PP 7767/09/2010(025354)

18 August 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Resu lts Pr eview

18 August 2010
MARKET DATELINE

Axiata Share Price

Fair Value
:
:
RM4.35
RM4.75
Strong Performance To Sustain Into 2Q10 Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (AXIATA; Code: 6888) Bloomberg: AXIATA MK

Net Core EPS Net
FYE Turnover Profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE NDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 13,105.1 1,652.7 21.6 18.4 27.8 23.6 - 3.8 0.57 9.6 0.0
2010f 14,698.1 2,233.2 26.4 26.4 43.4 16.4 23.4 3.1 0.38 11.6 0.0
2011f 16,094.4 2,596.7 30.7 30.7 16.3 14.1 26.5 2.5 0.24 12.0 0.0
2012f 17,208.8 2,847.6 33.7 33.7 9.7 12.9 34.8 2.1 0.11 11.7 2.3
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ 2Q10 performance likely to remain strong. We believe Axiata’s 2Q10 Issued Capital (m shares) 8,445.2
results (due out on 25 Aug 10) are likely to come in stronger on a yoy Market Cap (RMm) 36,736.4

basis, underpinned by: (1) The strong performances at XL and Dialog; and Daily Trading Vol (m shs) 10.4
52wk Price Range (RM) 2.90 – 4.45
(2) Low base effect. Recall Axiata’s overall 2Q09 performance was dragged
Major Shareholders: (%)
down by the still-weak performance from its regional cellcos, in particular,
Khazanah Nasional 44.5
Dialog (which was still a loss-making entity in 2Q09) and XL (which had just EPF 16.5
returned to the black in 2Q09). ASB 6.6
♦ Mid to high-teens yoy revenue growth expected… We expect Axiata’s
FYE Dec FY10 FY11 FY12
2Q10 revenue to grow by mid to high-teens yoy, driven largely by: (1)
EPS chg (%) - - -
Strong revenue growth at XL and Dialog (+28.8% and +16.1% respectively Var to C.EPS (%) 13.2 16.2 -3.2
in local currency terms); (2) Celcom (~+12%, underpinned by larger
mobile and broadband subscriber base). PE Band Chart

♦ … and EBITDA margin to hover around 47-49%. Margins wise, we PER = 20x
expect Axiata’s 2Q10 EBITDA margin to hover at around 47-49%, PER = 15x
PER = 10x
underpinned by a higher EBITDA margin at XL (2Q09: 43.4%; 2Q10:
52.9%) that is likely to be partly offset by lower EBITDA margin at Celcom
on the back of higher marketing expenses to boost mobile broadband
subscribers.
♦ Strong performance at regional cellcos likely to sustain. Looking
forward, we expect the strong performances by the regional cellcos (in
particular, XL and Dialog) to sustain, given the improving economic Relative Performance To FBM KLCI
conditions in these countries, coupled with relatively stable competitive
environment ahead (XL recently raised its guidance for both its revenue Axiata

growth and EBITDA margin for FY10). Locally, we believe Celcom’s EBITDA
margin will likely moderate in the remaining quarters, on the back of higher
marketing expenses in order to boost its mobile broadband subscriber base. FBM KLCI

♦ Risks. These include: (1) Weaker-than-expected performance by Celcom as

well as from regional cellcos due to competition as well as macroeconomic
factors (inflation, etc); and (2) Over-priced acquisitions.
♦ Earnings forecasts. No change in our earnings forecasts for now.
♦ Investment case. No change to our SOP-derived fair value of RM4.75 (see Chye Wen Fei
Table 2) and Outperform call on the stock. We continue to like Axiata for (603) 9280 2172
chye.wen.fei@rhb.com.my
its strong earnings growth and exposure to the recovery in emerging
markets where mobile penetration rates remain low. David Chong, CFA
(603) 9280 2186
david.chong@rhb.com.my
Please read important disclosures at the end of this report.

