Axiata Group - A Muted 2H2012

Axiata’s 1HFY12 results were within consensus and OSK estimate, with a deviation of 1%-2% when annualized. Management has flagged a more cautious 2H2012, implying slower growth in narrowing the gap with the 2012 revenue and EBITDA KPI targets of +5% and +1.8%. We expect EBITDA margin to remain under pressure with both Celcom and XL channeling their investments into data. Post the results call, we bumped our FY12/13 forecasts higher by 4%-5%, factoring in the lower cost of debt from the recent refinancing of Celcom’s bonds. Our FV is raised to RM6.04 (from RM5.80) after incorporating the recent revisions in the fair values of XL and M1. NEUTRAL.     

In line. The group’s revenue and EBITDA grew 7% and 9% y-o-y respectively in 1HFY12, ahead of its headline KPIs of 5.3% and 1.8% with the benefit of less FX pressure q-o-q. However, growth is expected to moderate in 2H on a higher cost base. A sweetener came from the interim 8sen/share DPS declared (48% payout), double the quantum paid last year.

Celcom and XL executing well. The successful voice resuscitation efforts at both Celcom and XL fanned the robust revenue growth of 9%-16% y-o-y. Nonetheless, the strongest growth was seen at Dialog and Robi (+ 23-26% y-o-y). Dialog benefitted from the inclusion of SunTel during the quarter while Robi chipped in higher mobile revenue. The group’s lower EBITDA margin in 1HFY12 of 42.9% (1HFY11: 43.7%) reflects on-going dilution from the focus on data (+17% y-o-y), which Axiata estimates accounts for 21% of the group’s 1HFY12 service revenue.

Tax incentive. Celcom expects to book in additional RM50m in broadband tax incentive in 2H2012 after recognizing RM57m in 1HFY12.

Higher capex in 2H. Axiata expects capex to ramp up in 2H2012 with spending potentially slightly above its target of RM4.4bn. Celcom is likely to under-spend as its capex intensity is falling. The telco expects RM24m opex savings from the sharing of its network with Digi in FY12 but more significant capex/opex savings can be expected in the medium to longer-term. Celcom is targeting to rollout its HSBB service on TM’s fiber in 4Q12. We expect the cellco to introduce elements of fixed/mobile bundling.   

Cash building up fast. Despite rapidly building up cash and the recent USD1.5bn Sukuk programme put in place, Axiata downplayed the prospects of raising its dividend payout (currently 60% of core profit). We raise our DPS forecast to 24sen/share from 20sen/share previously, factoring in the higher than expected first interim payout. 

Source: OSK