Axiata’s 1QFY12 results sprang no surprises, exhibiting good
revenue traction in a traditionally weak quarter impaired by FX losses while
cost pressures from the stronger focus on data continued to bite. While it is
premature to extrapolate the strength of its 1Q numbers, which comes ahead of
its 2012 KPIs, we believe there is a fair chance that the group could well
outperform, with regulatory risks and forex as the key bugbears. We maintain
our FY12/13 forecasts and SOP FV of RM5.80 but downgrade our long-held
conviction BUY call on the stock given the <10% upside from current levels.
Axiata’s share price has held up well despite the market volatility, supported
by its improving cash hoard and rising dividend yield.
Marred by forex. Axiata’s results formed 24-25% of our revenue
and EBITDA forecasts, which were not far off from street estimates. As
expected, the 4-10% q-o-q weakness on the Sri Lankan Rupee (SLR), Bangladesh
Taka (BDT) and the Indonesian Rupiah (vs the RM) manifested into
weaker revenue and EBITDA when translated, although the numbers were still up 8% y-o-y and 4.1% y-o-y respectively
for 1QFY12. The bright spots were Celcom (+10% y-o-y) and XL (+9% y-o-y), whose
revenue stimulation efforts have paid off, with voice growth in a seasonally
soft quarter. While Dialog’s revenue surged 18%, earnings were trounced by
forex translation losses on its USD debt. The heavy data investments by XL
continued to dilute EBITDA, with an overall data revenue contribution for the
group at 20%, up 10% y-o-y versus the voice growth of 7%.
Bracing for stronger
competition. Management expects
Maxis to step up marketing efforts after having recently inked the sponsorship
deal for Euro 2012. It is confident of facing the onslaught of competition as
Celcom is now equipped with one of the most modern network and has substantial
capacity to fill. To capitalize on the broadband tax incentive (additional
RM100m by end-FY12), Celcom plans to fully convert all network elements to
single RAN by end August. We gather smartphone penetration on Celcom’s network
at about 20%, with tablet users making up 1% of its mobile base. Management has
reaffirmed its RM1bn capex for 2012.
Regulatory and
currency the key risks. We concur with Axiata that the group’s
key risks are regulatory developments and forex affecting its OpCos in
India and Bangladesh. It is vigorously defending its position vis-à-vis the punitive SIM tax penalty imposed
on mobile operators in Bangladesh and is assessing Robi’s 3G business case in
light of the prohibitive USD300m price tag for a 10Mhz block. Despite rapidly
building up cash and with no clear M&A targets in the pipeline, Axiata shed
little light on a potential special
dividend, with its 65% payout guidance retained for FY13. We think investors
are comfortable with the fact that it could well surprise on this front.
Source: OSK
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