Wednesday, June 1, 2011

Axiata Berhad Earnings Evaluations: 1Q2011 Results: Below Expectations

1 June 2011
Price Target: RM5.31
Share Price: RM5.00


Results
# 1Q2011 results were below expectations, marred by lower revenues. RM appreciation vs most OpCo currencies led to lower FOREX translation revenues.

# Lower revenue contribution from XL due to slowing growth in subscribers and softening MOUs also contributed to the weaker results.

# Lower costs could not sufficiently compensate for the lower revenues, leading to softer EBITDA margins in 1Q11.

# Core PBT also came in softer quarter-on-quarter (qoq) as a result of higher finance costs and lower associate contribution.

Deviations
Revenue, EBITDA margins, PBT.

Dividend
Proposed a final single-tier tax exempt dividend of 10 sen per share for approval by the shareholders at the AGM in June.

Highlights
# Divesting non-core assets: On 18 May 2011, Axiata entered into an agreement with Telecommunication Company of Esfahan (TCE) for the disposal to TCE of its entire shareholding in MTCE representing 49.0% of the total issued and paid up share capital in MTCE.

# Axiata continues to guide for 10% revenue growth and 10.3% EBITDA growth. CAPEX target maintained at RM3.3 billion.

# The company will be holding a results conference call at 4pm on 1st June 2011.

Risks
# Regulatory risks (spectrum awards, re-farming and repricing, international interconnection, telco taxes);

# FOREX fluctuations & competitive risks.

Forecasts
Pending the 1Q11 results briefing on 1st June 2011, we keep our estimates unchanged and place the company Under Review.

Rating
Under Review

Positives
Despite the challenges in 1Q11, Axiata’s main businesses (Celcom, XL, Dialog) continue to execute well. The move to pay dividends would help to narrow its valuation gap against other Malaysian telcos over the longer term.

Negatives
Slower growth from XL, Indian and Bangladesh regulatory risks, potential disruptions from YES and Bharti as well as peaking margins.

Valuation
Our target price of RM5.31 (Under Review) based on SOP remains unchanged for now. At current price, Axiata is trading at an estimated PER of 12.6x, 11.0x and 10.2x for
FY11, FY12 and FY13 respectively. Net dividend yields of 2.0% would help to underpin its share price.


Source: HLeBroking

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