We believe Axiata’s upcoming 1Q13 results due on 23 May will likely be soft. Overall, we expect Axiata’s 1Q13 earnings to decline in the mid-single digit range y-o-y, primarily due to XL’s weak 1Q13. Besides that, we think Celcom’s EBITDA margin could be pressured by higher handset subsidies. Maintain NEUTRAL on Axiata.

- 1Q13 likely to be soft. Overall, we expect Axiata’s 1Q13 earnings to decline in the mid-single digit range. While we expect low single-digit earnings growth from Celcom, XL’s poor 1Q13 (-43.4% y-o-y) will drag down Axiata’s overall 1Q13 results. Besides that, Dialog also had a slow 1Q13 (-37.5% y-o-y). We believe Axiata’s finance cost will be higher y-o-y mainly from XL’s increasing gearing levels. Also, MYR appreciation (+6% y-o-y vs. IDR; +6% yoy vs. SLR) will further squeeze earnings.  

- Low-to-mid single digit revenue growth expected yoy. We expect Axiata’s 1Q13 y-o-y revenue growth to be driven largely by: (1) Decent revenue growth at XL and Dialog (+3.2% and +18.5% yoy respectively); and (2) Steady mid single-digit revenue growth at Celcom. 

- 1Q13 EBITDA margin to trend lower y-o-y. We forecast Axiata’s 1Q13 EBITDA margin could come in at 40-41% (1Q12: 42.4%). This is mainly due to margin pressures in XL (1Q13: 40.4%, 1Q12: 49.2%) from lower topline and higher infrastructure expenses. Dialog’s EBITDA margin was relatively stable (1Q13: 32.9%, 1Q12: 32.8%) mainly from the Telecom Development Charge refund. But Celcom’s EBITDA margin (4Q12: 43.6%, 1Q12: 44.0%) could be pressured by higher handset subsidies.

- Outlook. Axiata’s growth momentum is largely dependent on XL’s recovery, we believe.While XL reiterated its FY13 revenue growth guidance of in line or above industry (7-8%), we think risks remain as XL’s larger base of price-sensitive subscribers renders it difficult for XL to position itself away from “affordable” to “premium”. Nonetheless, lately XL has been regaining some subscribers lost last year.

- Dividends. No interim dividends expected. For FY13, we forecast DPS of 23 sen assuming a 75% payout ratio (FY12: 70%).

Source: RHB