XL’s  3Q  results  were  broadly  in  line,  but  we  note  that  non-recurring items had a hand in lifting 3Q core earnings, as guided by management. Not surprisingly, management toned down its revenue growth guidance to  low  single  digit,  which  we  think  reflects  XL’s  slow  but  sustained recovery.  As  we  make  no  changes  to  XL’s  earnings  forecast,  we maintain NEUTRAL on Axiata, with an unchanged SOP FV of MYR6.55.

• XL  broadly  meets  expectations.  Axiata’s  67%-subsidiary,  XL  Axiata (EXCL IJ; NEUTRAL, FV: IDR4,100), posted a 9MFY13 core net profit of IDR1,469bn (-35.0% y-o-y), which was broadly within our and consensus expectations  (73%  of  full  year  estimates).  However,  we  note  two unspecified non-recurring items  that helped to lift  its  3Q core earnings: i) realized forex gains from USD debt hedging; and ii) tax refunds.
• Slow  but  sustained  recovery  in  3Q.  3Q  revenue  rose  4.7%  q-o-q, mainly driven by data (+9.8%).  EBITDA margin  improved by  a marginal 0.2  ppt  q-o-q  to  40.8%  despite  greater  scale,  primarily  due  to  higher selling  (+9.7%) and infrastructure (+9.0%) expenses.  Q-o-q, 3Q EBITDA growth (+5.4%)  roughly  mirrored the  revenue  growth, but  core net profit surged 83.1% due to the above mentioned non-recurring items.
• Outlook.  We  were  not  surprised  by  management’s  revised  FY13 revenue  growth  guidance  for  low  single  digit  (vs  mid  single  digit).  Its preference for a cautious recovery rather than an aggressive one implies that  its  previous  guidance  had  been  overly-optimistic.  However,  it  also noted  that  the  intensity  of  competition  from  Hutch  has  eased  slightly, thus minimising the risk of earnings disappointment going forward.
• Forecasts. Maintained.
• Investment  case.  Maintain  NEUTRAL  on  Axiata,  with  an  unchanged SOP-based  FV  of  MYR6.55.  While  its  future  earnings  growth  outlook remains  challenging due to: i) XL’s  slow  but sustained  recovery, and ii) the latter’s potential earnings dilution arising from acquiring Axis, proper execution should boost  longer term  earnings while capex savings could allow XL (and, in turn, Axiata) to pay more dividends. Monetisation of its tower assets is a longer term catalyst for Axiata.

Financial Exhibits

SWOT Analysis

• Axiata, via its subsidiary Hello Axiata, acquired Latelz in Dec 2012, whereby the combined entity would be one of the largest players in Cambodia

Company Profile
Axiata is one of the largest Asian telecommunication companies with controlling interests in mobile operators in Malaysia, Indonesia, Sri Lanka, Bangladesh and Cambodia.

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Source: RHB