Wednesday, August 24, 2011

UOB Kay Hian Research downgrades Axiata to Hold

KUALA LUMPUR: UOB Kay Hian Malaysia Research has downgraded Axiata Group Bhd to a Hold and it also lowered its sum-of-parts target price to RM5.50. The previous target price was RM6.

The research house said on Wednesday, Aug 24 that at RM5.50, this implied 15 times 2012F price earnings and 6.0 times enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA).

'The stock offers a potential 2% dividend yield. Larger dividend payout is a catalyst,' it said.

Axiata's normalised 1H11 net profit was 20% and 14% below the research house and market consensus respectively.

UOB Kay Hian Research said revenues grew by only 4% on-year versus an internal target of 10%, in the face of softening voice markets in Malaysia and Indonesia.

Despite higher network costs for increased data traffic in the 2Q11, the group managed to keep costs under control and maintained EBITDA margin on-quarter at 43.5%.

'Malaysia and Indonesia remain as key drivers. Celcom in Malaysia (not listed) contributed 44% of Axiata's group revenue in Ringgit terms while Excelcomindo in Indonesia (XL) contributed 39%. However XL contributes a larger 46% of EBITDA to Axiata due to its higher margin of 52% vs 44% by both Celcom and Axiata,' it said.

The research house said Celcom disappointed, with a mere 2% on-year rise in 2Q11 revenue to RM1.8b. EBITDA margin was squeezed 1ppt to 45%, by cost for network upgrades and handset subsidies.

'We understand that the company was upgrading its network, which hampered its ability to grow its broadband segment aggressively. Celcom now has a total of 11.7 million subscribers (+4% on-quarter, +11% on-year), with a blended ARPU of RM49 (-2% on-quarter, -3% on-year),' it said.

As for XL, UOB Kay Hian Research said it faced competitive pressures in 2Q11. The company registered only 1% on-quarter net profit growth on the back of 2% revenue increase and 1% EBITDA growth.

It managed to maintain EBITDA margin at 52%.

'Fortunately, competitive pressure from Telkomsel started to ease in 2Q11, and this could lead to a better 2H11. Like most parts of this region, data growth continues to drive the Indonesian market,' it said.

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