Kuala Lumpur, Feb 20 – AMBank Research is maintaining its BUY call on Axiata Group (Axiata) with a lower sum-of-parts (SOP)-based fair value of RM6.00/share (from an earlier RM6.15/share), which implies a FY16F EV/EBITDA of 7x – half of Singapore Telecommunications Ltd’s present 14x.
“We have only fine-tuned FY16F net profit which has already incorporated weaker 4QFY16 earnings assumptions impacted by Celcom’s likely weak earnings and 19.8%-owned Idea Cellular’s loss.”
“However, our lower SOP stems from a reduction in associate contributions from 19.8%-owned Idea Cellular (Idea) in India and 28.5%-owned M1 in Singapore, which has reduced Axiata’s FY17F-FY18F earnings by 5%-10%. Idea, which registered a 4QCY16 loss of INR3.8 billion vs. a 3QCY16 net profit of INR915 million is expected to remain in the red in FY17F on persistently depressed average revenue per user (ARPUs)as new cellular rival Reliance Jio Infocomm’s free voice and 4G data service promotion, which began in September 2016, has been extended from Dec 31, 2016 until March 2017.”
While the research house is positive on the appointment of Celcom’s new CEO Michael Keuhner, who joined in September last year, AM Research expects incremental progress in operational improvement against the background of intense competition amid the re-entry of TM’s webe service.
Given the poor performance from Idea and M1, Axiata’s 4QFY16 results, scheduled to be announced Feb 23, 2017, are likely to be weak, but should be largely in line with AM Research’s assumptions.
“While operational issues will continue to drag Axiata’s earnings in the medium term, we highlight that the stock currently trades at a bargain FY17F EV/EBITDA of 5x, far below 13x for Maxis and Digi. Additionally, dividend yields are attractive at 4%,” it states.