KLCI Stock - AXIATA / 6888 - 2010 Quarter 2

Market Cap : 8445154455*4.55 = 38,425,452,770.25 (Very Large)
NTA per share : (18811612-7517944)/8467517 = 1.33
P/BV : 4.55/1.33 = 3.4211
Forecast P/E now : 4.55/0.286 = 15.91 (High)
ROE : 13.14% (Moderate)
DY : -
Fixed Asset Turnover(3 year) : (0.3873+0.3095+0.3722)/3 = 0.3563 (Low)
Liquidity Ratio : 6887742/7011708 = 0.9823 (Weak)
Receivables Collection Period : (1721372+1539909)/2/(14741457/365) = 40 days (Acceptable)
My Target Price : 4.29 (PE 15, EPS 0.286)
My Decision : NOT BUY unless price below 4.3
My Comment : Revenue and profit increasing, good cash flow, debt decreasing, navps increasing, weakening IDR against MYR
Technical Support Price : 4.2
Risk Rating : LOW
OSK Target Price : 5.5 (27 Aug 10)

My notes based on 2010 quarter 2 report (number in '000):

- The Group revenue grew by 19.9% in the current quarter (“Q2’10”) from the second quarter 2009 (“Q2’09”), attributed to the higher revenue contribution from XL, Celcom and Axiata (Bangladesh) Limited (“AxB”). XL revenue grew in tandem with the increase in subscriber base by 42.7% as compared to Q2’09. Celcom revenue grew 10.3% driven by postpaid and broadband. While AxB revenue grew by 24.3% resulted from increased in prepaid usage

- The depreciation of RM in current quarter against IDR had favourably affected the Group’s translated revenue. At constant currency using Q2’09 exchange rate, the Group revenue would have registered a slight lower growth of 18.7%

- The Group other operating costs increased by 7.1% in Q2’10 from Q2’09, mainly driven by Celcom, XL and AxB. Celcom and XL recorded higher marketing costs during the current quarter due to marketing and product promotion activities undertaken in conjunction with the World Cup event. AxB recorded higher other operating costs in line with higher revenue in particularly from interconnect costs of outgoing traffics, regulatory cost and dealers commission costs from subscriber acquisition programmes

- The Group depreciation, impairment and amortisation decreased by 5.9% in Q2’10 from Q2’09, mainly arising from accelerated depreciation charge of Dialog Axiata PLC (“Dialog”) in Q2’09 and impairment assessment in Q2’10

- The Group net finance costs was lower in current quarter at RM128.0 million as compared to RM231.5 million in Q2’09 as a result of repayment of debt and reduction of overall debt position at Group level. Average exchange rates of countries and Group remained stable in Q2’10 against USD and RM which resulted in exchange loss of RM21.2 million for the current quarter

- In Q2’10, with the divestment of XL shares by 19.8% to 66.69% , Group’s share of XL’s profit after tax (“PAT”) has reduced by RM51.6 million. Despite this, the Group PAT was increased by 18.1% from Q2’09. This was mainly driven by higher PAT contribution from Celcom and Dialog and a one-off gain on disposal of shares in XL during the current quarter. Group PAT was however negated by lower share of profit from XL due to the lower share holding post disposal of XL shares in end Q1’10 and early Q2’10

- The Group revenue improved marginally by 1.1%, from the first quarter 2010 (“Q1’10”) to Q2’10. The growth was primarily attributed to higher revenue contribution from XL, AxB and Celcom as a result of increased subscribers and voice revenue. Q2’10 also saw increasing revenue contribution from broadband of Celcom and XL

- The Group other operating costs decreased by 4.3% in Q2’10 from Q1’10, mainly resulted from Celcom and AxB. The decrease in other operating costs from Celcom was mainly due to lower interconnect cost, marketing costs and reduction in bad debts. The decrease in AxB other operating costs was resulted from lower subscriber acquisition costs in Q2’10 and the one-off rebranding exercise costs carried out in Q1’10

- The Group recorded a lower other operating income of RM55.1 million in Q2’10 from RM319.6 million in Q1’10 due to the one-off gain on disposal of shares in XL recorded in Q1’10

- Average exchange rates in Q2’10 of countries and Group has remained stable against USD and RM. The Group recorded a small foreign exchange loss of RM21.2 million in Q2’10 as compared to gain of RM23.8 million in Q1’10

- The contribution from associates and a jointly controlled entity recorded a profit of RM22.6 million in Q2’10 as compared to a loss of RM115.9 million in Q1’10 which was caused by the share of loss from licence fee write off in Spice and Idea merger exercise. The Group recorded a one-off gain on of RM173.2 million arising from the merger of Spice and Idea in Q1’10

- The Group PAT decreased by 29.4% in Q2’10 from Q1’10. The lower PAT was mainly resulted from lower one-off gain on disposal of shares in XL in Q2’10. Excluding the one-off gain, PAT decreased by 0.6% in Q2’10

- Estimate next 4Q eps after 2010 Q2 result announced = 0.0681*4*1.05 = 0.286, estimate PE on current price 4.55 = 15.91
- Estimate next 4Q eps after 2010 Q1 result announced = 0.265(no adjustment due to higher profit is from non-repeatable income), estimate highest/lowest PE = 16.98/13.89
- Estimate next 4Q eps after 2009 Q4 result announced = 0.631(average recent 3 quarter)*4 = 0.2524+(0.05*0.2524) = 0.265(5% grow from 0.2524), estimate highest/lowest PE = 15.28/13.21
- Estimate next 4Q eps after 2009 Q3 result announced = 0.0595*4 = 0.238, estimate highest/lowest PE = 14.71/12.61
- Estimate next 4Q eps after 2009 Q2 result announced = 0.0579*4 = 0.2316, estimate highest/lowest PE = 14.12/12.52

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