Kenanga upgrades Axiata to Market Perform

KUALA LUMPUR: Kenanga Research tweaked its FY17/18E earnings forecasts on Axiata Group and raised its rating to Market Perform with an unchanged target price of RM4.95.

According to the research firm, the telco's 9M17 coare profit after tax and minority interests (Patami) of RM996mil, which was 26% lower on-year, came in within 71% and 77% of its and consensus full-year forecasts. 

The performance was impacted by losses from Idea, dilution from the Robi-Airtel merger and lower contribution from Celcom.

"On a reported basis, 9M17 PATAMI improved 9% YoY to RM885m as a result of improved EBITDA and forex translation gains of the current year as opposed to forex translation loss a year ago," said Kenanga Research.

Revenue year-to-date advanced 15% due to higher contribution from all major operating companies except Celcom, driven by data segment growth with data revenue contributing 44% of service revenue. 

Celcom's 9M17 revenue contracted 1.8% y-o-y owing to lower legacy voice and SMS revenue. However, earnings before interest, taxes, depreciation and amortisation (Ebitda) rose slightly by 0.2% to RM1.7bil with higher margin of 35.3% due to better cost control.

edotco, a 62.4%-owned subsidiary, recorded sustained growth from expansion of its portfolio and a higher tenancy ratio.

According to Kenanga Research, the group's balance sheet remained strong with a healthier cash balance of RM6.9bil with better gross debt/Ebitda ration of 2.1x. 

Axiata's FY17 KPIs remained inchanged with the group targeting to achieve revenue/Ebitda annual growth sales of 9% to 11%/7% to 9%. Capex has bee revised lower to RM6.6bil following an effecive cost optimisation initiative.

On prospects, Axiata expects its India operations to continue facing intense market aggression from the new entrant into the market. 

"Nevertheless, the group is set to remain focused on driving improvements at Celcom and XL as well as group-wide cost optimization initiatives," said Kenanga Research.