Axiata Group - On firm footing

Period  2Q12/1H12

Actual vs. Expectations The 1H12 core NP of RM1.4b was slightly above expectations and accounted for 51.9% and 53.0% of ours and the street’s full year estimates. The higher core NP was mainly due to the better than expected margins and a higher associate companies’ contribution.

Dividends           Declared a 8.0 sen dividend with the book closure date to be announced at a later date.

Key Result Highlights    YoY, the revenue rose 8.7% to RM8.7b, driven by higher contributions from all its key operating companies (“OpCos”). On a constant currency basis, the revenue would have grown 11.9%.

EBITDA grew 6.7% but its margin dipped by 80bps to 42.9% mainly due to aggressive network roll-out costs in Indonesia to accommodate data growth. Core NP, however, increased by 10.2% to RM1.4b thanks to higher operational contributions from M’sia and Bangladesh but offset by forex losses in Indonesia and Sri Lanka, and a slightly lower effective tax rate (26.3% vs. 26.5%).

QoQ, the turnover was up 4.0% while the core NP grew by 4.4%, mainly driven by lower operational costs coupled with higher contribution from all its OpCos. EBITDA outpaced revenue, and was up by almost 7% with a margin of 43.5% vs. 42.4% in 1Q12.

Celcom continued to perform with its 1H12 revenue surging by 9% YoY to RM3.8b although this came with a lower EBITDA margin of 43.5% vs. 44.1% in 1H11. Broadband grew 18% YoY to RM439m with total data (including SMS) and voice revenue growing 9% YoY and 8% YoY to RM1.3b and RM2.5b, respectively.

Outlook               Maintained its FY12 headline KPI targets i.e. (i) Revenue +5.3% YoY, (ii) EBITDA +1.8% YoY and (iii) capex guidance of RM4.4b.

Change toForecasts        Raised our FY12-FY14 core NPs by 0.8%-1.1% after fine-tuning and raising our EBITDA margin marginally (to 42.4% from 42.3%).

Rating   Maintain MARKET PERFORM

Valuation            Raised our Axiata’s TP to RM6.33 (from RM6.25 previously), based on an unchanged FY13 EV/forward EBITDA of 7.7x (+2SD).

Risks      Regulation risks in its overseas ventures.

Source: Kenanga