AmInvestment Research keeps Buy on Axiata

XL Axiata, a unit of Malaysia

KUALA LUMPUR: AmInvestment Research is retaining its Buy call on Axiata Group (Axiata) with an unchanged sum-of-parts-based fair value of RM6.30 a share.

It said on Wednesday this translates to a FY17F enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) of 6.7 times, half of Singapore Telecommunications (SingTel). 

Axiata's unit Axiata Business Services Sdn Bhd has signed a four-year multi-transponder contract with Thai-listed Thaicom PCL to purchase up to seven KU-band shaped and spot beams on the Ipstar-1 broadband satellite located at 119.5° east for the provision of broadband services in Indonesia. 

This includes broadband access direct to residential and enterprise premises and cellular network backhaul. 

“The deal involves Axiata buying the remaining capacity on Ipstar-1, wholly owned by Thaicom and launched in 2005, to deliver over 1Gbps high throughput satellite (HTS) capacity of broadband to Axiata’s 66%-owned PT XL Axiata (XL),” said the research house.

 AmInvestment Research said XL, which currently accounts for 12% of Axiata's sum-of-parts, has significantly increased its subscriber base by 4.6 million, or 11% on-year in 4QFY16. 

This was largely from prepaid subscribers which rose 1.4 million on-quarter to 45.9 million while postpaid increased 22,000 on-quarter to 533,000. 

However, monetisation of rapidly growing data revenues failed to outpace the loss of voice and SMS, which caused XL's blended 4QFY16 average revenue per user (Arpu) to fall by Rp2,000 on-quarter and Rp8,000 on-year to Rp34,000. 

Nevertheless, after adjusting for one-off accelerated depreciation, forex, tax and capital lease gains, XL's 4QFY16 core net profit of Rp41bil was a welcome relief following five consecutive quarters of normalised losses. 

“Axiata currently trades at a bargain FY18F EV/Ebitda of six times, way below its two-year average of 8.1 times and less than half of SingTel's 14 times. 

“We continue to be bullish on the stock on expectations of a value-enhancing re-merger with Telekom Malaysia, which will continue the re-rating process to bridge the valuation gap with SingTel,” said the research house.