Thursday, December 16, 2010

AXIATA - Secular growth trends at Axiata to continue

Stock Name: AXIATA
Research House: MAYBANK

Axiata Group Bhd
(Dec 15, RM4.68)

Maintain buy at RM4.75 with revised target price of RM5.45 (from RM5.10): We revisit our assumptions following Axiata's stellar 3Q10 results and tweak our earnings upwards to reflect the latest operating trends. We still like Axiata for its high growth pan-Asian footprint, and believe it will continue to benefit from a liquidity-induced market rally. We reiterate our 'buy' recommendation with a higher RM5.45 target price.

Robi (Bangladesh) has exhibited strong sequential earnings before interest, taxes, depreciation and amortisation (Ebitda) growth trends in recent quarters, a result of both revenue growth and margin expansion. Direct costs in particular, have been trending down. An Ebitda margin in excess of 35% (3Q10: 35.6%, 9M10: 32.3%) now appears sustainable in our view, from circa 30% previously. We expect Robi's Ebitda contribution to exceed that of Dialog (Sri Lanka) in 2011. Robi contributed 6% to group Ebitda in 3Q10.

Axiata is due to pay its maiden dividend in 2011. We still believe management has been conservative with regards to its 30% net profit payout guidance, and it has concurred that Axiata's balance sheet would still appear 'lazy' with a 30% payout. Our 50% payout assumption remains unchanged, which implies dividend yields in excess of 3.6% net at current share price.

We raise our 2010/12 earnings forecasts marginally by 2% to 4%. We value Axiata based on on sum-of-parts, with the main operating entities valued by discounted cash flow. Celcom and XL account for RM3.26 and RM1.33 per Axiata share respectively. Our target price implies 17 times 2011 price earnings ratio and 7.5 times 2011earned value/Ebitda.

With the market shaping up for a liquidity-driven rally in 2011, we favour Axiata for its high-beta characteristic. Stripping out the value of Axiata's listed subsidiaries and attributing the implied stub entirely to Celcom, the implied forward PER is an undemanding 11.7 times. ' Maybank Investment Bank Bhd Research, Dec 15

This article appeared in The Edge Financial Daily, December 16, 2010.

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