PublicInvest Jakarta: Axiata Axis Capital Group results may be lacklustre

PETALING JAYA: Axiata Group Bhd’s fourth quarter 2014 results are expected to be lacklustre, but the group is expected to benefit from its regional growth as well as better 2015 performance from its key units, Celcom Axiata Bhd and PT XL Axiata Tbk (XL).

Public Invest Research said Celcom, which had a stronghold in the east coast, had been affected by the worst floods in decades in the fourth quarter. The floods have not only forced thousands to evacuate but also damaged network sites.

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One of Celcom’s Facebook posts showed 313 of its network sites were affected by floods with 208 in Kelantan, 90 in Pahang, 10 in Terengganu and five in Perak. The company’s fibre optic cables were also damaged due to landslides in Sungai Siput and the East-West Highway.

Public Invest said it was just a “temporary blip” and that Celcom had also regained traction by launching some new products after resolving its IT systems-related issues.

Furthermore, the research house said although XL integration with PT Axis Telekom (Axis) was at the tail-end, XL had some pricing difficulties last quarter that set them back.

Nonetheless, it opined that 2015 would be a year of operational turnaround for its key units, Celcom and XL.

Public Invest said Celcom had launched new plans after resolving its IT upgrading issues by end-third quarter 2014.

“Management indicated response to the new prepaid plan has been encouraging. We expect Celcom’s fourth quarter 2014 earnings to be slightly dampened by flooding in east coast states (Celcom is the entrenched market leader in Kelantan, Terengganu and Pahang) during December 2014.

“We understand affected base stations and equipment are fully insured but service disruption from flooding may temporarily affect Celcom’s fourth quarter service revenue.

“Nevertheless, we expect Celcom’s performance to improve year-on-year from second quarter 2015 in tandem with subscriber addition from new plans and improved distribution following IT upgrading,” PublicInvest said in a report.

Celcom had a bumpy journey in 2014 impacted by IT systems-related issues, which affected its financial performance.

Meanwhile, PublicInvest said XL had completed the integration of Axis by fourth quarter and expected XL’s fourth quarter 2014 results to be subdued in light of Axis’ negative earnings before interest, tax, depreciation and amortization (EBITDA,) effect and pricing difficulties. “XL completed the sale of 3,500 towers in December 2014 for 5.6 trillion rupiah to pare down its liabilities. While Axis is expected to be EBITDA neutral by second quarter 2015 but the sale-leaseback of Telco towers will compress XL’s EBITDA margin by 200 basis points,” it said.

PublicInvest said XL intended to keep its two key brands, XL and Axis, and to segment the two brands accordingly to maximize capacity utilization.

The research house noted that Robi Axiata Ltd had commenced preparation for its initial public offering (IPO) which was likely in 2016.

“Robi will increase its capital expenditure for 2015 to improve coverage. As for its telco tower, the current focus is to improve its operational efficiency and there is no timeline for its IPO,” it said.

The research house maintained its “neutral” call on Axiata with an unchanged target price of RM7.10. “Despite our ‘neutral’ call on Axiata, it is our preferred stock pick in the sector as we believe it will benefit from regional growth story as well as better 2015 performance from Celcom (post IT transformation) and XL (post Axis integration).

“With regard to the Government seeking higher dividends from government-linked corporations, we believe Axiata has the capability to pay a one-off special dividend or increase its dividend payout ratio to more than 90% subject to its free cash flow needs (we have assumed FY15 forecast payout ratio: 79%),” PublicInvest said.