PP 7767/09/2010(025354)

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

R esults/Briefing No te
26 August 2010
MARKET DATELINE

Axiata Group Share Price

Fair Value
:
:
RM4.42
RM4.75
1HFY10 Net Profit More Than Doubles 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 GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 13,105.1 1,652.7 21.6 18.4 27.8 24.0 2.1 0.68 9.1 0.0
2010f 14,698.1 2,559.1 30.3 30.3 64.3 14.6 27.0 1.8 0.57 12.4 0.0
2011f 16,094.4 2,959.5 35.0 35.0 15.6 12.6 30.7 1.6 0.51 13.0 3.2
2012f 17,208.8 3,242.7 38.4 38.4 9.6 11.5 34.2 1.5 0.47 +12.9 5.7
Main Market Listing / Non- Trustee Stock / Syariah-Approved Stock By The SC # Excluding EI * Consensus Based On IBES Estimates

♦ Beat expectations. 1HFY10 core net profit of RM1,301.3m (+159.2% RHBRI Vs. Consensus
yoy) beat expectations, accounting for 58.3% of our and 57.1% of the Above
concensus full-year estimates. Key variance was lower-than-expected In Line
effective tax rate. Below

♦ Qoq, group revenue rose by 1.1% to RM3,854.1m due to stronger Issued Capital (m shares) 8,445.2
contribution from Celcom (+0.7%), XL (+2.1% in RM terms) and Robi Market Cap (RMm) 37,327.6
(+1.1%) that more than offset lower contribution from Dialog (-1.5%) (all Daily Trading Vol (m shs) 10.6
in RM terms). 2QFY10 EBITDA, however, declined by 3.4% to RM1,862.3m 52wk Price Range (RM) 2.90 – 4.50
due mainly to lower gain from the disposal of XL. Stripping off these gains Major Shareholders: (%)
of RM307.5m and RM30.4m in 1Q and 2Q respectively, 2QFY10 EBITDA Khazanah Nasional 44.5
rose by 14.5% to RM1,824.9m and this was mainly due to: 1) margin EPF 16.4
expansion at all subsidiaries; 2) lower forex losses; and 3) lower other Amanah Saham B’putra 7.2
operating costs.
FYE Dec FY10 FY11 FY12
♦ Celcom. Celcom’s 1HFY10 net profit of RM918m came in within our EPS chg (%) +14.6 +14.0 +13.9
expectation at 49.5% of our full-year estimates. 2QFY10 revenue grew Var to Cons (%) +12.3 +14.1 +12.4
0.4% qoq to RM1,710m due to a 12.4% qoq increase in mobile broadband
PE Band Chart
revenue that more than offset lower MOU and ARPU at the prepaid
segment. 2QFY10 EBITDA and EBITDA margin, on the other hand, grew
5.9% and 2.5%-pts qoq to RM819.1m and 47.9% mainly due to lower PER = 19x
operating costs (-4.2% qoq) on continuous cost-saving initiatives, lower PER = 17x
PER = 15x
outpayment charges, and effective credit control management. Total PER = 13x
subscriptions (ex-broadband subscribers) increased by 143k qoq, mainly
driven by strong growth at the prepaid segment that more than offset the
weaker postpaid segment (management attributed this to dealers’ move to
shift focus from postpaid to mobile broadband). Mobile broadband net adds
declined to 72k (1Q10: 124k) mainly due to increased competition from
Relative Performance To FBM KLCI
the major players.
♦ Risks. The risks include: 1) weaker-than-expected performance by Celcom Axiata

as well as from regional cellcos due to, among others, competition as well
as macroeconomic factors (inflation, etc); and 2) over-priced acquisitions.
♦ Forecasts. We have tweaked our FY10-12 net profit forecasts upward by FBM KLCI
13.9-14.6% to RM2,559.1m, RM2,959.5m and RM3,242.7m respectively,
largely to reflect: 1) lower operating cost at Celcom (which in turn results
in higher margins) ; and 2) a lower effective tax rate assumption of 25%
(vs. 32% previously).
♦ Investment case. No change to our SOP-derived fair value of RM4.75 and Chye Wen Fei
(603) 9280 2172
Outperform call on the stock. We continue to like Axiata for its strong
chye.wen.fei@rhb.com.my
earnings growth and exposure to the recovery in emerging markets where
mobile penetration rates remain low.
David Chong, CFA
(603) 92802186
Please read important disclosures at the end of this report. david.chong@rhb.com.my

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 26 August 2010

Briefing Highlights

♦ Outlook. Despite 1HFY10 revenue growth of 25.2% having surpassed its full-year targeted revenue growth of
12.1%, management is keeping to its existing revenue growth target unchanged, as management feels that the
competitive landscape will remain challenging. As for EBITDA margin, management indicated that EBITDA margin in
2HFY10 will likely remain flat (or decline marginally), underpinned by the challenging operating environment, partly
mitigated by its ongoing cost-management initiatives.

