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PP 7767/09/2010(025354)

21 May 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Resu lts Pr eview

21 May 2010

Axiata Share Price

Fair Value
Likely To Report Strong 1Q10 Performance Recom : Outperform

Table 1 : Investment Statistics (AXIATA; Code: 6888) Bloomberg: AXIATA MK

Net Core EPS Net
FYE Turnover Profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE NDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)

2009 13,105.1 1,652.7 21.6 18.4 27.8 20.2 - 3.3 0.57 9.6 0.0
2010f 14,698.1 2,087.3 24.7 24.7 34.0 15.1 23.4 2.7 0.42 10.9 0.0
2011f 16,094.4 2,410.2 28.5 28.5 15.5 13.0 26.5 2.2 0.28 11.2 0.0
2012f 17,208.8 2,470.0 29.2 29.2 2.5 12.7 34.8 1.9 0.15 10.3 2.7
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Likely to report strong 1Q10 results. We believe Axiata’s 1Q10 results Issued Capital (m shares) 8,445.2
(due out on 27 May 10) are likely to come in stronger on a yoy basis, Market Cap(RMm) 31,416.0
underpinned by: (1) The stronger-than-expected 1Q10 performances at XL Daily Trading Vol (m shs) 11.8
and Dialog; (2) Rupiah that has strengthened against RM since 1Q09; and 52wk Price Range (RM) 2.13 – 4.05
(3) Low base effect. Recall, Axiata’s overall 1Q09 results were dragged by Major Shareholders: (%)
the weak performance from its regional cellcos, in particular, Dialog and XL. Khazanah Nasional 44.5

♦ Low-to-mid-teens yoy revenue growth expected... We expect Axiata’s EPF 16.5

1QFY12/10 revenue to grow by low-to-mid-teens yoy, driven largely by: (1) ASB 6.6
Strong revenue growth at XL (+46.4% in rupiah terms) and Celcom
FYE Dec FY10 FY11 FY12
(~+10%, mainly due to a larger mobile and broadband subscriber base);
EPS chg (%) +4.6 +5.2 -
and (2) A stronger rupiah (against RM).
Var to C.EPS (%) +5.8 +7.8 -16.0
♦ … and EBITDA margin to improve slightly yoy. Margins wise, we expect
Axiata’s 1Q10 EBITDA margin to improve marginally yoy (from 42.4% in PE Band Chart
1Q09 to 43-44% in 1Q10), underpinned by a higher EBITDA margin at XL
(1Q09: 38.0%; 1Q10: 51.9%) that is likely partly offset by lower EBITDA PER = 20x
PER = 15x
margin at Celcom (on the back of accelerated marketing activities in PER = 10x
boosting its mobile broadband segment since Jan 10).
♦ 3G spectrum cost in India unlikely to result in equity injection.
Quarterly results aside, we believe Idea’s (a 20%-owned associate)
successful bid in its 3G spectrum (10 out of 22 circles for US$1.3bn) is
unlikely to result in an equity injection, as: (1) Idea has sufficient capacity
to raise debt further. Management believes that Idea can raise another
US$1bn, which will raise its net debt/EBITDA from 2.1x (as at 31 Mar 10) to
3.2x. This would still be lower than peer Reliance Communications’ current Relative Performance To FBM KLCI
net debt/EBITDA of 4.2x; and (2) Idea could raise around US$1bn via the
disposal of Indus Tower, if needed.
♦ Risks. These include: (1) Weaker-than-expected performance by Celcom as
well as from regional cellcos due to competition as well as macroeconomic
factors (inflation, etc); and (2) Over-priced acquisitions.
♦ FY12/10-11 net profit forecasts raised. We are raising our FY12/10-11
net profit forecasts by 4.6-5.2% to RM2,087.3m and RM2,410.2m, to
reflect: (1) Upward revisions in our net profit forecasts for Axiata’s key
subsidiaries post release of their 1Q results; and (2) Lower net interest
expense arising from recent XL stake selldown, partly offset by higher MI
for XL. Chye Wen Fei
♦ Investment case. SOP fair value is raised by 11.9% from RM4.05 to (603) 9280 2172
RM4.53, which takes into account: (1) The upward revisions in our valuation
benchmarks for the key subsidiaries (XL, Dialog and AxB); and (2) Gross
proceeds raised from the placement of XL shares. We continue to like Axiata David Chong, CFA
for its strong earnings growth and exposure to the recovery in emerging (603) 9280 2186
markets where mobile penetration rates remain low. Maintain Outperform.

Please read important disclosures at the end of this report.

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Table 2: Valuation
Value Value/share Comments

Celcom 26,815.9 3.18 DCF based on WACC = 9.9%

Excelcomindo 7,556.1 0.89 68.5% stake @ EV/EBITDA of 6x
Dialog 1,743.4 0.21 84.8% stake at market price
AxB 1,094.2 0.13 70% stake @ EV/EBITDA of 8x
SunShare (M1) 914.3 0.11 29.7% stake at market price less net debt of SunShare
Idea 2,531.0 0.30 19% stake @ consensus median target price
Others 353.9 0.04 Relates to Samart Corp, Samart I-Mobile and TMIC
Firm value 41,008.8 4.86
Add: Cash Holding company level cash as at end-2009 plus RM1,865m
2,235.0 0.26
proceeds from recent XL stake selldown
Less: Debt (5,000.0) (0.59) Holding company level debt as at end-2009
Equity Value 38,243.8 4.53

Source: RHBRI

Table 3 : Earnings Forecasts Table 4 : Forecast Assumptions

FYE Dec (RMm) FY09A FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 13,105.1 14,698.1 16,094.4 17,208.8 Celcom rev gwth (%) 11.5 8.5 5.9
Turnover growth (%) 15.5 12.2 9.5 6.9 Celcom EBITDA margin (%) 44.3 44.5 44.9
XL rev gwth (%) 20.2 9.2 10.8
EBITDA 5,624.3 6,453.2 7,090.1 7,663.4 XL EBITDA margin (%) 48.0 48.0 48.0
EBITDA margin (%) 42.9 43.9 44.1 44.5 Dialog rev gwth (%) 9.4 10.7 8.5
Dialog EBITDA margin (%) 30.7 31.5 31.8
Dep. & amort. (2,860.3) (2,565.5) (2,788.9) (2,999.1)
Capex (RMm) 4,128 3,645 3,561
EBIT 2,764.0 3,887.7 4,301.2 4,664.3
EBIT margin (%) 21.1 26.5 26.7 27.1
Net interest expense (199.1) (598.4) (463.6) (561.2)
Forex gains/(losses) 587.2 - - -
Jointly controlled
(59.5) 91.6 114.7 1.0
Associates 160.8 108.1 112.9 119.6

Pretax Profit 2,666.2 3,488.9 4,065.2 4,223.7

Tax (910.3) (1,116.5) (1,300.9) (1,351.6)
Minorities (103.2) (285.1) (354.2) (402.1)
Net Profit 1,652.7 2,087.3 2,410.2 2,470.0
Core Net Profit 1,413.7 2,087.3 2,410.2 2,470.0
Source: Company data, RHBRI estimates


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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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