Axiata Group - Still going strong Buy

- We re-affirm our BUY call on Axiata with an unchanged sum-of-parts derived fair value of RM5.90/share following the release of its 1Q12 results yesterday. 

- Axiata reported a core net profit of RM687mil for 1Q12 – normalised for forex loss and asset impairments of a total RM171mil. 1Q12 normalised earnings were within estimates, accounting for 24% of our and 25% of consensus FY12F projections, respectively. Normalised EBITDA of RM1.8bil made up 25% of our FY12F forecast. 

- Group earnings grew 8% YoY and 17% QoQ on the back of an 8% YoY and flattish QoQ revenue growth. Celcom performed well, registering  a 10% YoY revenue growth, 4% EBITDA growth and 7% normalised net profit growth. Celcom’s broadband segment grew 15% YoY and advanced data grew by 12% YoY. More importantly, Celcom’s voice resuscitation efforts seem to have borne fruit – voice revenue grew 7% YoY following last year’s flattish growth.

- In the data segment going forward, Celcom is focusing on small screen (smartphones) to mid-screen (tablets) data subs, which generate better revenue/gigabyte and is more efficient on network utilisation. This is in line with industry trends; DiGi and Maxis have also indicated of similar focus for the near future.

- Net debt to EBITDA improved to 0.53x in 1Q12 from 0.68x in 4Q11. Cash increased by RM880mil QoQ driven mainly by Celcom (RM680mil operating cash flow). XL is expected to be the main driver for group capex this year (RM4.4bil) and this figure may gradually be reduced from FY13F onwards. Celcom has almost completed its transition to a single RAN network, while capacity utilisation is a mere 33% currently. 

- Management is maintaining its 2012 KPI (+5% revenue growth) despite the strong outperformance in 1Q12 given the volatility in forex trends and expectations of stiff competition – which was highlighted in prior briefings. 

- Management indicated that it has no plans to increase dividends beyond the current policy of a 65% payout ratio. However, we note that balance sheet is under-leveraged and as such, we do not rule out a more efficient balance sheet utilisation via a gradual increase in dividends or acquisitions.

Source: AmeSecurities