Idea’s 4QFY13 results were above consensus expectations, on the back of improving prospects in India and this augurs well for Axiata. The reduced number of serious competitors is among the key factors, we believe. We make no changes to our forecasts as Idea contributes only 5.3% of our SOP valuation. Maintain Neutral.

-  Idea shines in 4QFY13. Axiata’s associate, Idea Cellular (Idea) reported FY03/13 net profit of INR10,109m (+39.8% yoy), which came in above consensus expectations, accounting for 105% of full-year estimates. The key variances were higher-than-expected voice usage, which boosted ARPU (Average Revenue Per User) and a better EBITDA margin from controlled network expenses.

-  Revenue growth surges. Following a lukewarm 3Q (+5.0% in revenue), 4Q revenue grew strongly at 8.7% q-o-q mainly due to strong prepaid subscriber growth (+7m) while MOU (minutes of usage) grew 5.7%. Idea’s 3Q EBITDA margin was marginally higher q-o-q at 27.6% (3Q: 26.4%) mainly due to lower license fees and controlled network operating expenses. Despite a higher effective tax rate of 42.9% (3Q: 34.3%), net profit grew 34.8% q-o-q.   

- Outlook. Management was upbeat on demand for voice, which suggests more room for voice usage and ARPU growth if pricing remains stable. Going forward, management expects EBITDA margin to remain stable partly on the back of continued easing competitive pressures as the number of serious operators has dropped from eight players to about five in various established service areas. Management sees high growth potential in data as current usage levels is low (163MB per subscriber). Idea declared a maiden dividend of INR1,163m (12% FY13 payout).

-  Forecasts. Maintained.

-  Investment case. Maintain Neutral on Axiata with unchanged SOP fair value of RM6.60. While Axiata’s growth is moderating, growing dividends will likely support the stock. An unexpected license win in Myanmar and a quick turnaround in XL’s performance are re-rating catalysts.

Source: RHB