Malaysia-based Axiata’s profit margin fell in the first half of the year and is forecast to drop for the full year, according to Moody’s.
Its EBITDA margin decreased from 38.2 per cent in H1 2014 to 36.5 per cent on the back of a weak performance at Celcom, margin dilution at XL in Indonesia following its acquisition of Axis and higher cost of devices sold in Bangladesh.
The operator’s EBITDA fell 2.1 per cent year-on-year to MYR3.45 billion ($840 million).
“We expect Axiata’s margins to contract slightly in 2015, as Celcom’s full recovery will take time especially amid intensified competition,” said Moody’s senior analyst Gloria Tsuen.
The group’s revenue for H1 grew 2.3 per cent year-on-year to MYR9.5 billion. However in constant currency terms, revenue declined by 0.7 per cent due to the weaker Malaysian ringgit.
“Although the performance of Axiata’s Malaysian and Indonesian operations remained soft, there are some early signs of improvement,” Tsuen noted.
“Celcom was finally able to launch new products after IT disruption over the 12 months, and gained 61,000 new subscribers in Q2 after three quarters of subscriber loss. At the same time, XL is starting to see improvement in ARPU and EBITDA margins,” she said.
XL’s EBITDA margin did improve in Q2 by 1.4 points quarter-on-quarter and 1.5 points year-on-year to 35.5 per cent, helped by an improved subscriber mix. But Tsuen added that XL’s margins for the full year will be pressured by the increasing proportion of data services revenue coupled with lower revenue from XL’s higher margin tower leasing operations after the sale of 3,500 towers to Solusi Tunas Pratama.
Revenue for Celcom in Malaysia — the largest contributor to Axiata’s revenue in H1 at 39 per cent — declined 3.5 per cent year-on-year largely due the implementation of goods and services tax on 1 April, which impacted consumer spending. With the stabilisation of its IT transformation project, however, the company launched new postpaid and prepaid products in Q2 for the first time since early 2014, and regained some customers.
Revenue at XL fell 3.3 per cent mainly due to declining subscribers and revenues from mobile and tower leasing segments. XL contributed 33 per cent of the group’s H1 revenue. ARPU rose 14 per cent to IDR32,000 (about $2.30) from a year ago.
Moody’s expects Axiata’s revenue to grow by low to mid single-digit percentages over the next one to two years, supported by the stabilisation and recovery in Celcom and XL, as well as continued solid growth in revenue from Robi in Bangladesh and Dialog in Sri Lanka, which grew 16.6 per cent and 16.3 per cent respectively year-on-year in H1.
Axiata expanded its capex in H1 by MYR1 billion to MYR2.8 billion compared to a year ago because some of the spending initially planned for 2014 has been carried into the current year. Its capex target for the year is MYR4.8 billion.
Updating its guidance for the full year, it said its 4 per cent revenue and EBITDA growth targets would be “challenging”.