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Why The Smartphone Trend Is A Boom For Telcos Like Axiata (Part 2)
By: Brian Brinker
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By: Ong Qiuying
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Now that we have looked into the outlook for Asia’s mobile phone penetration and smartphone usage, let’s take a closer take into Axiata to see how it has been riding on the growth wave.

Financial Highlights
Axiata has seen its revenues steadily increase over the last several years.

From FY07 to FY13, the company has recorded a compounded annual growth rate of 10.7 percent. FY13 revenue was up 4 percent to RM18.4 billion from FY12’s RM17.7 billion.

Total subscribers have also skyrocketed over the same time frame. In 2007, Axiata had only 40 million subscribers. By 2010, the company had 160 million and by 2013, it had 244 million.

This substantial rise has been propelled by an aggressive international expansion and makes Axiata the second largest telecommunications company in Asia based on subscriber numbers.

The company’s earnings before interest, tax, depreciation and amortisation (EBITDA), however, has flatlined in recent years. In FY10, Axita’s EBITDA jumped to RM7.1 billion, up from RM5.4 billion a year earlier.

In FY12, the company’s EBITDA had risen to RM7.4 billion before declining to RM7.3 billion in FY13. However, for FY13, EBITDA growth exceeded its target key performance indicator with its careful cost management of new business and investments.

Key Developments

  • Axiata failed to get a license to operate in Myanmar, but is open to future acquisitions in the country.
  • Axiata XL’s has acquired PT Axis Telecom Indonesia back in September 2013 and is still currently undergoing consolidation.
  • Celcom was one of four Malaysian companies recently fined for dropping cell calls.
  • Axiata entered a bid on Viom Networks, a cellphone operator based in India as the latter is looking to raise funds. India offers a strong potential for growth due to its immense size and fast growing economy.

Brokers’ Recommendations & Catalysts
At the moment, most research firms are giving Axiata a “Hold” rating, largely due to the uncertainty surrounding the recent merger of XL and Axis in Indonesia.

RHB Research has a target price of RM6.55 as of 15 May 2014, noting that Axiata’s earnings outlook remains cloudy due to i) XL’s continued challenges in monetising data, and ii) XL’s earnings dilution from the acquisition of Axis.

Nonetheless, the house expects to see meaningful earnings recovery for Axiata from FY15 onwards.

Maybank IB Research, meanwhile, set its target price at RM7, highlighting XL should face sequential EBITDA decline due to the consolidation of Axis’ EBITDA losses.

However, the house also noted that this issue has been largely flagged by the management and has been priced-in. The uncertainty would most likely relate to the actual quantum of earnings dilution from the merger of XL and Axis.

Price Chart of Axiata Group

Source: FactSet

This article is brought to you by Bursa Malaysia Berhad. The research in this article was conducted independently by Pioneers & Leaders (Publishers) Pte Ltd (“Pioneers & Leaders”) and the views and opinions expressed in this article are Pioneers & Leaders’ own and do not represent the views and opinions of Bursa Malaysia. Bursa Malaysia does not warrant or represent, expressly or impliedly as to the accuracy, completeness and currency of the information in this article. In no event shall Bursa Malaysia be liable to the reader or any other third party for any claim howsoever arising out of or in relation to this article.
This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

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