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Thursday, February 23, 2017

Axiata: In The Red Thanks To Forex Losses

Result Update

For QE31/12/2016, Axiata reported a net loss of RM309 million while revenue rose 6% q-o-q or 8% y-o-y to RM5.79 billion. Revenue increased q-o-q with all the segments registered positive growth. For the period, operating costs increased by 13.2% q-o-q to RM3,809.9 million mainly arising from higher operation cost in Indonesia, Bangladesh and Sri Lanka. As a result, EBITDA margin decreased by 4.1 percentage points to 34.0%. The Group reported an after tax loss of RM272.1 million arising from higher depreciation and amortization due to network modernization in Indonesia and Bangladesh, net finance cost, foreign translation losses and share of losses from associates and joint ventures.  The foreign exchange (forex) losses amounted to RM685 million at PAT level, was mainly due to the USD exposed debt incurred from the acquisition of Ncell.


Table; Axiata's last 8 quarters' P&L

From the 10-year P&L record, Axiata had reported losses in 2 other quarters: December 2008 & December 2010. In December 2008, Axiata (then TMI) incurred a loss after tax of RM613.5 million “mainly driven by exchange loss in the quarter of RM472.3 million which was mainly derived from XL” which resulted from “the strengthening of USD against IDR, RM and other local currencies”. It was also compounded by “negative contribution from Dialog and share of loss from jointly controlled entities”. 

In December 2010, Axiata recorded loss after tax of RM260.8 million mainly due to the impairment on the investment in an associate. The total impairment was RM1,085.0 million and it as for its investment in Idea Cellular Limited (“Idea”) in conjunction with the impairment assessment requirement under FRS 136 “Impairment Of Assets”. The impairment test was undertaken following an impairment indicator arising from the shortfall between the carrying value and market value of the Group’s investment in India as well as intense competition following the entry of a number of new operators into the Indian market.
From these earlier loss events, we can take it that Axiata is likely to bound back. This is part and parcel of operating in an international environment.


Graph: Axiata's last 40 quarters' P&L

Valuation

Axiata (closed at RM4.53 today) is now trading at a PER of 79x (based on last 4 quarters' adjusted EPS of 5.7 sen). This is not a meaningful guide. A better matrix to look at is the Price to Book ratio of the stock today as compared to the last 2 occasions when it made a loss. This is given below:

I think Axiata is fairly priced compared to its book value or NTA p.s.
  
Technical Outlook

Axiata is in a downtrend line, RR. Its immediate support will come from the horizontal line at RM4.45 & then the recent low at RM4.10.


Chart 1: Axiata's weekly chart as at Feb 23, 2017_15.00  (Source: MalaysiaStock.Biz)
 

Chart 2: Axiata's monthly chart as at Feb 23, 2017_15.00  (Source: MalaysiaStock.Biz)
 
Conclusion

As I believe Axiata can recover in the next 1-2 quarter(s), I rate it as a HOLD or a contrarian BUY if it drops to RM4.00-4.20.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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