1QFY13 core results were generally in line with expectations. While XL’s performance has been disappointing, this was somewhat compensated by a good set of results largely from Celcom and to a smaller extent the other operating companies. We believe Axiata’s growth momentum is largely dependent on XL’s recovery, and a quick turnaround will act as a catalyst. Maintain NEUTRAL on Axiata.

Within expectations. Axiata’s 1QFY13 core net profit of MYR656m (-4.5% y-o-y, +0.7% q-o-q) was within our and consensus expectations, accounting for 25% and 23% of full-year estimates respectively. As expected, no dividends were declared. Management will host a conference call later this afternoon to discuss about the 1Q results.

Flattish q-o-q performance. Q-o-Q, group revenue increased by just 0.7% (+0.2% in constant forex terms) mainly due to a weaker contribution by XL (-6% q-o-q. Please see separate report dated 2 May for details). 1Q EBITDA declined 3.6% q-o-q as a result of XL’s lower EBITDA margin (-3%-pts q-o-q), which offset improvements in Celcom. Nonetheless, Axiata’s 1Q core net profit was relatively stable with a marginal 0.7% growth due to sharply lower depreciation (-12.3% q-o-q). 

Good show from Celcom. Celcom’s 1QFY13 net profit of MYR549m (excluding accelerated depreciation charges worth MYR35m) accounted for 24% of our full-year estimate. 1Q revenue was flattish (+0.2% q-o-q) due to seasonality following a strong festive 4QFY12. However, core net profit rose 8% q-o-q on the back of EBITDA margin improving by 60bps to 44.2% mainly from lower sales & marketing costs and bad debts.

Forecasts. Maintained

Investment case. Maintain Neutral on Axiata with unchanged SOP fair value of MYR6.40. Growth for Axiata looks challenging, but growing dividends will support the share price. A possible merger between XL and Axis will reduce competition and strengthen XL’s position from an additional 20Mhz of 3G spectrum, but will be earnings dilutive in the short term as Axis is currently loss-making.

Source: RHB