Axiata Group - Exciting growth ahead

Exciting growth ahead

1. Strengthened by Malaysian and Indonesian operations
2. Raise FY10F-FY11F net profit by 4%-6%
3. Raised sum-of-parts TP to RM4.75; maintain BUY

Celcom is well-managed. Our meeting with Axiata’s wholly-owned subsidiary, Celcom (Malaysian celco) revealed that it is well-managed. It is growing healthily in the broadband segment, and on track to meet its 70K Blackberry net add target for this year. This is supported
by its widest 80% 3G/3.5G coverage. The GSM segment remains key to Celcom, with growth opportunities in the foreign worker segment, under-served rural areas, and MVNO partnerships. We expect Celcom to perform well this year and next, with sustainable EBITDA margin of c.45%. Celcom makes up c.45% of Axiata’s earnings and 68% of our valuation estimate.

XL exceeded expectations. 67%-owned XL in Indonesia reported strong 2Q10 result yesterday, beating consensus EBITDA estimate by 18%. This was mainly driven by growth in the SMS and mobile internet segments. DBS Vickers raised FY10F-FY11F net profit for XL by >20%, which resulted in 6%-8% upside to Axiata’s group net profit. However, this is mitigated by 1%-2% downward pressure (on group NI) by Dialog in Sri Lanka. Tariff hike (started Jul10) in a price sensitive market due to regulatory intervention (price floor) could dampen revenue growth ahead.

Raised price target following 13% upgrade to XL’s valuation. Celcom’s performance in Malaysia remains healthy, while the outlook for XL in Indonesia is improving. Axiata’s growth prospect is good, with forecast 3-year earnings CAGR of 43%.


Report by
HWANGDBS Vickers Research Sdn Bhd (128540 U)