Period

4Q15/FY15 for XL Axiata (XL), a 66.4% owned subsidiary of Axiata. Actual vs. Ex expectati ons

XL’s FY15 normalised NP of Rp51b came in below our and the street’s estimates. Note that we had earlier expected the group to report Rp188b net profit vs. the street’s estimate of Rp66b for FY15.

On our end, the key negative culprit was mainly due to forex impact and taxation arising from the deferred tax payment.

KPI-wise, XL failed to achieve its topline target of flattish annual revenue growth but managed to achieve its EBITDA margin target of mid-to-high 30s.

Dividends

No dividend was announced during the quarter.

Key Results Highlights

YoY, FY15 revenue was lower by 3% to Rp23T, as the higher Voice (+4%) and Data and VAS segment (+12%) incomes were offset by the lower SMS (- 17%), and Cellular Interconnection & International Roaming Service segment (-21%). On top of that, the sale and lease back towers deal that was completed with Solusi Tunas Pratama in December 2014 also led its other telecommunication services segment’s revenue lower by 23% YoY to Rp1.1T in FY15. The shift of focus to the higher-value customers has led its blended ARPU to rise 46% to Rp41k from Rp28k a year ago.

EBITDA, meanwhile, declined 3% in tandem with the weaker revenue while margin held steady at 36.6%. The decline in absolute EBITDA was mainly due to the impact of the consolidation of Axis as well as higher tower leasing costs post tower sale in December 2014. All in, this sale and lease back resulted in an EBITDA compression of c.120bps. XL recorded a net loss of Rp25b in FY15 mainly due to forex impact from the strengthening of the USD. Stripping off the unrealised forex loss of Rp 2.2T, Rp1.6b loss in capital lease and Rp566b tax impact, the group’s FY15 bottomline stood at Rp51b on a normalised basis.

QoQ, XL’s revenue improved by 2% driven by growth in the core usage revenue of 2% with solid performance by the data (+15%) segment. EBITDA, meanwhile, also advanced, by 6% with margin improving to 38.8% (vs. 37.5% in 3Q15) as a result of the higher cost efficiency and better customer mix.

Outlook

XL expects FY16 annual revenue growth to come in within or better than the industry average of c.10%. Its EBITDA growth rate is expected to expand higher than its topline with margin in the high-30s due to better products and customers’ mix. Meanwhile, the group also guided for a targeted capex of c.Rp7T in FY16 with key spending focus on its 4G technology development.

Change to Forecasts

Unchanged, pending Axiata’s results due on 18th February.

Rating

Maintain OUTPERFORM on AXIATA

Valuation

Maintain Axiata’s TP at RM6.30 based on a targeted FY16E EV/forward EBITDA of 7.8x (representing - 1.0 SD below its 4-year mean).

Risks to Our Call

Regulation and currency risks in its overseas ventures.

Source: Kenanga Research - 2 Feb 2016