We  do  not  expect  any  surprises  from  Axiata’s upcoming  2Q13  results due for release on Friday, as the numbers are likely to remain subdued. We estimate its 2Q13 earnings to drop by mid-single digits y-o-y, mainly due to XL’s weak 2Q13. However, the  better  results  and  outlook  in  Sri Lanka and India will mitigate concerns over XL. Maintain NEUTRAL. 
 
- 2Q13  likely  to  be  soft.  Overall, we expect Axiata’s 2Q13 earnings to decline  in  the  mid-single  digits  y-o-y.  While  we  expect  low  single-digit earnings growth from Celcom, XL’s (EXCL IJ, NEUTRAL, FV: IDR4,600) poor  2Q13  (-51.4%  y-o-y)  will  remain  a  drag.  Nonetheless,  fairly  good earnings growth from Dialog (+3.6% y-o-y) and Idea (+97.7% y-o-y) will help lift Axiata’s earnings. We believe its finance cost will be higher y-o-y,  mainly from XL’s increasing gearing.  Also,  the  MYR’s  appreciation, namely vs IDR (+6.6% y-o-y), could squeeze earnings.

- Low single-digit  y-o-y revenue growth seen. We expect subdued y-o-y revenue growth for Axiata’s 2Q13,  due  to  flat  revenue  growth  at  XL (+0.3%), offset by steady mid-single digit revenue growth at Celcom.   

- 2Q13 EBITDA margin to trend lower y-o-y. Our forecast is for Axiata’s 2Q13  EBITDA  margin  to  hover  at  39-40%  (1Q13:  40.1%),  as  XL’s margins  (2Q13:  40.6%;  2Q12:  48.4%)  remain  stagnant  on  slower-than-expected revenue growth recovery. Dialog’s EBITDA margin was slightly dented  (2Q13:  32.5%;  2Q12:  33.4%)  by  higher  network  opex  due  to increased  data  rollout,  while  Celcom’s  EBITDA  margin  (1Q13:  44.2%; 2Q12: 45.2%) could be pressured by handset subsidies.  

- Outlook.  We  believe  the  resumption  in  Axiata’s  growth  pace  will  still largely  depend on XL’s speed of recovery. While the latter has lowered its FY13 revenue growth guidance to mid-single digits (previously “in line or  better  than  the  market”),  we  think  risks  remain,  as  its  revenue recovery  has  been  slower  than  expected.  Nonetheless,  easing competition  in  other  markets  (ie  Sri  Lanka,  India)  will  help  mitigate concerns on XL.  

- Dividends. We estimate  a  MYR0.12  interim  dividend,  assuming  a  75% payout ratio (FY12: 70%) and forecast a full-year DPS of MYR0.23.

Source: RHB