INVESTMENT HIGHLIGHTS

• 1Q17 normalised earnings impacted by poorer performance from Celcom, Robi, Dialog and Idea

• Nonetheless, 1Q17 EBITDA improved mainly due to inclusion of Ncell and higher EBITDA contribution from Smart

• Lower net debt-to-EBITDA at 1.6x due to debt repayment

• Maintain NEUTRAL with a revised target price of RM5.28

Weaker 1Q17 normalised earnings. Axiata Group Bhd (Axiata) 1Q17 normalised earnings decreased by -37.3%yoy to RM291m. Note that the normalised earnings have been adjusted for: i) forex gain (RM8m), ii) XL gain on disposal of towers (RM24m), and iii) others (RM83m). The lower normalised earnings was impacted by poorer earnings performance from Celcom, Robi, Dialog and Idea.

Nonetheless, 1Q17 normalised EBITDA improved further. Axiata’s 1Q17 normalised EBITDA came in stronger at RM2,206m, an increase of +11.9%yoy. The increase was mainly attributable to the inclusion of Ncell as well as higher EBITDA contribution from Smart. However, this was partially impacted by lower EBITDA contribution from Celcom, XL and Robi. All in, the result met ours and consensus expectations, accounting for 26.5% and 25.2% of full year FY17 EBITDA estimates respectively.

Lower capital expenditure (capex) intensity. Axiata’s 1Q17 capex amounted to RM1,074m, a slight increase of +2.0%yoy. During the quarter-in-review, higher capex was recorded for Dialog (+46.6%yoy), Smart (+11.9%yoy) and Ncell. However, its capex-to-revenue ratio has dropped to 18.3% from 21.0%.

Impact. We are keeping, our earnings estimates unchanged at this juncture.

Target price. We roll forward our valuation base year to FY18 and derive a revised target price of RM5.28 per share (previously RM4.98 per share). This is premised on pegging FY18 EBITDA to 7.8x 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 - 26 May 2017