• FY16 normalised earnings impacted by higher depreciation and amortisation charges and higher net finance cost

• However, FY16 EBITDA improved by +10.0%yoy, supported by Ncell

• This came in within our and consensus expectations

• Maintain NEUTRAL with a revised target price of RM4.98 per share

Weaker earnings. Axiata Group Berhad’s (Axiata) 4Q16 normalised earnings decreased by -81.3%yoy to RM77.0m. This led to full year FY16 normalised earnings of RM1,418.0m, which translates into a decline of -31.5%yoy. Note that the FY16 normalised earnings have been adjusted for: i) forex loss (-RM824m), ii) XL gain on disposal of towers (RM340m), iii) Ncell purchase price allocation (-RM106m), iv) XL accelerated depreciation (-RM193m), v) Robi accelerated depreciation (-RM111m), and vi) Robi one-off adjustment (RM20m). Despite the inclusion of NCell’s FY16 normalised earnings of RM440.0m, the group normalised earnings were mainly impacted by poorer earnings performance from Celcom (-26.3%yoy) and XL (-55.2%yoy), while Robi recorded a loss. In addition, the group also incurred higher depreciation and amortisation charges (+35.0%yoy) and higher net finance costs (+54.7%yoy).

Nonetheless, FY16 EBITDA within our estimate. Axiata’s FY16 EBITDA came in stronger at RM8,013m, an increase of +10.0%yoy. The increase was mainly attributable to higher EBITDA contribution from Ncell and Dialog. However, this was partially impacted by lower EBITDA contribution from Celcom and Robi (refer to Table 1). All in, the result met ours and consensus expectations, accounting for 101.2% and 99.6% of respective FY16 EBITDA estimates.

Impact. To better reflect the results thus far, we are revising upwards FY17 EBITDA contribution from both NCell and Dialog. As a result, we are adjusting Axiata’s FY17 EBITDA estimate higher by +1.3%yoy.

Target price. Following our FY17 EBITDA revision, we raised Axiata’s target price to RM4.98 per share (previously RM4.74 per share). This is premised on pegging FY17 EBITDA to 7.5x EV/EBITDA, which is the group’s 5-year historical average. To recall, we view that our valuation methodology would better reflect the group’s effort to continuously repeat the industry S-curves cycle via active M&A activities.

Source: MIDF Research - 24 Feb 2017