Axiata Group Bhd (Aug 26, RM4.47)
Maintain buy at RM4.42 with revised target price of RM4.95 (from RM4.77): Axiata's 6MFY2010 revenue was in line with expectations while adjusted net profit was above house and consensus estimates. Adjusted net profit was higher after adjustments for forex losses and impairments, partially offset by a gain from the XL stake disposal. Axiata's revenue growth was driven by strong year-on-year performance from all major operating companies (opcos) comprising Celcom, XL, Dialog and Robi. Net profit was driven higher by improvements in margins from all opcos except Robi.
Main revenue drivers Celcom and XL (both contributing 83% of group revenue) experienced strong double-digit growth both in terms of revenue and profitability for 6MFY2010 due to continuous lean cost management. For 2QFY2010, earnings before interest, tax, depreciation and amortisation (Ebitda) margins for Celcom and XL were at record highs of 47.9% and 53% respectively.
The smaller opcos, Dialog and Robi (both contributing 16% of group revenue), saw a sustained turnaround quarter-on-quarter. Dialog is expected to benefit from a more stable environment with floor pricing, while Robi continues to see strong subs growth through improving distribution strategies.
We continue to like Axiata for steady single-digit growth in Celcom and high-teens growth in XL going forward. Meanwhile, Dialog and Robi have shown positive results in maintaining their turnaround. With Axiata for 6MFY2010 showing 25% revenue growth (KPI: 12.1%) and 45% Ebitda growth (KPI: 14.1%), it appears that management is well on track to exceed their 2010 headline KPIs.
With stronger free cash flow, Axiata unveiled its dividend policy for FY2011, aiming to achieve a payout of 30%, quite close to our forecast of 25%.
We are pleasantly surprised by Celcom's strong Ebitda margins, and with management hinting of stable margins going forward, we have revised our earnings estimates by 7% to 8% for FY2010-12. The agreement to be signed by year-end between Celcom and DiGi.Com Bhd on a potential active collaboration also bodes well for further upside in margins for Celcom. Hence, we maintain our 'buy' call while revising our sum-of-parts target price from RM4.77 to RM4.95. - ECM Libra Investment Research |