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Table 2: Valuation
Value Value/share Comments
RMm RM

Celcom 26,888.4 3.18 DCF based on WACC = 9.9%

Excelcomindo 8,302.1 0.98 68.5% stake @ EV/EBITDA of 6x
Dialog 2,668.4 0.32 84.8% stake at market price
Robi 1,094.2 0.13 70% stake @ EV/EBITDA of 8x
SunShare (M1) 920.3 0.11 29.7% stake at market price less net debt of SunShare
Idea 2,583.3 0.31 19% stake @ consensus median target price
353.9 0.04
Others Relates to Samart Corp, Samart I-Mobile and TMIC
41,008.8 4.86
Firm value
Add: Cash Holding company level cash as at end-2009 plus RM1,865m
2,235.0 0.26
proceeds from recent XL stake selldown
Less: Debt (5,000.0) (0.59) Holding company level debt as at end-2009
Equity Value 40,045.6 4.74

Source: RHBRI

Table 3 : Earnings Forecasts Table 4 : Forecast Assumptions

FYE Dec (RMm) FY09A FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 13,105.1 14,698.1 16,094.4 17,208.8 Celcom rev gwth (%) 11.5 8.5 5.9
Turnover growth (%) 15.5 12.2 9.5 6.9 Celcom EBITDA margin (%) 44.3 44.5 44.9
XL rev gwth (%) 20.2 9.2 10.8
EBITDA 5,624.3 6,641.2 7,312.9 7,902.8 XL EBITDA margin (%) 50.0 50.0 50.0
EBITDA margin (%) 42.9 45.2 45.4 45.9 Dialog rev gwth (%) 9.4 10.7 8.5
Dialog EBITDA margin (%) 37.8 39.9 39.8
Dep. & amort. (2,860.3) (2,529.9) (2,753.8) (2,964.4)
Capex (RMm) 3,633 3,645 3,561
EBIT 2,764.0 4,111.3 4,559.1 4,938.4
EBIT margin (%) 21.1 28.0 28.3 28.7
Net interest expense (199.1) (524.6) (340.8) (322.3)
Forex gains/(losses) 587.2 - - -
Jointly controlled
(59.5) 91.6 114.7 171.0
entities
Associates 160.8 108.1 112.9 119.6

Pretax Profit 2,666.2 3,786.4 4,446.0 4,906.7

Tax (910.3) (1,211.7) (1,422.7) (1,570.1)
Minorities (103.2) (341.5) (426.6) (489.0)
Net Profit 1,652.7 2,233.2 2,596.7 2,847.6
Core Net Profit 1,413.7 2,233.2 2,596.7 2,847.6
Source: Company data, RHBRI estimates

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Chart 1: Axiata Technical View Point

♦ The share price of Axiata reversed its previous
downtrend after touching a low of RM1.45 in Mar
2009.

♦ Since then, it has been trading on an uptrend.

♦ Its share price surpassed an important level at

RM3.30 in Jan, and consolidated just above that
level in early Feb 2010.

♦ Upon resumption of its upward momentum, it hit a

high of RM4.05 in Mar, near a tough resistance of
RM4.00 prior to a sideways crawl from early Mar to
early Jul 2010.

♦ When it finally pierced through the RM4.00 level in

Jul, it soared to its highest level since Sep 2008,
near a tough resistance at RM4.40.

♦ Since then, it consolidated at below RM4.40 to

rebuild its upward momentum.

♦ It closed at RM4.35 yesterday, with a small

“shooting star-like” candle indicating a mild retreat
likely today.

♦ However, given the upbeat momentum readings

and the uptrend on the 10-day and 40-day SMAs,
the stock is likely to maintain its uptrend in the
near future.

♦ Optimistically, if it removes the RM4.40 level soon,

it will head towards the RM4.80 level, before
attempting the all-time-high level of RM5.58 next.

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Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

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Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
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Industry/Sector Ratings

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Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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