KEY INVESTMENT HIGHLIGHTS

• 3QFY19 EBITDA grew by +11.8%yoy to RM2.4b, supported by topline growth and ongoing cost excellence programme

• 9MFY19 EBITDA came in at RM6.9b, in-line with ours and consensus expectations

• However, 9MFY19 normalised earnings came in lower at RM733m (-13.2%yoy)

• Regulatory issues with Nepal and Bangladesh yet to be resolve

• Maintain Neutral with an unchanged TP of RM3.54

Double digit growth in EBITDA. Axiata Group Bhd’s (Axiata) 3QFY19 EBITDA came in +11.8%yoy higher at RM2,427m. This was mainly stemmed from expansion in EBITDA margin to 39.1% (vs 3QFY18: 36.2%). The healthier EBITDA margin was brought about by revenue growth of +3.5%yoy to RM6.2b coupled with on-going cost excellence programme.

9MFY19 EBITDA within expectation. Cumulatively, 9MFY19 EBITDA grew by +11.1%yoy to RM6,944m. Higher EBITDA contribution was recorded for most of the operating companies with the exception of Ncell (-10.6%yoy). Note that contribution from Ncell is affected by the ongoing impact of consumption levies. All in, the results came in within ours and consensus expectations, accounting for 78.1% and 73.6% of full year FY19 EBITDA estimates respectively.

Earnings yet to rebound. Despite the commendable improvement seen at EBITDA levels, 9MFY19 normalised earnings declined by - 13.2%yoy to RM733m. This was mainly impacted by higher depreciation, impairment and amortisation charges (+18.3%yoY), higher staff cost (+14.6%yoy) and higher taxation (+40.1%yoy) as well as absence of M1 contribution.

Capital spending. 9MFY19 capex came in +3.2yoy higher at RM4,383m. The increase in capex primarily came from Ncell which grew by more than three folds to RM407m, in view of higher spending for the network cost.

Impact to earnings. We are maintaining our EBITDA assumptions at this juncture. However, we are adjusting FY19 and FY20 earnings to RM985.9m and RM1,140.7m respectively by lowering our finance cost and depreciation charges to better reflect the result thus far.

Target price. We are revising our target price of RM4.48 (previously RM4.68). This is premised on pegging FY20 EBITDA to revised EV/EBITDA multiple of 6.3x (previously 6.5x) which is one standard deviation below the group’s two year historical average multiple. We are assuming lower multiple as we do not anticipate any mega merger in the pipeline which would substantially boost the earnings capability of the group.

Source: MIDF Research - 29 Nov 2019