INVESTMENT HIGHLIGHTS

• FY18 normalised EBITDA contracted by -9.7%yoy to RM8,334m in-line with our earnings estimates

• The contraction was mainly due to underperformance from Ncell and Celcom

• FY18 capex intensity remain at 26% due to lower capital spending from Celcom, Robi and Ncell

• Maintain NEUTRAL with a revised target price of RM3.80

In-line with expectation. Axiata Group Bhd’s (Axiata) 4QFY18 normalised EBITDA amounted to RM2,084m, a decrease of -10.4%yoy. This led to a -9.7%yoy reduction in full year FY18 EBITDA of RM8,334m. This was mainly attributable to lower contribution from Ncell (-6.8%) and Celcom (-1.5%) (refer to table 1). All in, FY18 normalised EBITDA performance came in within ours but slightly below consensus expectations, accounting for 95.0% and 95.6% of full year FY18 EBITDA estimates respectively.

FY18 normalised earnings performance deteriorate further. Meanwhile, Axiata’s FY18 normalised earnings equalled to RM1,010m, a reduction of -16.2%yoy. This was negatively impacted by forex translation and MFRS impact, digital investments and lower contribution from XL, Celcom, edotco, Smart and Robi.

Steady capital spending. Axiata’s FY18 capital expenditure (capex) declined slightly by -2.2%yoy to RM6,127m, in-tandem with lower FY18 revenue (-2.1%yoy). Lower capex was seen from Celcom (-16.3%yoy), Robi (-12.8%yoy) and Ncell (-69.0%yoy). For FY19, the management guided capex to be approximately RM6.8b, a potential increase of +11.0%yoy. Capex is expected to pick up primarily for XL, Ncell and edotco.

Impact on earnings estimates. We are maintaining our FY19 EBITDA assumptions at this juncture. However, we are assuming higher depreciation and amortisation charges and higher effective tax rate to better reflect the results thus far. All in, our FY9 earnings estimates has been revised lower by to RM1,106.8m.

Target price. We are revising our target price of RM3.80 (previously RM3.69) as we roll forward our valuation base year to FY20. This is premised on pegging FY20 EBITDA to EV/EBITDA multiple of 5.6x which is one standard deviation below the group’s 2-year historical average of 6.8x.

Source: MIDF Research - 25 Feb 2019