COMPANY UPDATE

TA Securities

Thursday, October 02, 2014

FBMKLCI: 1,845.32
Sector: Telco

A Member of the TA Group

MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048

TP: RM6.96 (-2%)

Axiata Group Berhad

Last Traded: RM7.01

Tower-ing High

Sell

THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

TA Research Team Coverage

kyliechan@ta.com.my

Tel: +603-2167 9601

Axiatas 67%-subsidiary, XL Axiata (XL) has entered into agreements with

PT Solusi Tunas Pratama Tbk. (STP) for the sale-and-leaseback of XLs
3,500 telecommunications towers. STP is the 3rd largest independent
tower company in Indonesia.

Share Information

The disposal price of Rp5,600bn (USD459mn, Rp82mn/USD) translates to

an average selling price of Rp1.6bn (USD131k) per tower which is at a
13% discount to the average price (Figure 1) of recent transactions
(USD153k). Nevertheless, XLs selling price is 5% higher than the most
recent sale by Tara Telco in 1Q14.

Market Cap (RMmn)

To recap, Axis acquisition involved takeover of 1,600 towers valued at

circa USD200mn. This translates to a purchase price of approximately
USD125K per tower, which is slightly lower than XLs selling price.
Therefore, we deem XLs disposal as reasonably decent, coupled with the
fact that lease-back terms are favourably attractive (Figure 2).

3Q12
3Q12
3Q12
1Q13
2Q13
1Q14

Seller
Nurama Indotama
CI & MKP
Indosat
Hutchison
ISP Group
Tara Telco

Buyer

38
37
406
30
89
50

240
194
2,500
300
493
400

158
191
162
100
181
125
153

Source: Various, TA Research

6888

Listing

Main Board

Share Cap (mn)

8,575
60,114

Par Value (RM)

1.00

52-wk Hi/Lo (RM)

7.09/6.38

12-mth Avg Daily Vol ('000 shrs)

9,127

Estimated Free Float (%)

35.2

Beta

1.27

Major Shareholders (%)

Khazanah Nasional - 38.8
EPF - 12.9
Skim Amanah Saham - 10.2

XL will be anchor tenant for the sold towers for a period of 10 years with
the following terms:- 1) flat monthly rental of Rp10mn per tower, 2) no
separate operations & maintenance (O&M) costs, and 3) no cost pass
through by STP (including inflation).

Forecast Revision (%)

According to XL, the lease rates and terms offered by STP are far more
attractive versus the market due to XLs preferential status as anchor
tenant (Figure 2).

Figure 2: Preferential Terms in Lease Agreement

FY15

Core Net Profit (RMm)

2,528.7

2,849.7

Consensus

2,673.4

2,984.9

TA/Consensus
Previous Rating

95%

95%

Sell (Maintained)

Financial Indicators
FY14

FY15

Net Debt/Equity (%)

0.42

0.34

ROA (%)

4.9

5.4

ROE (%)

11.3

12.2

NTA/Share (RM)
P/NTA (x)

1.50

1.62

4.7

4.3

Share Performance
Price Change (%)

AXIATA MK

Stock Code

FY14

Value
No. of Price per Site
(USD mn) Sites (USD 'k)

Solusi Tunas
Protelindo
Tower Bersama
Solusi Tunas
Solusi Tunas
Rajawali/Providence Equity

Bloomberg Code

Forecast Revision (%)

Figure 1: Recent Tower Sale Transactions in Indonesia

Date

www.taonline.com.my

Axiata

FBMKLCI

1 mth

1.2

-1.1

3 mth

1.6

-1.8

6 mth

4.0

-0.1

12 mth

1.7

4.3

(12-Mth) Share Price relative to the FBM KLCI

Source: Company

Source: Bloomberg

Page 1 of 4

TA Securities

2-Oct-14

A Member of the TA Group

The 3,500 towers comprise approximately 35% of XLs existing portfolio

of BTS. We are somewhat surprised that XL will leaseback its sold towers
given that management had highlighted an overlap in coverage between
XL and Axis towers. Nevertheless, on the bright side, this implies that XLs
network capacity and coverage will remain intact to cater for rising
growth in data usage.

