AXIATA GROUP BHD

Hold Price Target: RM4.65

ON the back of a 10.9 trillion rupiah turnover, Axiata Group Bhd’s (XL) first half of 2017 (1H17) core net profit of 114 billion rupiah was largely in line with HLIB Research’s full year forecast.

While gross revenue expanded 7.6% quarter-on-quarter (q-o-q), service revenue increased at a faster pace of 9.3% q-o-q. Core net profit strengthened more than four-fold to 114 billion rupiah, due to the earnings before interest, taxes, depreciation and amortisation (EBITDA) margin improvement of 150 basis points, resulting in a 80.9% rise in 1H17.

Postpaid 2Q17 performance was a mixed bag: where 42,000 subs were being added to bring the base to 582, there, the average revenue per user (arpu) contracted by 8,000 rupiah. As for prepaid, 2.5 million subscriptions were added in 2Q17 to reach a total base of 49.9 million, with a more solid arpu development of 1,000 rupiah q-o-q to 33,000 rupiah.

XL continues investing by adding 3G and 4G nodes of 2,400 and 3,300, respectively in 2Q17 to provide high quality internet services. This brings total base stations to around 93,500.

With the improved coverage, 70% of the total base (or 35.4 million users) are data users generating 543.4 petabytes of total traffic in 1H17, resulting in +175.6% y-o-y. As affordability increased, smartphone users also grew 14% q-o-q, reaching 33.8 million users. For financial year 2017 (FY17), HLIB Research expects revenue growth to be in-line with the market, with a stronger 2H17. Also, EBITDA margin is predicted to be set at high 30’s, and lastly, capital expenditure (capex) should not exceed seven trillion rupiah.

Therefore, HLIB Research recommends a “hold” position with an unchanged sum-ofparts (SOP) derived target price of RM4.65.