FY16E EV/forward EBITDA of 9.2x (+0.5x SD above its 4-year mean).

Risks to Our Call

Regulation and currency risks in its overseas ventures.

Source: Kenanga Research - 17 Aug 2015