Period

3Q15/9M15

Actual vs. Expectations

Axiata’s 9M15 core PATAMI of RM1.66b (-7.4% YoY) came in largely within our but below market expectation and accounted for 71.4% of our, and 69.7% of the street’s, full-year estimate. Note that the 9M normally made up c.76%-80% of the full-year core PATAMI for the past four years.

On our end, the key negative deviation was mainly due to higher-than-expected OPEX recorded in Celcom, Dialog and Robi.

Dividends

Declared 8.0 sen dividend (9M14: 8.0 sen).

Key Results Highlights

YoY, 9M15 revenue improved by 4.5% mainly driven by higher contribution from Dialog (mobile and television), Robi (higher data and device sales during the seasonal Eid festivities) and Smart (voice and data), partially offset by the lower revenue from both Celcom and XL. On a constant currency basis, the revenue growth rate would have declined by 0.6%. Group EBITDA, meanwhile, inched higher by 1.7% to RM5.3b while margin dipped by 100bps to 36.6%, no thanks to higher operating costs in both Dialog and Robi. PATAMI, however, surged 18.7% due to recognition of one-off gain of RM500m from disposal of towers in XL recognized in 3Q15.

QoQ, the turnover was higher by 7.6% due to higher contribution from XL, Dialog and Robi. At constant currency, group revenue increased by 2.9%. EBITDA, meanwhile, was enhanced by 8.7% while its margin was relatively stable at 36.8%. PATAMI, however, soared 46% due to one-off disposal gain and lower taxes, but partly offset by higher forex losses.

Following the successful new product launch of Magic SIM, Celcom managed to chalk up another 169k subscribers' net adds in 3Q15, bringing its total subscribers to 12.5m. Blended ARPU was stable at RM45 as a result of the products’ pricing cannibalization. Its normalised EBITDA, meanwhile, weakened by 1.7% to RM737m in 3Q15, despite recording a flattish QoQ growth in revenue (of RM1.8b), with margin (over service revenue basis) lowered to 43.7% vs. 44.8% in 2Q15. Celcom highlighted that it will focus on customer acquisition over the next 3-6 months, suggesting that the group may compromise its margin to gain market share.

Outlook

After reporting a lukewarm 9M15 results (revenue: +4.5% but -0.6% at the constant currency level; EBITDA: +1.7% YoY and -3.3% at the constant currency level), management believes it will be facing a challenging time ahead to meet its 2015 KPIs (a target of 4% annual growth for both the revenue and EBITDA, based on constant currency basis). Its capex, meanwhile, is expected at RM4.5b-RM4.8b range (FY14: RM4.0b).

Change to Forecasts

Post-results, we have lowered our FY15 core PATAMI by 2.4% but lifted FY16E number marginally by 1.7% after fine-tuning OPEX and interest rate assumptions to reflect the latest run-rate.

Rating

Maintain MARKET PERFORM

Valuation

Raised our Axiata’s TP to RM6.09 (from RM6.05 previously) followed a mild earnings revision. Our renewed TP is based on an unchanged targeted FY16 EV/fwd EBITDA of 8.5x, representing a 5-year average.

Risks to Our Call

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

Source: Kenanga Research - 30 Nov 2015