Fundamental Analysis of Axiata Group Berhad by L. C. Chong https://lcchong.wordpress.com/ https://www.facebook.com/groups/285121298359919/

1. AXIATA
FUNDAMENTAL ANALYSIS
Financial Year 2014 (31 Dec 2014)
2 December 2015
L. C. Chong

2. DISCLAIMER
I am NOT an investment advisor nor a financial advisor, and no information provided
here is to be interpreted as a suggestion to buy or sell securities.
Stock analysis in this presentation may not neutral because I have incorporated my
risk appetite and principles in the analysis.
2

3. DECLARATION OF INTEREST
• At the time of writing, I owned shares of AXIATA.

4. KEEP IN TOUCH
http://lcchong.wordpress.com
https://goo.gl/jjkq4P

5. SCOPE
• Figures and ratios are based on the figures reported in Annual Report or the latest
Q4 Quarterly Report (QR)
• Unless there is a need, this analysis will not include financial figures reported in Q1,
Q2 and Q3
• I will provide QR result highlights in my blog
• Valuation is not covered in this analysis
• I will provide valuation in my blog.

6. CHANGES
• 11 Nov 2015 – First write up of AXIATA in PowerPoint format

7. REFERENCES
• Telco (KLSE) – Peer Comparison
• 4Q14 Results Presentation
• 2Q15 Results Presentation

8. BUSINESS PROFILE
• Principally engaged in the provision of mobile services, leasing of passive
infrastructure, and others such as provision of interconnect services, leased services,
pay television transmission services and provision of other data services.

9. BUSINESS PROFILE (CONT.)
Source: The Edge Malaysia 30 Nov 2015

10. BUSINESS PROFILE (CONT.)
• The Group has also established a communications infrastructure solutions and
services company called “edotco”
• The Axiata Digital Services unit was set up also to focus on digital entertainment,
digital commerce, digital payment and digital advertising services.

11. OWNERSHIP SUMMARY
INSTITUTIONS
47%
SOVEREIGN WEALTH FUNDS
(>5% STAKE)
38%
PUBLIC AND OTHER
14%
STATE OWNED SHARES
1%
INDIVIDUALS/INSIDERS
0%
Position Date: 24 Nov 2015

12. TOP 5 SHAREHOLDERS
KHAZANAH NASIONAL
BERHAD
54%
PERMODALAN NASIONAL
BERHAD
21%
EMPLOYEES PROVIDENT
FUND OF MALAYSIA
19%
PUBLIC MUTUAL BERHAD
3%
KUMPULAN WANG
PERSARAAN
3%
Position Date: 24 Nov 2015

13. ECONOMIC MOATS
• Cost Advantage
• Higher ARPU if compare to DIGI, but lowest net profit margin if compare to MAXIS and
DIGI
• Switching Costs
• Nowadays, changing Telco is piece of cake. However, good coverage service will retain
subscribers longer.

14. ECONOMIC MOATS (CONT.)
• Network Effect
• Statistics shows that AXIATA subscribers are increasing over the years
• Number of CELCOM subscribers is higher than MAXIS and DIGI
• Intangible Assets
• Large network of dealers and shops
• Efficient Scale
• Not applicable or not found

15. ECONOMIC MOATS (CONT.)
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
ROIC 11.0% 13.0% 12.6% 12.5% 9.9%
CROIC 14.1% 11.7% 11.4% 6.6% 8.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
ROIC AND CROIC
• The following chart shows ROIC and CROIC of DIGI in the past 5 years. If you compare this to DIGI,
AXIATA doesn’t enjoy economic moats as wide as DIGI.

16. PROFITABILITY
42.3%
45.5%
43.4%
41.4%
40.2%
37.0%
38.0%
39.0%
40.0%
41.0%
42.0%
43.0%
44.0%
45.0%
46.0%
14,000,000
14,500,000
15,000,000
15,500,000
16,000,000
16,500,000
17,000,000
17,500,000
18,000,000
18,500,000
19,000,000
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
Revenue and Margin
Revenue EBITDA Margin %

17. PROFITABILITY (CONT.)
• AXIATA managed to grow its revenue in 4.8% CAGR (FY10: 15,620,674; FY14:
18,711,777)
• However, in contrast, AXIATA’s EBITDA didn’t grow in alignment to the growing
revenue
• This also shown in its declining margin, from 45.5% (FY11) to 40.2% (FY14)
• Based on Moody’s standard, AXIATA’s EBITDA margin is rated as A.

18. PROFITABILITY (CONT.)
• The drop in margin is mainly caused by:
• Higher operating expenses in expanding business to other countries
• Higher marketing costs
• Aggressive competition in Indonesia has impacted profitability
• Cost incurred in merge and acquisition activities
• Higher customer acquisition costs (via heavy handset’s subsidies).

19. PROFITABILITY (CONT.)
6,792,738 7,174,122 7,684,485 8,010,993 7,721,724
6,197,817 6,307,600
6,874,152 6,408,836 6,451,832
1,207,438 1,270,331
1,469,466 1,822,097 2,084,5561,181,090 1,252,535
1,338,380 1,516,270 1,661,968
286,120
329,832
317,172 651,984 865,538
0
5,000,000
10,000,000
15,000,000
20,000,000
2010 2011 2012 2013 2014
Revenue by Operating Segments
Malaysia Indonesia Bangladesh Sri Lanka Others

20. LEVERAGE & CASH FLOW
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
1.30 x
1.40 x
1.50 x
1.60 x
1.70 x
1.80 x
1.90 x
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
Leverage & Cash Flow
Debt / EBITDA RCF to Debt % FCFF to Debt %

21. LEVERAGE & CASH FLOW (CONT.)
• As of FY14, AXIATA’s leverage and cash flow are as below:
• Debt/EBITDA – 1.85x (A)
• RCF/Debt – 34.7% (Baa)
• FCFF/Debt – 16.5% (Aa)
• To avoid from being overly leveraged, AXIATA has been setting capex
guidance. FY15 capex guidance is MYR4.8b.

