INVESTMENT HIGHLIGHTS

• 1QFY19 EBITDA came in +6.6%yoy higher at RM2,170m, supported by topline growth and effective cost initiatives

• This came in within ours and consensus expectations

• However, 1QFY19 normalised earnings declined at a faster pace of -32.6%yoy to RM209m

• Almost all opcos recorded lower normalised earnings

• Maintain NEUTRAL with a revised target price of RM4.68

EBITDA in-line with expectation. Axiata Group Bhd’s (Axiata) 1QFY19 EBITDA amounted to RM2,170m which translated into an increase of +6.6%yoy. This was mainly supported by +3.5%yoy increase in revenue to RM5,949.4m, especially from XL, Robi, Dialog, Smart and edotco. Meanwhile, EBITDA margin also improves slightly to 36.5% from 35.4% a year ago. All in, 1QFY19 EBITDA performance came in within ours and consensus expectations, accounting for 24.4 % and 24.0% of full year FY19 EBITDA estimates respectively.

However, normalised earnings continue to slide. 1QFY19 normalised earnings declined by -32.6%yoy to RM209m. Note that the exceptional items mainly consists of gain on disposal of M1 (RM113.4m), gain on divestment of non-core digital businesses (RM302.0m), XL gain on disposal of towers (RM20.3m) and forex gain (RM92.1m). The lower earnings performance was mainly due lower contribution from almost all of its opcos namely Celcom (-21.6%yoy), Dialog (-9. 7%yoy), Robi (-77.5%yoy) and Ncell (-12.4%yoy).

Impact on earnings estimates. We are maintaining FY19 and FY20 EBITDA estimates at this juncture. However, we are reducing FY19 and FY20 earnings to RM839.6m and RM927.6m respectively as we are assuming lower earnings contribution from its non-performing opcos.

Target price. We are revising our target price of RM4.68 (previously RM3.80). This is premised on pegging FY20 EBITDA to revised EV/EBITDA multiple of 6.5x (previously 5.6x) which is the group’s two year historical average multiple. We view that the higher multiple reflects the group’s aggressive effort on m&a exercise.

Source: MIDF Research - 29 May 2019