Axiata may post weak bottom line: AmInvestment

PETALING JAYA: Axiata Group Bhd, which is scheduled to announce its fourth quarter financial year ended 2016 (Q4FY16) results this Thursday, is expected to register a weak bottom line, given the poor performance of India’s Idea Cellular Ltd (Idea) and Singapore’s M1 Ltd (M1).
However, AmInvestment Research analyst Alex Goh said the telco’s performance should be largely in line with the research house’s expectations.
He said while operational issues will continue to drag Axiata’s earnings in the medium-term, he highlighted that the stock currently trades at a bargain FY17F EV/Ebitda of five times, far below 13 times for Maxis Bhd and Digi Telecommunications Sdn Bhd.
“Additionally, dividend yields are attractive at 4%,” he added.
AmInvestment Research maintained its “buy” call on the group, with a lower sum-of-parts (SOP)-based fair value of RM6 per share (from an earlier RM6.15 per share), which implies a FY16F EV/Ebitda of seven times – half of Singapore Telecommunications Ltd’s present 14 times.
“We have only fine-tuned FY16F net profit which has already incorporated weaker 4QFY16 earnings assumptions impacted by Celcom’s likely weak earnings and 19.8%-owned Idea Cellular’s loss.”
“However, our lower SOP stems from a reduction in associate contributions from 19.8%-owned Idea Cellular (Idea) in India and 28.5%-owned M1 in Singapore, which has reduced Axiata’s FY17F-FY18F earnings by 5%-10%,” said Goh.
He said Idea, which registered a 4QCY16 loss of 3.8 billion Indian rupees (RM253 million) from a net profit of 915 million rupees in 3QCY16, is expected to remain in the red in FY17.
He attributed this to persistently depressed average revenue per user (ARPUs) as new cellular rival Reliance Jio Infocomm’s free voice and 4G data service promotion, which began in September 2016, are extended from Dec 31, 2016 until March this year.
Goh also said there is a further possibility that Axiata may bear a RM125 million provision from Idea’s 950 rupees core (RM633 million) penalty recommended by Telecom Regulatory Authority of India (TRAI) for allegedly not providing interconnection services to Reliance Jio.
The penalty, howeve,r is not a certainty, as the Department of Telecommunication has yet to act on TRAI’s recommendation, while Idea and other cellular operators are likely to mount legal challenges.
“We expect consolidation news flow to gather momentum, as the intense competition in India may drive Idea to merge with second largest player Vodafone to challenge market leader Bharti Airtel. While we are positive on the appointment of Celcom’s new CEO Michael Keuhner, who joined in September last year, we expect incremental progress in operational improvement against the background of intense competition amid the reentry of Telekom Malaysia Bhd’s (TM) webe service,” he added.