22. LEVERAGE & CASH FLOW (CONT.)
• In the past few years, AXIATA has been taking quite a high gearing for M&A
activities and business expansion. For example:
• 2 Sep 2013 – AXIATA has an option to subscribe to its share, which may result in a cash
outflow of about USD120m
• 24 Apr 2014 – PT XL Axiata Tbk (XL Axiata), a unit of Axiata Group Bhd, is seeking new
funds to refinance its debt of 1.7tr rupiah (RM500m)
• 28 Oct 2015 – Axiata’s Indonesian unit plans RM1.4 bil sukuk programme

23. COVERAGE
5.46 x 5.11 x
3.60 x
4.89 x 5.20 x
7.85 x
9.61 x
8.68 x 8.54 x
8.07 x
0.00 x
2.00 x
4.00 x
6.00 x
8.00 x
10.00 x
12.00 x
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
Coverage
(EBITDA-CAPEX)/ Int. Exp. (FFO+Int. Exp.)/ Int. Exp.
By Moody’s standard, AXIATA’s coverage is rated as A, which is still at healthy level.

24. GROWTH DRIVERS
• 2 Oct 2015 - Axiata’s tower company edotco Group Sdn Bhd enters into a
conditional share purchase agreement with Digicel Group Ltd to acquire a
controlling stake in Digicel Myanmar Tower Co Ltd
• 1 Oct 2014 - PT XL Axiata is selling its 3,500 telecommunication towers there to PT
Solusi Tunas Pratama for Rp5.6 trillion (US$460 million / RM1.5 billion)
• More cost savings from collaboration with DiGi
• Peak utilisation rate of Celcom's network is comfortable at 70%, with ample transmission
capacity due to its collaboration with DiGi and leasing agreement with TM
• Higher smartphone penetration boosting data ARPU
• Strong growth in low penetration developing markets

25. GROWTH DRIVERS (CONT.)
• 9 Jan 2015 - Robi’s earnings growth potential
• 4 Dec 2014 - Axiata buys 80% in Singapore's Adknowledge Asia Pacific for US$9mil
• 3 Jul 2014 - XL to sell part of its telecommunications tower portfolio in 2H2014
• 1 Oct 2014 - PT XL Axiata is selling its 3,500 telecommunication towers there to PT
Solusi Tunas Pratama for Rp5.6 trillion (US$460 million / RM1.5 billion)
• The deal would enable XL Axiata to unlock the value of its telecommunication towers at
an attractive price
• The sale proceeds will be used to reduce XL Axiata's debt
• XL Axiata would lease back the telecommunication towers from Solusi for 10 years with
competitive terms, which would result in cost savings.

26. GROWTH DRIVERS (CONT.)
• In Indonesia, AXIATA have launched digital commerce through an integrated
commerce website called elevenia.co.id.

27. ISSUES/RISKS/CHALLENGES
• Currency risks in its overseas ventures
• A stronger MYR could result in weaker earnings due to translation risks
• Currency volatility in operating footprint, especially in Indonesia
• AXIATA is highly leveraged
• AXIATA has to restrict its capex to RM4.8b as guidance
• Foreign Political Risk and Litigation Risk – Exposure to Indian telecom market which
is currently under close scrutiny by the government
• Overpaying for M&A targets could result in impairment losses if the macro
environment becomes unfavourable.

28. ISSUES/RISKS/CHALLENGES (CONT.)
• Aggressive competition in Indonesia has impacted profitability
• SMS revenue continues to be under pressure in Malaysia & Indonesia due to intense
competition from internet players (OTT)
• Competitive pressures in the Indonesian market
• Dumb pipes
• Operators cannot offer their traditional services (such as downloads of wallpapers,
ringtones, games, applications, etc.) as Apple controls the total iPhone user experience.

29. SHAREHOLDER RETURN
Time Frame Date Bought at Original
Value
Dividend
Received
Unrealized
Gain/Loss
Current
Return
CAGR %
3-Y 30 Nov
2012
5.92 5,920 790 200 6,910 5.3%
5-Y 1 Dec 2010 4.61 4,610 1,160 1,510 7,280 9.6%
7-Y 1 Dec 2008 2.267 2,267 1,160 3,853 7,280 18%
Assumptions:
1. Commission paid is ignored in this simulation
2. The current price is 6.11 (as of the time of writing)
3. Unit purchased is 1,000.

30. SHAREHOLDER RETURN (CONT.)
0.0000
0.0500
0.1000
0.1500
0.2000
0.2500
0.3000
0.3500
0.4000
2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-12-31
DPS
CAGR – 17%
Growth

31. GOING FORWARD
• Future prospects of strong earnings growth from the group’s main operating
segments i.e. Celcom and XL remains as the primary concern mainly due to
intensifying competition
• Despite the IT and system problems limiting the group’s ability to launch new and
more competitive products has largely been resolved, the group will still lag in
terms of competitiveness
• This is because its other peers have been rolling out very competitive products for the
past many quarters, intensifying the price war.

32. GOING FORWARD (CONT.)
• XL’s transformation plan could be impacted as it battles Telkomsel and Indosat
which are state-owned enterprises
• At present, both segments contributed more than 70% to the group’s revenue
• In addition, a sizeable exposure to forex would also apply downward pressure on
the group’s profitability
• I will continue to hold AXIATA, and accumulate AXIATA when the timing is right.