AXIATA Group – In line

Price: RM3.11
Target Price: RM3.05
Recommendation: HOLD

· Results in line. 1H09 revenue of RM6.03 billion came in at 49% of our forecast and consensus. Meanwhile, 1H09 net profit of RM590.7m was 53% of our forecast and 50% of consensus. Main driver Celcom had increased its revenue contribution to 50% (1H08: 47%) and 56% of EBITDA (1H08 : 50%). A more benign exchange rate environment had also uplifted the improved results especially in 2Q09 with a forex gain of RM532.1m;
· QoQ, group’s revenue up 10.3%, driven by Celcom (5% growth) and Excelcomindo (+14%). This is very commendable given the trying economic conditions. On a constant currency level, group revenue would have grown at 8.4%;
· YoY, group’s revenue up 8% driven by Celcom which grew 12% and Axiata Bangladesh at 26%. Net profit, growth of 46% due to forex gains recorded during the current quarter;
· Celcom the star with strong sequential 5% growth. Compare that to Digi’s -1.1% during the same quarter. Net adds continued to improve to 522,000 (1Q09 : 415,000), augmented by strong effective marketing. Management disclosed for the first time its mobile broadband subscribers numbering 420,000 or 67% of market share which contributes some 5% or RM140m to Celcom’s revenue. EBITDA % stable at 44.2% (1Q09 : 45%);

· Excelcomindo saw topline growing 14% sequentially despite total subscribers declining 1%. With a deliberate focus on customer quality and retention, ARPU improved to Rp165 for postpaid (1Q09 : Rp148) and Rp33 (1Q09 : Rp27) with combined MOUs moving up to 277mins (1Q09 : 260 mins). EBITDA grew a strong 31% (29% normalized) while margins jumped back up to above 40% mark to 44% (1Q09 : 38%).

· Dialog remained under pressure. While topline grew 4% sequentially and EBITDA by 25% (normalized), net however remained at a loss of SLR7.7b due to one off provision for accelerated depreciation amounting to SLR6b. Normalised, net profit was in fact up 56% on cost and rescaling initiatives. Axiata Bangladesh also saw improvement with net rising to BDT598m (1Q09 : BDT 21m) on the back of a 4% sequential topline growth. EBIDTA % jumped to 47% (1Q09 : 32%) mainly due to SIM tax pass on.

· Outlook improving on all fronts in particular Celcom which is guiding for the current strong momentum to be maintained. While Celcom’s margin is likely to be maintained at the mid-40s level, ample growth opportunities remained to be tapped in key markets where Celcom is lagging especially in the Central.

· India under the new Idea will be equity accounted fully in 3Q09 based on the initial 15% stake. On a proforma basis, the Indian unit could have contributed RM34m to group’s PATAMI. Management guides for a 20% equity account quantum by end of this year pending completion of the merger exercise.

· Forecast is maintained but target price is revised to RM3.05 (RM2.50 previously) based on a new Sum-of-Parts. A combination of lower discount factor and higher terminal growth rate for key operational units is driving a higher SOP. HOLD call maintained.