Target RM7.20 (Stock Rating: HOLD)
AXIATA (6888) AXIATA GROUP BERHAD
With rebounds at Celcom and XL, we see stronger earnings for Axiata in FY15 but consensus numbers appear to have factored this in. On the negative side, we believe Axiata is likely to keep its capex high in FY15 to improve its data network quality, which could surprise the market. We cut our FY14-16 core net profit forecasts by 1.8-11.0% for lower estimates for Celcom and XL. Despite this, our SOP-based target price stays at RM7.20 as we now factor in higher valuations for Idea, Robi and Smart. We maintain our Hold call. The key upside risk is stronger-than-expected earnings at Celcom and XL while the key downside risk is sustained high capex in the medium term. We prefer DiGi, our top Malaysian telco pick.
We cut our FY14-16 core net profit forecasts by 1.8-11.0% for lower estimates for Celcom and XL. Despite this, our SOP-based target price stays at RM7.20 as we now factor in higher valuations for Idea, Robi and Smart. We maintain our Hold call. The key upside risk is stronger-than-expected earnings at Celcom and XL while the key downside risk is sustained high capex in the medium term. We prefer DiGi, our top Malaysian telco pick.
Celcom & XL to rebound
We expect Celcom’s EBITDA to rebound 5.3% in FY15 (FY14F: -4.4%), driven by a) new product launches after fixing its IT/network issues, b) positive GST impact, and c) healthy growth in data revenues, given a more visible pick-up in usage among its subscribers in recent quarters. For XL, we forecast EBITDA to recover 7.8% (FY14F: -0.4%) on a) strong growth in data, b) rising tariffs and c) cost rationalisation at Axis even though margin improvement will be held back by the additional tower leaseback cost from SUPR. Overall, we forecast group EBITDA growth of 6.6% in FY15 and 8.1% in FY16 (FY13/14F: -2.7%/-0.5%).
High capex to stay in FY15
We believe Axiata needs to sustain high network investments for all its operating subsidiaries in FY15 to remain competitive as a good data experience is increasingly important to subscribers. As such, we raise our FY15 capex assumption by 16% to RM4.4bn (capex/sales: 22%), which is marginally higher yoy. Thereafter, we forecast capex to ease yoy to RM3.9bn in FY16 (capex/sales: 19%).
Dividend payout to rise
With the higher capex, we forecast FCF/share to come in at only RM0.14-0.17 in FY14-15, before rising to RM0.30 in FY16. Despite that, we believe Axiata will still be able to raise its dividend payout ratio gradually to 80-90%, translating into DPS of RM0.26-0.32 (yield: 3.6-4.5%) in FY14-16. This is because it has RM3.2bn cash sitting at the holding company/Celcom level at end-June 2014, with sufficient room in the balance sheet to gear up. Based on our DPS forecast, Axiata’s net debt/EBITDA is set to rise from 0.97x at end-FY13 to a still-manageable 1.07x/1.13x at end-FY14/FY15, before easing to 1.07x by end-FY16.
Research,Source: CIMB Daybreak - 27 October 2014
