AXIATA – Fundamental Analysis (2 Dec 2015)

Fundamental Analysis as of FY14

Excel – http://1drv.ms/1TjXq1C

Latest Financial – Q3 2015 Financial Report (27 Nov 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4933997

FY15 Q3 Results Highlight:

  • 3Q15 normalised earnings (excluding gain on disposal of XL towers and FX loss on borrowings) increased 6.2%yoy to RM756.66m.
  • AXIATA reported 9M15 earnings of RM2,224.6m, an increase of +21.8%.
  • Impacted by higher operating costs, mainly from the Bangladeshi and Sri Lankan operations.
  • Axiata’s 9M15 capex increased by +26.2%yoy to RM3,470.0m largely directed to boosting its mobile data leadership. The bulk of the capex was spent on its Indonesian (XL) and Bangladeshi (Robi) operations amounting to RM1,234.0m and RM1,029.0m respectively.

Valuation:

  • Absolute EY%:
    • Historical
      • Trailing:
        • FY14 (EPS: 0.288) – 6.726 (Uncertainty Risk: MEDIUM)
        • R4Q (EPS: 0.334) – 7.803 (Uncertainty Risk: LOW)
      • Forward:
        • FY15 (EPS: 0.271 ± 5%) – From 6.006 to 6.639 (Uncertainty Risk: MEDIUM to HIGH)
        • FY16 (EPS: 0.299 ± 5%) – From 6.624 to 7.321 (Uncertainty Risk: MEDIUM)
      • EPS applied to reach the current stock price (6.11): 0.262
    • Industry
      • Trailing:
        • FY14 (EPS: 0.288) – 6.88 (Uncertainty Risk: MEDIUM)
        • R4Q (EPS: 0.334) – 7.98 (Uncertainty Risk: LOW)
      • Forward:
        • FY15 (EPS: 0.271 ± 5%) – From 6.14 to 6.79 (Uncertainty Risk: MEDIUM to HIGH)
        • FY16 (EPS: 0.299 ± 5%) – From 6.78 to 7.49 (Uncertainty Risk: MEDIUM)
  • 5-Y DCF:
    • Good Scenario (8.0% – 10.0%): From 6.65 to 7.10 (Uncertainty Risk: MEDIUM)
    • Base Scenario (5.0% – 7.0%): From 6.04 to 6.44 (Uncertainty Risk: HIGH)
    • Bad Scenario (2.0% – 4.0%): From 5.48 to 5.85 (Uncertainty Risk: VERY HIGH)
    • Ugly Scenario (-2.0% – 0.0%): From 4.81 to 5.13 (Uncertainty Risk: VERY HIGH to EXTREME)
    • At current price (6.11), based on RDCF, assumption of FCFF growth rate in the next 5 years is 5.5%.
  • In my opinion, fair value of AXIATA range from 6.7 to 7.3. Uncertainty risk of fair value is from LOW to MEDIUM.

AXIATA-FY15-Q3-Football

Going Forward:

  • Future prospects of strong earnings growth from the group’s main operating segments i.e. Celcom and XL remains as the primary concern mainly due to intensifying competition.
  • Despite the IT and system problems limiting the group’s ability to launch new and more competitive products has largely been resolved, the group will still lag in terms of competitiveness. This is because its other peers have been rolling out very competitive products for the past many quarters, intensifying the price war.
  • XL’s transformation plan could be impacted as it battles Telkomsel and Indosat which are state-owned enterprises.
  • At present, both segments contributed more than 70% to the group’s revenue.
  • In addition, a sizeable exposure to forex would also apply downward pressure on the group’s profitability.
  • I will continue to hold AXIATA, and accumulate AXIATA when the timing is right.

At the time of writing, I owned shares of AXIATA.

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