Axiata Group - Outperforms KPIs and consensus, dividend surprise BUY

- We maintain our BUY call on Axiata though we tweak lower our fair value to RM6.90/share (from RM7.00/share) given slight revisions to our forecast. Axiata reported core earnings of RM651mil in 4Q12, bringing FY12 core earnings to RM2.8bil. This is within our estimates and slightly above consensus accounting for 96% and 111% of FY12F respectively. 

- A key surprise was a significant increase in dividends i.e. 35sen (FY12, 117% payout) inclusive of a 12sen/share oneoff special dividend (vs. 19sen/share; 60% payout in FY11) translating into a 5.5% yield. 

- Despite XL’s poor performance (-11% YTD) which was dragged by high infra cost and SMS interconnect, Celcom (accounts for 68% of group earnings) managed an earnings growth of 9% thanks to resilient margins and effective voice resuscitation efforts in FY12. On FY basis, Celcom’s revenue growth was splendid (+7%) relative to Digi (+6.7%), considering Celcom’s more mature 3G network rollout. 

- On sequential basis, group net profit declined 11%, mainly dragged by XL (-26% QoQ), while Celcom managed flattish earnings. Celcom saw margin pressure in 4Q12 given aggressive device sales and a one-off staff bonus (4Q12 EBITDA margins: 43.6%, 3Q12: 45.5%). Nonetheless, Celcom’s revenue improved (+2% QoQ) given higher postpaid mobile internet take-up and prepaid data subscription, on top of seasonally higher 4Q usage.

- Capex is expected to moderate slightly from RM4.6bil (FY12) to RM4.5bil in FY13F. Key driver of FY13F capex is still XL with a slight moderation to RM2.6bil from RM2.9bil.  XL is currently working on potential collaborations to reduce capex. Celcom’s capex expected to be more or less flattish at RM1bil. 

- Management seems to be cautious on FY13F outlook, guiding for flattish EBITDA growth (despite 7.6% topline growth) - margin pressure at XL expected to continue from aggressive capacity rollout and resultant low utilisation rates (as take-up will lag capacity rollout in an expansion mode). The trend should turn once XL’s network expansion moderates, though no timeline is given for this.

- Dividend is guided to rise progressively – which is a positive change vs. past conservative dividend policy (ceiling of 65%-70% payout ratio previously guided). Core FY12 div (exspecials) payout of 70% is an improvement vs. 30%-60% (FY10-FY11). 

- In terms of M&A prospects/industry consolidation potential, there seems to be a hint of possibility in overcrowded markets such as Indonesia and India. Axiata has a USD1.5bil credit line to tap on should the opportunity arise.

Source: AmeSecurities