This article first appeared in The Edge Financial Daily on November 27, 2018
Axiata Group Bhd
(Nov 26, RM3.45)
Maintain buy with a fair value of RM5.32: Axiata Group Bhd’s forecasts are maintained as the group’s normalised net profit for the cumulative first nine months of financial year 2018 (9MFY18) ended Sept 30, 2018 of RM967 million (pre-Malaysian Financial Reporting Standards 15), excluding RM3.7 billion impairment from the de-consolidation of India-based Idea from group accounts together with a RM176 million loss on dilution and RM257 million other provisions, came in within our expectations, making up 87% of our FY18 forecast earnings but above consensus.
While fourth quarter FY18 (4QFY18) is expected to be weaker, we highlight that the normalised results are only 4% away from street’s expectations. As a comparison, 9MFY17 net profit accounted for 83% of full FY17 normalised net profit. Axiata did not declare an interim dividend in 3QFY18 as expected with management previously affirming that the FY18 forecast payout will normalise and match 85% of FY15, before the group drastically cut its distribution following FY16 spectrum fee outlays.
Axiata’s 3QFY18 normalised net profit rose 38% quarter-on-quarter (q-o-q) to RM364 million from one-off edotco Group share disposal gains from Bangladesh’s Robi and Celcom’s lower subscriber acquisition costs following its cost optimisation programme, amid a decent 2% revenue growth. However, the group’s 9MFY18 normalised earnings were slightly lower 3% y-o-y as Robi’s gain was largely offset by weaker bottom lines from the rest of the group’s operations.
Celcom’s 3QFY18 revenue marginally slid q-o-q as subscribers declined by 394,000 to 9.2 million, after rising for the past two quarters. Even though Celcom’s average revenue per user has risen RM1 per month to RM49 per month, its traction in drawing prepaid subscribers appears to have dissipated, partly offset by the 53,000 rise in the post-paid segment to 2.9 million. In a q-o-q comparison, the overall subscriber base for Digi rose 144,000 while Maxis added 73,000. Notwithstanding the flattish revenue, Celcom’s 3QFY18 normalised net profit rose 31% q-o-q to RM205 million due to the one-off internal staff restructuring charge in 2QFY18. For now, we remain conservative for Celcom’s margin assumptions.
XL’s prospects are brightening as its 3QFY18 loss improved to RM14 million from RM22 million in 2QFY18 in tandem with a 29% increase in revenue, driven by its subscriber base increasing by 955,000 q-o-q following the prepaid Subscriber Identity Module registration exercise in 2QFY18 for its post-paid segment.
Nepal-based Ncell’s revenue rose 8% q-o-q as its domestic data business more than offset the declines in international long-distance services, which account for 26% of income. However, its core earnings slid 5% q-o-q to RM164 million due to the increased corporate tax rate, one-off prior-year tax adjustment and asset impairment. — AmInvestment Bank, Nov 26