♦ Impact on new termination rates on Celcom. Management expects the new termination rate (which took place
effective 15 Jul 10) could hamper Celcom’s and Axiata’s revenue and EBITDA by RM150m and RM15m p.a.
respectively, given that Celcom is a small net receiver of minutes. Recall, the new termination rate, which applies to
all voice calls that originate and terminate on fixed network and mobile network will be reduced to 5sen/minute
from existing rates of 8.36 sen/minute (for mobile termination rate) and 6.07 sen/minute (for fixed termination
rate) respectively.

♦ Announces dividend policy. Management revealed their much-awaited dividend policy, i.e. to pay out at least
30% of its normalised profit after tax from 2011 onwards and management intends to gradually increase the
payout ratio over a period of time, subject to factors including: 1) business prospects; 2) capital requirements and
surplus; 3) growth/expansion strategy; and 4) considerations for non-recurring items. With its dividend policy, we
are now projecting Axiata to declare DPS of of 10.5 sen and 11.5 sen in FY11-12 (translating to a net yield of 2.4-
2.6% p.a.), in line with management’s targeted payout ratio of 30%.

♦ Robi. While the market in Bangladesh is growing rapidly, management feels that EBITDA margin is likely to ease
from 34.4% in 2QFY10 to 30%, as its strategy to acquire market share will involve higher subscriber acquisition
costs, in particular, sim taxes.

♦ Impairment test for Idea? Axiata had in 2QFY10 write down its investment in Hello (Cambodia) by one-third of
its carrying value and management indicated that more details on impairment test of Idea will be revealed over the
next two quarters.

♦ Not bidding for 3G licence in Thailand. Management clarified that it would not participate with Samart Corp to
bid for 3G mobile licences in Thailand, after taking into several considerations including auction price, financial
criteria, etc. Recall, Samart Corp entered into talks With Axiata on plans to take part in Thailand’s upcoming auction
of 3G mobile licences.

Risks

♦ Risks to our view. The risks include: 1) weaker-than-expected performance by Celcom as well as from regional
cellcos due to, among others, competition as well as macroeconomic factors (inflation, etc); and 2) over-priced
acquisitions.

Forecasts

♦ Earnings forecasts. We have tweaked our FY10-12 net profit forecasts upward by 13.9-14.6% to RM2,559.1m,
RM2,959.5m and RM3,242.7m respectively, largely to reflect: 1) lower operating cost at Celcom (which in turn
results in higher margins) ; and 2) a lower effective tax rate assumption of 25% (vs. 32% previously).

Valuations And Recommendation

♦ Investment case. No change to our SOP-derived fair value of RM4.75 (see Table 2) and Outperform call on the
stock. We continue to like Axiata for its strong earnings growth and exposure to the recovery in emerging markets
where mobile penetration rates remain low.

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 26 August 2010

Table 2 : Earnings review

QoQ YoY YoY
FYE Dec (RMm) 2Q09 1Q10 2Q10 (%) (%) 1H09 1H10 (%) Comments
Revenue 3,163.5 3,812.7 3,854.1 1.1 21.8 6,030.4 7,666.8 27.1 Higher yoy mainly due to stronger
contribution from XL (2Q10:
+42.4% yoy, 1H10: +56.6% yoy),
Robi (2Q10: +24.3% yoy, 1H10:
24.8%) and Dialog (2Q10: +7.4%,
1H10: +7.9%).

EBITDA 1,507.1 1,927.9 1,862.3 (3.4) 23.6 2,416.1 3,783.2 56.6 1H10 includes one-off gain
(RM337.9m) from the disposal of
XL. Excluding this, EBITDA growth
would have been 24.2%.
Dep/Amort (820.4) (678.6) (785.9) 15.8 (4.2) (1,405.4) (1,464.5) 4.2
Lower yoy due to: 1) accelerated
depreciation charge by Dialog in
2Q09; and 2) impairment
assessment in 2Q10.

