INVESTMENT HIGHLIGHTS

• 2QFY19 EBITDA came in +14.8%yoy higher at RM2,346m, supported by topline growth of +4.9%yoy

• Cumulatively, 1HFY19 EBITDA of RM4,516m (+10.7%yoy) came in within ours and consensus expectations

• Nonetheless, 1HFY19 normalised earnings declined by -8.9%yoy to RM479m in absence of M1 profit as well as lower contribution from Dialog and edotco

• Maintain NEUTRAL with an unchanged target price of RM4.68

Better operating statistics. Axiata Group Bhd’s (Axiata) 2QFY19 EBITDA came in at RM2,346.0m which translates into an increase of +14.8%yoy. This was mainly supported by +4.9%yoy increase in revenue to RM6,153.6m. Meanwhile, EBITDA margin also improves to 38.1% from 34.8% a year ago.

1HFY19 EBITDA within expectation. 1HFY19 EBITDA performance amounted to RM4,516.0m, an increase of +10.7%yoy. This was mainly due to positive impact of MFRS 16 and higher contribution from all opCos with the exception of Ncell (refer to Table 1). All in, the results came in within ours and consensus expectations, accounting for 50.8% and 48.4% of full year FY19 EBITDA estimates respectively.

Normalised earnings remains weak. 1HFY19 normalised earnings declined by -8.9%yoy to RM479.0m. Note that the exceptional items mainly consists of M&A related gains (RM512m), forex and derivative gains (RM10m), others (RM47m), MRFS (38m) and forex translation (RM3). The lower earnings performance was mainly due to the absence of contribution from M1’s share of profit and lower contribution from Dialog (-17.6%yoy) and edotco (-13.8%yoy)

Capital spending. 1HFY19 capex came in -1.6%yoy lower to RM2,742m. This translates into capex intensity of 23% (vs 1HFY18: 24%). The decline in capital spending mainly stemmed from Dialog (- 41.5%yoy) and Robi (-43.4%yoy). Moving forward, management guided that capex from XL and Dialog is expected to taper off.

Target price. We are maintaining our target price of RM4.68. This is premised on pegging FY20 EBITDA to revised EV/EBITDA multiple of 6.5x which is the group’s two year historical average multiple.

Source: MIDF Research - 30 Aug 2019