Investment Highlights

• 9M17 normalised earnings came in -25.7%yoy to RM996m

• The lower earnings was mainly attributable to losses from Idea, dilution from Robi-Airtel merger and lower contribution from Celcom

• Nonetheless, capital spending commitment remain intact with capex intensity at 24%

• Maintain NEUTRAL with a revised target price of RM5.43

Losses at Idea impacted 3Q17 financial performance. Axiata Group Bhd (Axiata) 3Q17 normalised earnings came in at RM352m, a decrease of -30.4%yoy. The decline was mainly attributable to widening losses at Idea (India) and higher effective tax rate. The Indian mobile industry remained challenging in a seasonally slow quarter with unrelenting pressure on pricing and regulatory changes (i.e. introduction of GST).

9M17 normalised earnings weaker than expected. Cumulatively, 9M17 normalised earnings amounted to RM996m. This translates into a reduction of -25.7%yoy. Note that the normalised earnings has been adjusted for forex gain (RM62m), XL gain on disposal of towers (RM69m) and others (RM242m). The lower normalised earnings was mainly impacted by losses from Idea, dilution from Robi-Airtel merger and lower contribution from Celcom. All in, the group’s 9M17 normalised earnings came in lower than our but above consensus expectations, accounting for 66.4% and 77.0% of FY17 full year earnings estimates respectively.

Nonetheless, 9M17 EBITDA improved. Axiata’s 9M17 EBITDA grew by +14.5%yoy to RM6,905m. The improvement in EBITDA was mainly attributable to Ncell consolidation, higher contribution from Dialog, XL, Smart and edotco. To recall, the acquisition of Ncell was completed in April 2016.

Capital expenditure (capex) rises further. The group’s 9M17 capex increased by +12.4% yoy to RM4,316m, in-tandem with the rise in revenue. As such, the group’s capex-to-revenue ratio (capex intensity) remained at 24%. Higher capex was mainly spent on XL (+26.9% yoy) and dialog (+10.3% yoy).

Source: MIDF Research - 24 Nov 2017