EBIT 686.7 1,249.3 1,076.4 (13.8) 56.7 1,010.7 2,318.7 >100

Finance income 29.1 18.5 41.2 >100 41.6 62.9 59.7 (5.1)
Finance cost (260.6) (174.6) (169.1) (3.1) (35.1) (525.1) (343.7) (34.5) Total debt as at end-2Q10 was
RM10.9bn (1Q10: RM9.5bn; 2Q09:
RM12bn).
Forex gains/(loss) 532.1 70.3 7.0 (90.1) (98.7) 315.8 77.2 (75.6)
Forex impact from translation of
foreign currency borrowings.
Jointly controlled 6.8 31.3 0.0 (100.0) (100.0) (21.2) 31.3 >100
entities
Assoc 28.0 22.7 22.6 (0.5) (19.3) 62.7 45.3 (27.8)
EI (143.3) 0.0 (7.0) nm (95.1) 0.0 0.0 nm
Pretax 878.6 1,217.4 971.0 (20.2) 10.5 905.8 2,188.4 >100
Tax (306.7) (260.8) (295.5) 13.3 (3.7) (448.1) (556.2) 24.1
MI (45.1) (35.2) (98.7) >100 >100 (31.0) (133.9) >100
Net profit 526.8 921.5 576.8 (37.4) 9.5 426.7 1,498.3 >100
Normalised PAT 371.4 522.3 594.5 13.8 60.1 783.0 1,414.0 80.6

Margins (%)
EBITDA 47.6 50.6 48.3 40.1 49.3
EBIT 21.7 32.8 27.9 16.8 30.2
Pretax 27.8 31.9 25.2 15.0 28.5
ETR 34.9 21.4 30.4 49.5 25.4

Source: Company, RHBRI

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 26 August 2010

Table 3 : Celcom’s Key Operating Statistics

FYE Dec 2Q09 1Q10 2Q10 qoq yoy Comments
(%) (%)
Subscribers (‘000)
- prepaid 7,549 7,977 8,129 1.9 7.7

- postpaid 1,729 1,769 1,760 (0.5) 1.8 Declined qoq due to the shift in focus to mobile broadband by
dealers.
9,278 9,746 9,889 1.5 6.6
- Total

Net adds (‘000)

- prepaid 321 130 152 16.9 (52.6)

- postpaid 87 (18) (9) (50.0) >100

408 112 143 27.7 (65.0)
- Blended

ARPU (RM)
- prepaid 42 42 40 (4.8) (4.8)

- postpaid 104 91 95 4.4 (8.7) Stronger rpms helped lift ARPUs.

- Blended 54 51 50 (2.2) (7.0)

AMPU
29.2 28.6 27.8 (2.8) (4.8)
- prepaid
- postpaid 21.6 24.8 26.0 4.9 20.4

Broadband
420 635 707 11.3 68.3
Subs (‘000)
114 124 72 (41.9) (36.8)
Net adds (‘000) Growth slowed on increased competition by major players.
71 74 71 (4.1) 0.0
ARPU (RM)
Source: Company, RHBRI

Table 4: Valuation
Value Value/share Comments
RMm RM

Celcom 26,978.1 3.19 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
Others 353.9 0.04 Relates to Samart Corp, Samart I-Mobile and TMIC
Firm value 42,900.3 5.08

Add: Cash 2,235.0 0.26 Holding company level cash as at end-FY09

Less: Debt (5,000.0) (0.59) Holding company level debt as at end-FY09
Equity Value 40,135.3 4.75

Source: RHBRI

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Table 5 : Earnings Forecasts Table 6 : 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 (%) 45.8 45.7 45.7
XL rev gwth (%) 20.2 9.2 10.8
EBITDA 5,624.3 6,722.3 7,381.7 7,971.6 XL EBITDA margin (%) 50.0 50.0 50.0
EBITDA margin (%) 42.9 45.7 45.9 46.3 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 4,192.4 4,628.0 5,007.2
EBIT margin (%) 21.1 28.5 28.8 29.1
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 3,867.5 4,514.8 4,975.5

Tax (910.3) (966.9) (1,128.7) (1,243.9)
Minorities (103.2) (341.5) (426.6) (489.0)
Net Profit 1,652.7 2,559.1 2,959.5 3,242.7
Core Net Profit 1,413.7 2,559.1 2,959.5 3,242.7
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

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.

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
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher
risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

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

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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