(Aug 3, RM4.32)
Recommend buy at RM4.24 with a higher target price of RM4.75 (from RM4.50): We found during a meeting with Axiata’s wholly-owned subsidiary, Celcom Axiata, that it is a well-managed company that is growing healthily in the broadband segment, and on track to meet its 70,000 BlackBerry net add target for this year. This is supported by its widest 80% 3G/3.5G coverage.
The GSM segment remains key to Celcom Axiata, with growth opportunities in the foreign worker segment, under-served rural areas, and MVNO partnerships. We expect the company to perform well this year and next, with a sustainable earnings before interest, tax, depreciation and amortisation (Ebitda) margin of circa 45%. Celcom Axiata makes up circa 45% of the parent company’s earnings and 68% of our valuation estimate.
Its 67%-owned XL in Indonesia reported strong 2Q2010 results on Monday, beating the consensus Ebitda estimate by 18%. This was mainly driven by growth in the SMS and mobile Internet segments. DBS Vickers raised FY2010F-FY2011F net profit for XL by more than 20%, which resulted in 6% to 8% upside to Axiata’s group net profit. However, this is mitigated by 1% to 2% downward pressure (on group NI) by Dialog in Sri Lanka. A tariff hike (started in July) in a price sensitive market due to regulatory intervention (price floor) could dampen revenue growth ahead.
We raise our price target following a 13% upgrade to XL’s valuation. Celcom Axiata’s performance in Malaysia remains healthy, while the outlook for XL in Indonesia is improving. Axiata group’s growth prospects are good, with forecast three-year earnings CAGR of 43%. — HwangDBS Vickers Research, Aug 3
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