Accordingly, XLs opex will increase following the rise in tower rental
costs. However, this will be mitigated by lower costs for interest,
depreciation and capex. XL estimates net dilution of 200bps to EBITDA in
2015. However, this divestiture will be EPS accretive in the medium term.

According to management, this transaction is significantly NPV positive

given attractive valuation of approximately 9x EV/EBITDA.

Sale proceeds will be partially used to pare down XLs massive debts
(1H14: Rp24.3bn/USD2.0bn), thus reducing net debt/EBITDA from circa
3.2x to a more manageable level of 2.5x.

This divestiture does not come as a surprise given that earlier in July
2014, XL had opened tenders to sell part of its tower portfolio. This allcash deal is targeted for completion by Dec 2014.

Overall, we are positive on this transaction given:- 1) enables XL to

deleverage and reduce hefty interest costs (2Q14: >1.8x YoY), 2) XL is able
to monetise non-core assets and focus on its core business, 3) deal is
ultimately earnings accretive despite rise in opex, 4) favourable lease
terms gives XL an edge over peers, 5) XLs network coverage and capacity
will remain intact due to leaseback of tower sites, and 6) decent valuation
fetched for sale assets.

Impact


We maintain our earnings forecasts as we had earlier factored-in reduced
interest costs and increased leasing expenses in FY15-16.
Valuation


Despite the positive impact of this transaction, we remain downbeat on
Axiata mainly due to concerns of a longer than expected gestation period
for Axis. Meanwhile, despite tapering competition in Indonesia, operators
struggle to achieve a balance between monetising data and stimulating
adoption. Maintain Sell on Axiata with SOTP-derived TP of RM6.96.

Figure 3: Transaction Details at a Glance

Source: Company
Page 2 of 4

TA Securities

2-Oct-14

A Member of the TA Group

Figure 4: Earnings Summary (RMmn)

Income Statememt
FYE 31 Dec (RMmn)
Revenue
COGs
EBITDA
Depreciation & Amort
Net Interest
Associates & JCEs
Pretax profit
Taxation
MI
Net Profit
Per Share Data
EPS
Gross DPS
Book Value
Net Tang Asset

Ratios
FYE 31 Dec (RMmn)
Valuations
PER
Dividend yield
EV/EBITDA
P/BV
P/NTA
FCF Yield

2012
2013
2014F
2015F
2016F
17,651.6 18,370.8 19,868.4 22,021.5 23,806.5
(10,197.0) (10,896.1) (12,379.7) (13,643.9) (14,463.1)
7,454.7 7,474.8 7,488.7 8,377.5 9,343.4
(3,339.6) (3,435.3) (3,225.9) (3,541.1) (3,868.6)
(361.4)
(411.6) (1,009.7) (1,091.4)
(961.6)
210.5
0.0
289.7
318.7
350.6
3,761.8 3,533.0 3,558.6 4,063.7 4,658.8
(882.2)
(794.5)
(854.1) (1,015.9) (1,211.3)
(366.3)
(188.6)
(175.8)
(198.1)
(224.1)
2,513.3 2,550.0 2,528.7 2,849.7 3,223.5

(sen)
(sen)
(sen)
(RM)

(x)
(%)
(x)
(x)
(x)
(%)

29.5
35.0
258.7
1.60

30.0
22.0
251.3
1.39

29.7
20.8
262.3
1.50

33.5
23.4
274.6
1.62

37.9
26.5
288.6
1.76

2012

2013

2014F

2015F

2016F

23.7
5.0
9.8
2.7
4.4
2.1

23.4
3.1
10.1
2.8
5.0
2.9

23.6
3.0
10.4
2.7
4.7
-0.5

20.9
3.3
9.2
2.6
4.3
5.7

18.5
3.8
8.1
2.4
4.0
7.2

Profitability ratios
EBITDA margin
EBIT margin
PBT margin
Net margin
ROE
ROA

(%)
(%)
(%)
(%)
(%)
(%)

