Axiata, which has interests in 10 countries across Asia, says it is within the required foreign ownership levels.
KUALA LUMPUR: CIMB Equities Research expects Axiata’s 3Q16 core net profit to come in at RM345mil, or 7% lower on-quarter or down 33% on-year.
It said on Thursday the factors were due to a RM15mil drag from XL, which recorded wider losses; RM20mil lower associate earnings from M1 and Idea Cellular, and weaker seasonality at NCell due to the monsoon.
“These may be partially offset by higher earnings at Celcom due to lower traffic cost and normalisation in USP fees on-quarter,” it said.
CIMB Research pointed out any real financial rebound at Celcom would take another 12 to 18 months while the rising depreciation on high capex would limit Axiata’s FY17-18F earnings growth. It added that a Robi-Airtel merger could hit Axiata’s FY17 core net profit by at least 5%-6%.
“Maintain Hold. Target price cut 7% to RM5.10. We prefer Digi for Malaysian telcos,” it said.
To recap, CIMB Research said Celcom’s new Celcom CEO, Michael Kuehner, came on board on Sept 1 and has been given an 18-month target to rejuvenate Celcom and get it to perform better than peers, financially and operationally.
“Axiata says this is an extensive task that involves: i) re-energising its staff force, ii) improving go-to-market strategies, iii) building a comparable, if not superior, mobile network versus peers, and iv) strengthening its product portfolio. As such, any real financial improvement would only be seen in 12-18 months, in our view,” it said.
The research house said it had gathered from Axiata that Celcom’s FY17-18F capex could stay high at around FY16 guidance of RM1.5bil (FY13-15 average of RM884mil per annum) due to mobile network investments and to support its fixed-mobile convergence play.
Dialog’s capex could also rise to around RM900mil in FY17F (FY16F: RM700mil) due to its FTTH network rollout.
“Given the high average group capex of RM5.7bil per annum in FY16-18F (FY13-15F: RM4.2bil per annum), we see Axiata’s depreciation rising 29% to RM5.4bil in FY15-18F.
“The Robi-Airtel Bangladesh merger is targeted for completion by year-end. We gather from Axiata that Robi will incur estimated integration cost of c.US$59mil (RM248mil) and bear 4-5% interest cost on US$93mil (RM390mil) debt consolidated from Airtel.
“These alone will hit our FY17F core EPS by 5-6%, excluding Airtel’s own negative EBITDA. There could also be one-off impairment charges in FY17F as Robi intends to reuse only
40%-50% of Airtel’s equipment. Axiata only sees group net profit accretion in FY19F,” it said.
CIMB Research cut FY16-18F core EPS by 5.7%-13.1%, mainly to factor in lower earnings from Celcom, XL, Idea and M1.
Post-revision, it forecasts that Axiata’s core EPS will decline by 23.2% in FY16 and be flat in FY17, as the slight earnings improvement at XL and Celcom to be offset by lower contribution from Idea.
“We then forecast core EPS to increase 7.6% in FY18, driven by stronger earnings at XL and Robi.
“We maintain our Hold rating on Axiata with a 7.3% lower SOP-based target price of RM5.10. Axiata’s FY17 EV/OpFCF of 15.1 times is in line with the ASEAN telco average, albeit at a 18% discount to its Malaysian telco peers.
“We see little earnings growth in FY17F, as the Robi-Airtel merger is likely to further dilute earnings once completed.
“Upside risk is stronger-than-expected recovery at Celcom and XL, while downside risks are more intense competition and 700MHz spectrum refarming in Malaysia,” it said.
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