AmResearch retains Hold on Axiata on weaker XL
AXIATA (6888) AXIATA GROUP BERHAD
KUALA LUMPUR: AmResearch is retaining is Hold call on Axiata after the release of its Indonesian unit XL’s 9M14 earnings.
It said on Friday its fair value was unchanged at RM6.80 a share.
To recap, XL reported core earnings of IDR251bil for 3Q14, which reduced 9M14 core net losses to IDR250bil.
“This was better than expected versus our FY14F net loss of IDR227bil given that integration of Axis progressed ahead of plans. Consensus’ IDR264bil FY14F net profit however, looks a tad ambitious,” it said.
AmResearch said from a fundamental perspective however, revenue growth was flat on-quarter. Although it grew by 9% on-year, this looked “pretty weak” considering that this came with acquisitive growth from Axis. Telkomsel registered organic growth of 10% on-year for the third quarter as a comparison.
XL's subscriber base contracted in 3Q14 as it held back the expansion of XL’s 3G network as it prefers to redeploy Axis’ equipment, which is only available now.
“Management also attributes XL’s mediocre revenue growth to this factor; it was not able to capture revenue growth in areas with high 3G demand given the holdback in network expansion,” it said.
The research house said if the execution goes through well, 4Q14 should show initial signs of revenue improvement on a sequential basis. However, it noted that XL’s price optimisation exercise seems to have hit a snag.
“In fact, pricing corrections have been executed by various players and XL feels that the current data pricing in the market is too low,” it said.
“XL’s data pricing (in revenue/MB) fell 45% on-year in 1H14, but this moderated to -39% in 9M14. Bulk of the cost cuts at Axis (that is 70% cost cut so far) has been executed (some were even done before integration).
“The final tranche of savings will come from the switching off of Axis’ network which is expected to be completed by year-end,” it said.
AmResearch added management expected Axis to be EBITDA neutral in 1Q15, but this would be partly offset by incremental tower lease cost after the sale of a portfolio of towers recently.
“Management seems confident of sustaining current EBITDA margins of 36%, but XL is unlikely to recover to the 40% levels in the near future.
“FY14 guidance of low teens revenue growth and mid-30s EBITDA margin is maintained. 2Q14 result was likely the bottom for XL and we expect gradual improvement from 4Q14 onwards, assuming price competition is managed well.
“We keep our numbers pending the release of Axiata’s results next month. There is slight upward bias to our XL forecasts, but is unlikely to impact our call on Axiata,” it said.
http://www.thestar.com.my
AXIATA (6888) AXIATA GROUP BERHAD
KUALA LUMPUR: AmResearch is retaining is Hold call on Axiata after the release of its Indonesian unit XL’s 9M14 earnings.
It said on Friday its fair value was unchanged at RM6.80 a share.
To recap, XL reported core earnings of IDR251bil for 3Q14, which reduced 9M14 core net losses to IDR250bil.
“This was better than expected versus our FY14F net loss of IDR227bil given that integration of Axis progressed ahead of plans. Consensus’ IDR264bil FY14F net profit however, looks a tad ambitious,” it said.
AmResearch said from a fundamental perspective however, revenue growth was flat on-quarter. Although it grew by 9% on-year, this looked “pretty weak” considering that this came with acquisitive growth from Axis. Telkomsel registered organic growth of 10% on-year for the third quarter as a comparison.
XL's subscriber base contracted in 3Q14 as it held back the expansion of XL’s 3G network as it prefers to redeploy Axis’ equipment, which is only available now.
“Management also attributes XL’s mediocre revenue growth to this factor; it was not able to capture revenue growth in areas with high 3G demand given the holdback in network expansion,” it said.
The research house said if the execution goes through well, 4Q14 should show initial signs of revenue improvement on a sequential basis. However, it noted that XL’s price optimisation exercise seems to have hit a snag.
“In fact, pricing corrections have been executed by various players and XL feels that the current data pricing in the market is too low,” it said.
“XL’s data pricing (in revenue/MB) fell 45% on-year in 1H14, but this moderated to -39% in 9M14. Bulk of the cost cuts at Axis (that is 70% cost cut so far) has been executed (some were even done before integration).
“The final tranche of savings will come from the switching off of Axis’ network which is expected to be completed by year-end,” it said.
AmResearch added management expected Axis to be EBITDA neutral in 1Q15, but this would be partly offset by incremental tower lease cost after the sale of a portfolio of towers recently.
“Management seems confident of sustaining current EBITDA margins of 36%, but XL is unlikely to recover to the 40% levels in the near future.
“FY14 guidance of low teens revenue growth and mid-30s EBITDA margin is maintained. 2Q14 result was likely the bottom for XL and we expect gradual improvement from 4Q14 onwards, assuming price competition is managed well.
“We keep our numbers pending the release of Axiata’s results next month. There is slight upward bias to our XL forecasts, but is unlikely to impact our call on Axiata,” it said.
http://www.thestar.com.my
