Axiata’s 9MFY13 core results were largely  within  expectations. Celcom, however,  posted flat sequential  revenue growth, as  the erosion of  SMS revenue was not compensated by sufficiently higher data revenue. This suggests that  data  monetisation  remains a  challenge for the  industry. Maintain NEUTRAL on Axiata, with an unchanged MYR6.55 FV.

• Within  expectations.  While  Axiata’s  9MFY13  core  net  profit  of MYR2,144m  (+0.5%  y-o-y)  accounted  for  82%  and  77%  of  our  and consensus  full-year  estimates  respectively,  we  deem  the  results  within expectations due to an exceptional one-off MYR113m forex hedging gain from XL. Note that the core net profit figures were adjusted mainly only for  unrealised  forex  gains  or  losses,  Celcom’s  tax  incentives  and impairment of certain assets. As expected, no dividends were declared.
• Tepid  q-o-q  performance.  Q-o-q,  group  revenue  inched  up  by  only 2.5%, mainly due to  weaker contributions  from  XL (-5% q-o-q) and SMS revenue  erosion  at  Celcom.  3Q  EBITDA  margin  would  have  stayed relatively  flat  at  about  41%  had  it  not  for  XL’s  forex  hedging  gains. Axiata’s  3Q  core  net  profit  was  nonetheless  higher  q-o-q  (+11.8% excluding XL’s forex hedging gain) due to a sharply lower effective tax rate.
• Subdued  quarter  for  Celcom.  Celcom’s  data  growth  appeared  to  be not growing fast enough to offset the erosion of SMS revenue caused by proliferating  OTT (over-the-top) applications.  3Q revenue growth (+0.1% q-o-q) was flat  although  EBITDA margin was stable q-o-q at 44.5%.  Net profit grew 2.2% on the back of lower accelerated depreciation charges, which seemed to be tapering off (3Q13: MYR4m; 2Q13: MYR12m).
• Forecasts. Maintained.
• Investment  case.  Maintain  NEUTRAL  on  Axiata,  with  an  unchanged SOP-based FV of MYR6.55.  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. However,  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.

Recommendation Chart

Source: RHB