XL Axiata, a unit of Malaysia
KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Axiata Group and raised its sum-of-parts based target price by 18% from RM4.50 to RM5.30.
It said on Friday this was largely due to a) increased fair value for XL and b) removal of a previous 10% discount, which was applied to account for delayed earnings recovery.
“We believe its earnings have hit a trough in 4Q16-1Q17 and will slowly recover from 2H17. FY17 EV/OpFCF (enterprise value/ operating free cashflow) of 25.8 times is at a 54% premium over the Asean telco average but will drop sharply to 16.9 times in FY18F,” it said.
CIMB Research said Axiata’s 1Q17 core EPS rose 276% quarter-on-quarter (-38.4% year-on-year) mainly due to narrower losses at Robi-Airtel and better earnings at Smart (Cambodia).
This formed 28.6% of our previous FY17F forecast. It deemed this largely in line as earnings can fluctuate a fair bit from quarter to quarter. Compared to consensus, 1Q17 core EPS only formed 18% of FY17F forecast, which is below expectations.
It also said Celcom continued to face challenges in a tough market
Celcom 1Q17 service revenue fell 3.2% quarter-on-quarter (-2.9% year-on-year) (peers: -2.2% to -5.3% quarter-on-quarter). Postpaid revenue continued to grow, up 1.2% quarter-on-quarter, driven by a 1.9% average revenue per user (Arpu) gain due to sign-ups for its higher-end plans (First Gold 80, First Platinum).
Prepaid revenue stayed under pressure (-6.2% quarter-on-quarter) due to seasonality and intense competition. Both subs (-3.9%) and Arpu (-3.2%) fell quarter-on-quarter.
Earning before interest, tax, depreciation and amortisation (Ebitda) fell 7.6% quarter-on-quarter (-13.4% year-on-year). Margin fell 2.1% pts quarter-on-quarter (-4.2% pts year-on-year) to 36.5% mainly due to lower revenue as costs were flat.
However, XL recorded more encouraging 1Q17 results.
Mobile service revenue (ex-interconnection) rose just 0.3% quarter-on-quarter (-3.8% year-on-year), but this was much better than 1Q15/1Q16’s -6.1%/-5.9% quarter-on-quarter and better than Telkomsel’s/ Indosat’s -5.1%/-3.6% quarter-on-quarter.
Data revenue grew strongly (+8.8% quarter-on-quarter) and formed 57.6% of mobile service revenue (ex-IC). Traffic jumped 31% quarter-on-quarter, while data yield fell 17% quarter-on-quarter (-47% year-on-year) as Combo Xtra was only revamped in Mar. EBITDA margin rose 0.5% pt quarter-on-quarter (-3.8% pts year-on-year) to 35.0% on lower sales & marketing, staff and overhead costs.
Weaker Ncell & Idea offset by stronger Smart & Robi performance
Ncell’s contribution fell 24% quarter-on-quarter to RM136m, while the share of Idea’s losses rose 70% quarter-on-quarter to RM25m (1Q16: +RM65m). These were offset by a 63.0% increase in Smart’s contribution to RM88m.
Share of Robi’s net loss also narrowed 50.0% quarter-on-quarter to RM59m in 1Q17, as 4Q16 was hit by a) accelerated depreciation, b) Airtel’s voluntary retirement scheme, and c) Robi-Airtel merger fee.
On the outlook for the entire Axiata group, CIMB Research said it had not made major changes to our earnings forecast.
“We forecast Axiata’s core EPS to fall 28.5% in FY17F due to associates and Robi-Airtel losses, coupled with lower earnings at Dialog.
“We expect core EPS to recover by 32.5%/37.0% in FY18F/19F as Airtel Bangladesh hits Ebitda-breakeven and then turns earnings-accretive, and XL contributes more significant earnings,” it said.
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