February 17, 2011

AXIATA - Axiata sure to meet expectations

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD
Research House: AMMB

Axiata Group Bhd
(Feb 17, RM5.08)
Maintain buy at RM4.97 with fair value RM6.40
: We maintain our 'buy' conviction on Axiata with a fair value of RM6.40. Our valuation is based on FY11 earnings, with confidence bottom line growth will range at least between 22% and 32% in the next two years.

Essentially, our valuation implies a EV/Ebitda multiple of 6.3 times, a deep discount to its regional comparable peers considering the earnings growth we expect in the next two years.

Regional peers' valuation ranges from 6.5 to 10.5 times with comparatively slower bottom line growth. In addition, Axiata now offers a dividend angle, albeit a relatively small one ' payout of 30%. The payouts of comparable telcos are above 75%. Nevertheless, we like Axiata for its capital growth, which should more than compensate the shortcomings in dividends.

We are confident that its FY10 results will at least match our initial forecast, if not surpass it. Operating company Celcom Axiata Bhd only needs to make RM350 million in 4QFY10 to match our forecast. It made at least RM440 million in quarterly profit in the past three quarters.

XL earned 2.89 trillion rupiah for the full-year, a splendid 70% jump from FY09. This came on the back of a 20% increase in revenue and a much slower growth in costs. As a result, its earnings before interest, tax, depreciation and amortisation (Ebidta) margin grew to 54% from 45% the previous year.

On a normalised basis, earnings were even higher at IDR3.04 trillion. Normalised earnings is affected by the recognition that during the year, XL made an accelerated depreciation of around 3.04 trillion rupiah.

Dialog results were also very encouraging. Overall, it made 5.05 billion Sri Lanka rupees for the full year. This matched our forecast, contributing 4.4% of consolidated group forecast.

Overall, all operating companies that have come out with full-year results account for 33.2% on a consolidated basis of the group's expected FY10 earnings.

India will not be in the driving seat for FY11, as intense capex to lay the groundwork for 3G services may push Idea's operating costs. However, we are a taking long-term view on Idea and are not concerned with the developments in India.

Valuation is still attractive at the prevailing price, which implies a trailing EV/Ebitda of only 6.3 times (against SingTel's 10.5 times and other regional (developing) peers 6.2 times). This is attractive because Axiata has exposure in high-growth, under-penetrated countries, with further upside in earnings growth. ' AmResearch, Feb 17


This article appeared in The Edge Financial Daily, February 18, 2011.

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