Axiata Group Bhd
(Aug 26, RM5.49)
Downgrade to hold from buy with a lower target price of RM5.66 from RM7.04: Axiata Group Bhd’s second quarter ended June 30, 2016 (2QFY16) normalised profit after tax and minority interests (Patmi) decreased 36.6% year-on-year (y-o-y) to RM371 million following an RM307 million decrease in profit from operations.

Reported Patmi declined 69.1% y-o-y on RM300 million foreign-exchange losses, accelerated depreciation of PT XL Axiata Tbk and an adjustment to Ncell Pvt Ltd’s purchase price allocation.

The lower profit came despite quarterly revenue rising 12.8% y-o-y and 6% quarter-on-quarter (q-o-q) to RM5.31 billion after the consolidation of Ncell’s earnings. All operating companies posted higher revenue y-o-y except for Celcom Axiata Bhd.

On a quarterly basis, normalised Patmi tumbled 20.1% q-o-q. Among operating companies, XL (Indonesia) and Dialog Axiata plc (Sri Lanka) saw revenue drop q-o-q, while Celcom (Malaysia), Robi Axiata Ltd (Bangladesh) and Smart Axiata Co Ltd (Cambodia) had a small growth of about 1%.

Celcom’s 2QFY16 revenue dipped 6.5% y-o-y due to declines in revenue contribution from value-added services of 39.4% and overseas foreign workers of 26.3%. Prepaid subscriptions dropped for a third consecutive quarter to 8.34 million, while postpaid subscriptions increased to 2.9 million to extend the positive momentum since the launch of new data plans in February.

Management said it would launch new prepaid plans soon to recapture market share.

Still undergoing its transformation programme, XL continued to post small losses due to lower average revenue per user amid price pressure despite adding 1.5 million subscriptions.

Dialog and Smart continued their double-digit revenue growth, while Robi posted flat results after the completion of its SIM biometric registration.

Six-month normalised Patmi of RM464 million accounts for 26.3% of the full-year estimate, while revenue makes up 46.3% of the FY16 forecast.

We lower our earnings per share forecasts for FY16 and FY17 by 31% and 22% respectively following our margin cut and the higher effective tax rate applied, while keeping revenue forecasts unchanged as the expected recovery in major subsidiaries Celcom and XL has not materialise yet. — JF Apex Securities, Aug 26