Operational efficiencies to balance forex losses for Axiata Q1 results

  • Business
  • Tuesday, 22 May 2012

PETALING JAYA: With Axiata Group Bhd set to release its first quarter results to March 31, 2012 today, analysts are expecting flattish growth due to the depreciation of currencies in the countries that it operates, but supported by a rebound in its operational efficiencies. There are no dividends expected as Axiata usually declares them semi-annually.

MIDF Investment analyst Imran Yusof is expecting Axiata's first quarter net profit to account for 22% to 23% of its full year estimate.

This represents a year-on-year earnings growth ranging from 2.4% to 7.1% due to an expected rebound in operating growth. In absolute terms, it will range from RM656.2mil to RM687mil.

Meanwhile, CIMB senior analyst Kelvin Goh is more neutral on the stock. As the stock has surged by 84% since he called an outperform on the stock in November 2009, and has also outperformed the FBM KLCI by 44%, he feels that valuations are no longer compelling given its lack of growth and unremarkable dividend yield of 4%.

He said Axiata's first quarter to 2012 core net profit should be flattish quarter-on-quarter (qoq) largely due to a 2%-11% depreciation of the currencies of Bangladesh, Indonesia, India and Sri Lanka against the ringgit.

“They have fallen 2% to 14% on a yearly basis, already more than double the declines for the whole of last year,” said Goh.

Goh said that while Celcom Axiata Bhd's (Axiata's wholly owned unit) revenue was probably seasonally weaker, operating margins should have been supported by lower spending on marketing. He did not think that margins were greatly affected by Maxis Bhd's (which competes with Celcom in Malaysia) aggression in the international direct dialing space as this segment contributed less than 10% to Celcom.

Imran is anticipating Axiata's first quarter operating profit to rebound from the fourth quarter of 2011, growing 3.7% year-on-year to RM1.67bil on the back of a modest revenue growth.

“However, we do not discount the possibility of operating profits falling by 0.8% due to margin pressure resulting from growth of data. Nevertheless, margins may improve by 0.7 percentage points to 41.5%,” he said.

For the first quarter to 2012, Imran is expecting modest revenue growth in the range of 1.5% to 2.2% or RM4bil to RM4.03bil.

He expects all of its operating companies to register revenue expansion on the back of a strong increase in subscriber base with its Bangladeshi unit Robi Axiata Ltd, registering the highest growth at 30.4% year on year.

Recently, it was reported that Axiata Group's Bangladesh unit, Robi Axiata Ltd, has to pay the government nearly 1.5 billion Bangladesh taka (RM55.16mil) in unpaid taxes after the mobile operator lost a legal battle against the country's telecommunications regulator.

Imran does not foresee any significant direct impact on Axiata's earnings. Furthermore, Robi's contributions to group revenue and operating earnings are only about 8% and 5% respectively.

“We believe Axiata's key market is still Malaysia and Indonesia. Nevertheless, the potential for growth in Bangladesh and Sri Lanka remains,” said Imran.

Goh, however, is expecting weak overseas contribution.

“Bangladesh, Indonesia, India and Sri Lanka contribute about 34% of Axiata's core net profit. Its Sri Lankan subsidiary Dialog Group Bhd's 13% quarter-on-quarter net profit growth should have been largely offset by the 9% quarterly drop in the Sri Lankan rupee,” said Goh.

Dialog is the largest mobile telephony player in Sri Lanka.

“Because of the 4% quarterly depreciation of the rupiah, we estimate that contributions from its Indonesian unit PT XL Axiata Tbk fell 3% on a quarterly basis. Meanwhile, the Bangladesh unit, Robi's contributions were probably stagnant on a quarterly basis because of the 11% drop of the Bangladeshi currency,” said Goh.

Imran maintains his belief that Axiata's main catalyst for Celcom and XL will be data. For Dialog and Robi, he expects they will continue to register strong performance due to their low mobile penetration rate.

Pending the release of Axiata's results, Imran is maintaining his financial year (FY) to Dec 31, 2012 and FY13 net profit forecast of RM3.07bil and RM3.21bil respectively.

“All in, we continue to like Axiata for its regional presence. Our target price of RM5.75 is based on 7.9 times EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation), which is the average of its regional peers,” said Imran.

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