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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
MARKET DATELINE

Axiata Share Price


Fair Value
:
:
RM3.72
RM4.53
Likely To Report Strong 1Q10 Performance Recom : Outperform
(Maintained)

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.
Axiata
♦ 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.
FBM KLCI
♦ 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 chye.wen.fei@rhb.com.my
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. david.chong@rhb.com.my

Please read important disclosures at the end of this report.


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Table 2: Valuation
Value Value/share Comments
RMm RM

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
entities
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

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

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21 May 2010

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
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

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.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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A comprehensive range of market research reports by award-winning economists and analysts are exclusively
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