KUALA LUMPUR: AmInvestment Research is retaining its Buy call on Axiata Group with a lower sum-of-parts (SOP)-based fair value of RM6 a share from an earlier RM6.15.
It said on Monday this implies a FY16F enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) of seven times, which is half of Singapore Telecommunications Ltd’s present 14 times.
“We have only fine-tuned FY16F net profit which has already incorporated weaker 4QFY16 earnings assumptions impacted by Celcom’s likely weak earnings and 19.8%-owned Idea Cellular’s loss.
“However, our lower SOP stems from a reduction in associate contributions from 19.8%-owned Idea Cellular (Idea) in India and 28.5%-owned M1 in Singapore, which has reduced Axiata’s FY17F-FY18F earnings by 5%-10%,” it said.
AmInvestment Research pointed out that Idea, which registered a 4QCY16 loss of INR3.8bil vs. a 3QCY16 net profit of INR915mil,is expected to remain in the red in FY17F on persistently depressed average revenue per user (ARPUs) as new cellular rival Reliance Jio Infocomm’s free voice and 4G data service promotion, which began in September 2016, has been extended from end-December 2016 until March 2017.
“While we are positive on the appointment of Celcom’s new CEO Michael Keuhner, who joined in September last year, we expect incremental progress in operational improvement against the background of intense competition amid the re-entry of TM’s webe service.
“Given the poor performance from Idea and M1, Axiata’s 4QFY16 results, scheduled to be announced Feb 23, 2017, are likely to be weak, but should be largely in line with our own assumptions.
It said on Monday this implies a FY16F enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) of seven times, which is half of Singapore Telecommunications Ltd’s present 14 times.
“We have only fine-tuned FY16F net profit which has already incorporated weaker 4QFY16 earnings assumptions impacted by Celcom’s likely weak earnings and 19.8%-owned Idea Cellular’s loss.
“However, our lower SOP stems from a reduction in associate contributions from 19.8%-owned Idea Cellular (Idea) in India and 28.5%-owned M1 in Singapore, which has reduced Axiata’s FY17F-FY18F earnings by 5%-10%,” it said.
AmInvestment Research pointed out that Idea, which registered a 4QCY16 loss of INR3.8bil vs. a 3QCY16 net profit of INR915mil,is expected to remain in the red in FY17F on persistently depressed average revenue per user (ARPUs) as new cellular rival Reliance Jio Infocomm’s free voice and 4G data service promotion, which began in September 2016, has been extended from end-December 2016 until March 2017.
“While we are positive on the appointment of Celcom’s new CEO Michael Keuhner, who joined in September last year, we expect incremental progress in operational improvement against the background of intense competition amid the re-entry of TM’s webe service.
“Given the poor performance from Idea and M1, Axiata’s 4QFY16 results, scheduled to be announced Feb 23, 2017, are likely to be weak, but should be largely in line with our own assumptions.
“While operational issues will continue to drag Axiata’s earnings in the medium term, we highlight that the stock currently trades at a bargain FY17F EV/EBITDA of five times, far below 13 times for Maxis and Digi. Additionally, dividend yields are attractive at 4%,” it pointed out.
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