INVESTMENT HIGHLIGHTS

• FY17 normalised earnings impacted by poorer performance from Idea, Celcom and dilution from Robi-Airtel merger
• Nonetheless, FY17 EBITDA grew strongly by +15.2%yoy due to higher contribution across all operating companies, with the exception of Robi
• Higher capital spending in FY17 for XL and Smart
• Maintain NEUTRAL with a revised target price of RM5.31

Surge in 4Q17 normalised earnings. Axiata Group Bhd (Axiata) 4Q17 normalised earnings came in at RM209m, an increase of +171.4%yoy. The increase was mainly due higher topline growth (+8.1%yoy), primarily from XL (+5.7%yoy) and Ncell (+52.8%).

FY17 normalised earnings trended lower. Cumulatively, FY17 normalised earnings amounted to RM1,205m. This translates into a reduction of -15.0%yoy. Note that the normalised earnings has been adjusted for forex gain (RM166m), XL gain on disposal of towers (RM91m) and others (RM553m). The lower normalised earnings was mainly impacted by losses from Idea, dilution from Robi-Airtel merger and lower contribution from Celcom.

Double digit growth in FY17 EBITDA. Axiata’s FY17 EBITDA grew by +15.2%yoy to RM9,230m. 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. This accounts for 99.1% and 101.8% of ours and consensus FY17 EBITDA estimates respectively.

Modest increase in capital expenditure (capex). The group’s FY17 capex increased by +2.0%yoy to RM6,265m. This led to lowr s capex-to-revenue ratio (capex intensity) of 26% as oppose to 29% achieved in FY16. Higher capex was mainly spent on XL (+5.9%yoy) and Smart (+92.6%yoy).

Impact. We are fine-tuning the FY18 EBITDA contribution from Robi and Celcom. As a result, our FY18 EBITDA estimates have been revised slightly lower by -1.6%. This is also in-line with the management guidance for FY18. We are also imputing higher losses primarily for Robin and higher effective tax rate at the group level. This led to lower FY18 earnings of RM1,220.2m.

Source: MIDF Research - 23 Feb 2018