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Friday, May 26, 2017

Axiata Group - Hit By Losses In India

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Axiata reported normalised earnings of RM291m (-37.3% YoY) for 1Q17, attributable to higher depreciation and amortisation charges, higher finance cost and share of losses from associates. The results came in below expectations, accounting for 19% of our and consensus full-year estimates. The discrepancy was largely due to losses incurred by its Indian operations. We cut our FY17-19F earnings forecasts by 12-14% to factor in losses from India and higher interest expenses. As we roll forward our valuation to FY18F, our DCF-based TP is revised up from RM4.48 to RM4.70. Maintain Neutral on Axiata. Despite the earnings headwinds, we believe its share price would be supported at current levels given market’s anticipation of corporate newflows pertaining to the potential sale of its overseas units i.e M1 in Singapore and Idea in India.
  • 1Q17 revenue increased by 17.4% YoY. The increase in group’s revenue was mainly due to new contribution from Nepal and higher revenues in Bangladesh and Cambodia. Meanwhile, Malaysia reported a 3.4% drop in revenue. Celcom’s subscriber base dropped by 15.1% but ARPU improved by 10.3%. Revenues from traditional services were lower (SMS: -40.3%, Voice: -14.7%) but these were partly offset by higher data revenue which grew 27.7%. Data revenue accounted for 40% of Celcom’s total revenue.
  • 1Q17 normalised earnings dropped 37.3% YoY. EBITDA improved by 14.9% on higher revenue but the sharp decline in normalised earnings was due to higher depreciation & amortisation charges coupled with higher finance cost and share of losses from associates. The increase in depreciation and finance costs were attributable to new asset acquisition while its Indian operations, Idea, contributed a loss of RM25m versus a profit of RM65m in 1Q16. Celcom remained the largest earnings contributor, accounting for 66% of group’s normalised 1Q17 net profit (1Q16: 61.9%).
  • Maintain Neutral. We roll forward our valuation to FY18F and as such, our DCF-based TP is revised up to from RM4.48 to RM4.70. We believe Axiata’s share price would remain supported at current levels as market expects the potential divestment of its overseas operations (i.e. Singapore, India, Sri Lanka), after recent disposal of a 10% stake in its Cambodian subsidiary. Any disposal would be viewed positively as it helps to pare down the group’s high net gearing and provide funding for future capex. However, we note earnings would also be diluted as immediate profit contribution would be sacrificed.
Source: PublicInvest Research - 26 May 2017

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