XL Axiata, a unit of Malaysia
UALA LUMPUR: Axiata Group’s FY16 core earnings per share (EPS) was 17% below CIMB Equities Research’s forecast while the dividend payout was cut to 50% from 85%.
It said on Friday Celcom’s revenue grew modestly on-quarter while the group’s earnings before interest, tax, depreciation and amortisation (Ebitda) rebounded on-qauarter on improved margin.
“No major earnings recovery at XL. Weaker earnings contribution from Robi and associates while Axiata Digital Services (ADS), posted higher start-up losses.
“FY17F/18F core EPS cut by 41%/28%, mainly to factor in Airtel’s losses. Maintain Hold with unchanged target price of RM4.50,” it said.
CIMB Research cut FY17F/18F core EPS by 41%/28% to factor in: a) the full year consolidation of Airtel losses, b) higher normalised depreciation, and c) losses at Idea (based on latest consensus forecasts) and reduced M1 earnings after its 4Q16 results.
“Post revision, we expect Axiata’s core EPS to fall 29% in FY17F, then recover by 34.7%/34.3% in FY18F/19F as Airtel hits Ebitda breakeven and then turns earnings-accretive,” it said.
CIMB Research retained its Hold with an unchanged target price of RM4.50, after applying a 10% discount to its sum-of-parts based fair value as earnings will only recover in FY18F.
While Robi’s valuation has been cut, this was offset by higher fair values for XL (stronger Rp) and Idea (higher consensus target price).
The research house pointed out Axiata’s FY17 enterprise value/operating free cashflow (EV/OpFCF) of 24.4 times is at a 39% premium over the Asean telco average but will drop sharply to 16.2 times in FY18F.
The upside risk is stronger-than-expected recovery at Celcom; downside risk is keener competition.
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