Axiata's Financial Results Benefit from Domestic Data Growth
Moody's Investors Service notes that Axiata Group's first half financial results were positively affected by strong growth in data demand at Celcom Axiata in Malaysia, which accounted for around 44% of the Group's 1H 2013 revenue. Overall results are broadly in line with Moody's expectations and support Axiata's current Baa2 rating and stable outlook.
Revenue for 1H 2013 grew by 5.2% year-on-year, largely on revenue growth driven by data demand at Celcom, which accounted for around 44% of the Group's 1H 2013 revenue.
Higher revenue from the mobile segment at Robi Axiata in Bangladesh and Dialog Axiata in Sri Lanka also contributed to overall revenue growth.
Revenue from XL Axiata, the second largest contributor to the Group's revenue (36%), declined 4.7% YoY due largely to the weakening of the Indonesia rupiah against the Malaysian ringgit. In the absence of this foreign currency impact, XL's YoY revenue increased 1%, supported by growth from the data segment.
Despite the revenue growth, XL's reported EBITDA margin declined to 40% for 1H 2013 from 48% a year ago because of intense competition in Indonesia. The decline was also due to increasing revenue from lower-margin data services. Revenues from data services grew by 13% YoY and now contribute to 20% of consolidated revenues as compared to 17% a year ago.
"While the Axiata group in its entirety continues to demonstrate strong operational growth, our expectation is to see a moderate contraction in EBITDA margins for the next 1-2 years due to strong competition in the voice and SMS segments, and increasing data services revenue," says Yoshio Takahashi, a Moody's Assistant Vice President and Analyst.
The company expects capex in 2013 to measure RM4.5 billion, with the bulk to be spent on modernizing its cellular network to support expected data growth.
"A high level of capex for 3G services will weaken cash flow metrics. However, given Axiata's strong operating performance and financial metrics, its rating is well positioned at the Baa2 level," adds Takahashi.
Moody's estimates that Axiata's adjusted debt/EBITDA for the 12 months to June 2013 was approximately 2.1-2.2x, in line with expectations.
The company's reported cash and cash equivalents of RM6.6 billion as of 30 June 2013, along with expected cash flow from operations, should also be sufficient to cover its capex requirements and scheduled debt maturities of RM1.8 billion over the next 12 months.