Wednesday, August 24, 2011

Axiata Berhad: 1H11 Core Net Profit Rises 1%

24 August 2011
Price Target: RM5.60
Share Price: RM4.98

# 1H11 reported core net profit of RM1,249m came in below expectations, accounting for only 41-42% of our and consensus full-year estimates.

# Declared interim NDPS of 4.0 sen, translating to a net yield of 0.8% and a payout ratio of 27% (based on 1H core net profit).

# Lower-than-expected EBITDA margins at Celcom and XL; and

# Higher-than-expected effective tax rate (1H11 effective tax rate was 28.3% vis-à-vis 27.3% we assumed).

# Guidance lowered. Management highlighted that its revenue and EBITDA growth targets in 2011 are challenging, given: (1) The challenging operating environment in Malaysia and Indonesia; and (2) The strong
RM that results in lower translated top and bottom lines. However, it remains confident in meeting its ROIC target (with associates: 12.6%; without associates: 16.5%) via more active capital management plan.

# Capex. Management raised capex guidance from RM3.3b to RM3.9bn, due mainly to XL’s accelerated network rollout for data.

# Service charge. Management mentioned that the industry players (including Celcom) are planning to pass down the 6% service charge to the consumers by 16 Sep 11, pending from approval from the MCMC.

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

- FOREX fluctuations & competitive risks.

Maintained for now, pending further review.

Rating - BUY (Target Price: RM5.60)
Despite the challenging environment, 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.

Slower growth, regulatory risks and potential disruptions from competition.

Our SOP-based target price is RM5.60. At current price, Axiata is trading at an estimated PER of 13.8x, 11.9x and 11.1x for FY11, FY12 and FY13 respectively. Net dividend yields of 2.0% would help to underpin its share price.

Source: HLIB Research

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