AmWatch - Axiata Group : Emerging from a challenging FY14 BUY, 26 Feb 2015

STOCK FOCUS OF THE DAY

Axiata Group : Emerging from a challenging FY14               BUY

We raise Axiata to BUY from HOLD and increase our fair value to RM7.90/share from RM7.60/share. Axiata reported core net profit of RM461mil for its 4Q14, which brought FY14 core earnings to RM2.2bil. This is below expectations – accounting for 85% of our and 90% of consensus estimate. We adjust our earnings down by 9%/8% for FY15F/16F to reflect the weaker-than-expected results – deviation came mainly from Celcom and XL’s topline.

Exceptionally high tax rate dragged 4Q14 bottomline. EBITDA and normalised pretax profit were up 7% and 6% QoQ on the back of a 3% increase in revenue. 4Q14 showed improvements in profitability and operational traction which strongly point to an inflection in earnings this year. Management is guiding for 4% growth in FY15F revenue and EBITDA. Several positives in the quarter: (1) Margins returned to 40% levels; (2) Celcom blended ARPU is stabilising albeit subs traction is still lacking; (3) Maiden quarter that service revenue turned in positive growth since IT and network issues impacted Celcom; and (4) Voice, VAS and data showed sequential uptick of 1%, 4% and 10%, respectively.

After falling behind competitors in network expansion in FY14, XL can now re-accelerate expansion after having fully completed its integration with Axis. Management is guiding for mid-to-high single digit revenue growth for XL. Axiata is getting more aggressive in capitalising on the data/smartphone conversion wave over the next 12 months. Axiata is guiding for group capex to increase to RM4.8bil from RM4.4bil. Beyond fundamental earnings improvement, Axiata is perhaps best positioned to churn out surprise dividends to meet demands for incremental cash upflow to the government (via Khazanah), if required.

Others :

Sunway : FY14 beats expectations on lower tax and minorities   BUY

Ta Ann Holdings : FY14 in line with expectations                 BUY

Kossan Rubber : Fundamentals intact     BUY

Hong Leong Bank : High level of assurance from solid asset quality            BUY

Media Prima : Outlook remains challenging          HOLD

Tan Chong Motor : The pressure ain’t over yet   HOLD

Bonia Corporation : Softer performance                HOLD

Genting Plantations : Boosted by RM85mil gain on sale of industrial land                HOLD

CB Industrial : Erosion from lower margin jobs    HOLD

WCT : Challenges mounting         HOLD

QUICK TAKE

Tenaga Nasional : Raises offer price for Integrax to RM3.25/share             BUY

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