42.2
23.3
21.3
14.2
12.7
6.5

40.7
22.0
19.2
13.9
12.9
6.3

37.7
21.5
17.9
12.7
11.3
4.9

38.0
22.0
18.5
12.9
12.2
5.4

39.2
23.0
19.6
13.5
13.1
6.1

Liquidity ratios
Current ratio
Quick ratio

(x)
(x)

1.4
1.3

1.2
1.2

1.3
1.3

1.5
1.5

1.7
1.7

Leverage ratios
Total Debt/ Assets
Total Debt/Equity
Net debt(cash)/ Equity
Interest coverage

(x)
(x)
(x)
(x)

0.29
0.58
0.22
5.7

0.31
0.63
0.33
5.6

0.39
0.89
0.42
3.1

0.36
0.81
0.34
3.1

0.33
0.71
0.24
3.8

Growth ratios
Revenue
EBITDA
PBT
Net Profit

(%)
(%)
(%)
(%)

8.4
3.9
5.2
7.1

4.1
0.3
(6.1)
1.5

8.2
0.2
0.7
(0.8)

10.8
11.9
14.2
12.7

8.1
11.5
14.6
13.1

Key Assumptions
Celcom Revenue Growth
Celcom EBITDA margin
Celcom Capex
XL Revenue Growth
XL EBITDA margin
XL Capex

(%)
(%)
(%)
(%)
(Rp bn)

7.0
44.5
948.5
10.8
44.9
10,080

3.7
44.2
923
1.4
39.8
7,320

2.2
43.8
2000
11.9
34.2
10,000

7.7
43.8
800
11.8
35.0
8,000

2.9
43.9
700
8.7
38.2
8,000

Page 3 of 4

Balance Sheet
FYE 31 Dec (RMmn)
Fixed assets
Intangibles
Associates & JCEs
Others
Non-Current Assets
Inventories
Trade and other rcvb
Cash and Deposits
Others

2012
2013
2014F
2015F
2016F
16,585.3 17,106.7 21,779.0 21,509.4 20,812.2
8,392.5
9,548.6
9,548.6
9,548.6
9,548.6
6,840.1
7,055.3
7,345.1
7,663.8
8,014.4
397.1
578.2
578.2
578.2
578.2
32,215.0 34,288.8 39,250.9 39,299.9 38,953.3
381.5
2,134.2
7,906.2
293.7

62.8
2,679.9
6,432.9
32.8

70.7
1,719.8
10,547.3
32.8

77.5
1,885.0
11,032.2
32.8

82.4
2,038.0
11,417.1
32.8

Current Assets

10,715.6

9,208.5

12,370.7

13,027.5

13,570.3

Total Assets

42,930.6

43,497.2

51,621.6

52,327.4

52,523.6

Borrowings
Deferred tax liabilities
Others
Non-current liabilities

10,765.7
1,418.3
848.7
13,032.7

12,299.6
1,578.7
746.2
14,624.5

17,799.6
1,578.7
746.2
20,124.5

17,799.6
1,578.7
746.2
20,124.5

17,799.6
1,578.7
746.2
20,124.5

Borrowings
Trade & other Payables
Others
Current Liabilities

1,892.4
5,731.0
267.3
7,890.7

1,136.7
6,108.8
248.1
7,493.7

2,136.7
6,798.7
248.1
9,183.6

1,136.7
7,451.5
248.1
8,836.4

(463.3)
8,056.6
248.1
7,841.4

Total Liabilities

20,923.4

22,118.2

29,308.1

28,960.9

27,966.0

Share capital
Reserves
Minority Interests
Equity

8,508.2
11,592.3
1,906.7
22,007.2

8,540.7
11,080.9
1,757.5
21,379.1

8,540.7
12,015.3
1,757.5
22,313.5

8,540.7
13,068.3
1,757.5
23,366.5

8,540.7
14,259.5
1,757.5
24,557.6

Total Equity + Liabilities

42,930.6

43,497.2

51,621.6

52,327.4

52,523.6

FYE 31 Dec (RMmn)

