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JKSB Quarterly Highlights_Dialog Axiata PLC (DIAL)_1QCY17

DIAL reported a 42% YoY decline in Group earnings for 1QCY17, with modest topline & EBITDA growth (+5% YoY & +3% YoY respectively) being offset by increased depreciation charges and net finance costs coupled with higher non-cash forex translational losses stemming from LKR depreciation during the quarter. The result is in-line with our expectations of a weaker year for DIAL, due largely to the hit to consumer spending/revenues from implementation of VAT charges w.e.f Nov 2016. Despite the hit to revenues, subscriber acquisition remained strong during the quarter across most of DIAL’s businesses: on the mobile broadband side, small screen and large screen subs grew by 31% YoY and 36% YoY respectively, while the Group’s mobile subscriber base grew 16% YoY to 12.3mn, on the back of further market share gains. At a subsidiary level, DTV reported a net loss of Rs. 311mn for the quarter due mainly to LKR depreciation, as ~50% of DTV’s costs (transponder costs and payments to content providers) are dollar denominated. DBN turned PAT positive (Rs. 237mn) for the quarter vs. a loss of Rs. 119mn in 1QCY16, supported by a 100% YoY increase in EBITDA.

While DIAL has seen some recovery in revenue since end 1QCY17, we maintain our full year earnings projection of Rs. 6.5bn for CY17 (-28% YoY), given management guidance for short term PAT margin contraction stemming from increased depreciation due to intensified capex spend. ARPU recovery has been largely due to data adoption (data ARPU has risen from Rs. 308 in 1QCY16 to Rs. 336 in 1QCY17), which could be impacted in the event of implementation of the proposed increase in data telco levy. The drag on earnings from DTV losses should also persist over the short term, until the company fixes its dollar exposed cost structure. At its current price of Rs.11.90, DIAL trades at a CY17E P/E of 15.0x, at a significant premium to our coverage universe P/E.