KUALA LUMPUR: AmResearch has maintained its Buy on Axiata with a lower fair value of RM7.80 a share.
In a note on Thursday, the research house said it reported a core net loss of IDR79bil for its 1Q15 (normalised for IDR906mil in unrealised forex loss).
"While the results look weak relative to our and consensus forecasts of IDR860bil-IDR900bil net profit, the weakness was to a certain extent expected as 1Q15 reflects the initial impact of XL’s 3-phase strategy to shift to value subs from a high gross add model previously," it said.
It added that revenue and EBITDA were at the lower end of its expectation (22% of full-year forecast) but these have to be taken in context with the seasonally weak 1Q15.
The weeding out of low value subscribers, which is part of the initial phase of this business model revamp, resulted in revenue weakness and is expected to last up until 2Q15 before recovering in 2H15.
The bulk of the 7.5mil net churn in 1Q15 involved low value subscribers that XL is trying to get off its network.
Despite the churn, notably XL’s cellular revenue still grew 3% YoY and blended ARPU were up 22%. A revamp in distribution and channel commissions are also being executed by 2H15 to support the acquisition of high value subs.
"Our FY15F/16F/17F earnings for XL are adjusted lower by 60%/21%/5% (5%/4%/2% impact at Axiata level) to reflect a lower subs base and conservatively, only gradual improvement in ARPU.
"On the bright side, the shift away from a volume-driven strategy translates into substantially lower capex, and guidance for FY15F capex is now closer to IDR6tril versus around IDR7tril previously, i.e. ~14% decline," it noted.
More importantly, the underlying environment has improved since the consolidation of XL-Axis in 1H14, where key incumbents Telkomsel and Indosat have successfully raised tariffs and registered impressive double-digit service revenue growth since 2H14.
Telkomsel’s latest indicative move to raise data tariff bodes well against XL’s strategy to also raise data pricing and revamp its product portfolio as part of its revamp over the next 9 months, AmResearch said.
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