Cash Flow Statement
PBT
Depreciation
Net Interest
Associates & MI
Working Cap Changes
Taxes Paid
Interest Expense
Others
CF from Operations

2012

2013

2014F

2015F

2016F

3,761.8
3,339.6
361.4
(210.5)
113.0
(53.5)
(717.8)
243.0
6,837.0

3,533.0
3,435.3
411.6
0.0
718.6
6.6
(720.7)
(1,736.2)
5,648.2

3,558.6
3,225.9
1,009.7
(289.7)
1,642.1
(854.1)
(1,377.4)
0.0
6,915.0

4,063.7
3,541.1
1,091.4
(318.7)
480.9
(1,015.9)
(1,544.9)
0.0
6,297.5

4,658.8
3,868.6
961.6
(350.6)
447.1
(1,211.3)
(1,434.9)
0.0
6,939.4

Capex
Interest income
Others
CF from Investing

(5,125.8)
262.6
(377.2)
(5,240.4)

(4,117.0)
261.2
(1,511.5)
(5,367.3)

(5,098.2)
367.7
(2,800.0)
(7,530.5)

(3,271.4)
453.5
0.0
(2,817.9)

(3,171.4)
473.3
0.0
(2,698.1)

(755.9)
518.4
(237.6)

20.0
(2,985.7)
832.0
(2,133.7)

6,500.0
(1,770.1)
0.0
4,729.9

(1,000.0)
(1,994.8)
0.0
(2,994.8)

(1,600.0)
(2,256.4)
0.0
(3,856.4)

(1,852.7) 4,114.4
7,894.5
6,432.9
30.4
0.0
6,432.9 10,547.3

484.8
10,547.3
0.0
11,032.2

384.9
11,032.2
0.0
11,417.1

Net Change in Debt

Dividends
Others
CF from Financing
Net Cash Flow
Beginning Cash
Exchange Rates
Ending Cash

1,359.0
6,046.4
(69.6)
7,906.2

TA Securities

2-Oct-14

A Member of the TA Group

Figure 5: Axiatas Sum of Parts Valuation

Celcom (Malaysia)

Equity Value
(RM mn)

Stake

Effective EV
(RM mn)

Value
/Share

% of SOP

Valuation Method

30,500.2

100.0%

30,500.2

3.58

52.0%

DCF: WACC 10%, TG: 1.5%

XL Axiata (Indonesia)

23,882.0

66.6%

15,893.5

1.87

27.1%

DCF: WACC 13%, TG: 5.5%

Idea Cellular (India)

31,307.8

12.9%

4,038.7

0.47

6.9%

Consensus Target Price (TP)

Dialog Axiata (Sri Lanka)

2,367.8

83.3%

1,972.4

0.23

3.4%

Consensus TP

Robi (Bangladesh)

1,343.0

70.0%

940.1

0.11

1.6%

5x CY14 PAT

M1 (Singapore)

8,397.5

28.5%

2,393.3

0.28

4.1%

Consensus TP

558.0

100.0%

558.0

0.07

1.0%

Book Value

Smart (Cambodia)
Total
Holding Co Net (Debt)/ Cash
Total Equity Value

56,296.2

6.63

2,363.0

0.28

58,659.2

6.90

4.0%

Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to
change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect
loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.
for TA SECURITIES HOLDINGS BERHAD (14948-M)
MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048
(A Participating Organisation of Bursa Malaysia Securities Berhad)

Kaladher Govindan Head of Research

Page 4 of 4