Axiata Group : Expect weak 4QFY16 bottomline BUY

STOCK FOCUS OF THE DAY

Axiata Group : Expect weak 4QFY16 bottomline BUY

We maintain our BUY call on Axiata Group (Axiata) with a lower sum-of-parts (SOP)-based fair value of RM6.00/share (from an earlier RM6.15/share), which implies a FY16F EV/EBITDA of 7x – half of Singapore Telecommunications Ltd’s present 14x. 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%. Idea, which registered a 4QCY16 loss of INR3.8bil vs. a 3QCY16 net profit of INR915mil,is expected to remain in the red in FY17F on 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, has been extended from 31 Dec 2016 until March 2017.

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 re-entry of TM’s webe service. Given the poor performance from Idea and M1, Axiata’s 4QFY16 results, scheduled to be announced 23 February 2017, are likely to be weak, but should be largely in line with our own assumptions. While operational issues will continue to drag Axiata’s earnings in the medium term, we highlight that the stock currently trades at a bargain FY17F EV/EBITDA of 5x, far below 13x for Maxis and Digi. Additionally, dividend yields are attractive at 4%.

Others :

Bumi Armada : Low utilisation lingers at earnings inflection point               HOLD

QUICK TAKES

CB Industrial : Receives RM67mil contract             HOLD

Plantation Sector : Newsflow for week 13 to 17 February              NEUTRAL

STOCKS ON THE  RADAR

Pelikan International,Barakah Offshore,Padini Holdings,Genting Malaysia

ECONOMIC HIGHLIGHTS

UK :  Downside risk on the economy remains high

NEWS HIGHLIGHTS

Government Sector : EPF recognises net impairment of RM8.17b in 2016, targets real estate for growth

Government Sectorn : EPF declares 5.7% dividend for 2016, total payout RM37.08bil

Banking Sector : Bursa Malaysia expected to trade firmer next week