Axiata’s 1Q15 earnings were in line. Maintain NEUTRAL and a SOP-based TP of MYR7.65 for now, pending a conference call later today. Note that management continues to guide for a slow 1H15 as Celcom and XL endure more short-term headwinds. That said, we are upbeat on the prospects of its other OpCos, which recorded double-digit growth on the back of higher data uptake.

Within expectations. Axiata’s 1Q15 normalised net profit of MYR555.8m (-10.9% YoY, +20.3% QoQ) came in broadly in line, at 23% of our and consensus estimates. Note that management had earlier guided that earnings in 1H15 will likely remain under pressure as Celcom and XL Axiata (XL) (EXCL IJ, BUY, TP: IDR5,100) continue to face short-term headwinds. Management has also indicated that it could miss its 2015 headline key performance indicators (KPIs) due to the persistent headwinds affecting its operating companies (OpCos).

Mixed performances from OpCos. Celcom’s service revenue slipped 4.4% YoY in 1Q15, driven by the continued erosion in short message service (SMS) (-23%) and voice (-5%) revenues, which more than offset mobile internet revenue growth of about 10% YoY. We believe Celcom’s 2Q15 revenue could remain subdued due to the initial confusion over the goods and services tax (GST) treatment on reload cards and prepaid subscribers tightening their purse strings and reloading less. XL’s results were impacted by the recalibration of its mobile strategy (for more details, see our 7 May report titled XL Axiata: From Volume To Value). Meanwhile, Axiata Robi’s (Bangladesh) earnings growth was impeded by stiffer competition and political unrest. A silver lining came from Dialog (Sri Lanka) (DIAL SL, NR) and Smart (Cambodia), which saw YoY net profit surge 56.2% and 71.8% respectively from strong data growth (of 62% and 111% respectively) and an increase in cost efficiencies.

Forecasts. We maintain our forecasts, pending a conference call later today. Axiata now expects overall FY15 revenue to come in flat vs 4% it guided for earlier and the EBITDA KPI growth target of 4% to be “challenging”. Our SOP-based TP of MYR7.65 and NEUTRAL rating are maintained, pending the results call with management later today.

SWOT Analysis

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 Research - 20 May 2015