Investment Highlights

• We maintain our BUY call on Axiata Group (Axiata) with an unchanged sum-of-parts-based fair value of RM4.90/share, which implies an FY20F EV/EBITDA of 5.5x – 1 standard deviation below its 3-year average of 6.2x.

• We largely maintain Axiata’s FY20F-FY22F earnings as its FY19 underlying net profit of RM1,022mil, excluding sale of M1 shares, non-core digital business and Idea rights, was slightly above expectations, coming in 7% above our forecast and 6% above consensus, mostly due to lumpy realised forex gains.

• Axiata declared a final dividend of 4 sen and special dividend of 0.5 sen from the one-off gain from the sale of MI shares, which translates to an in-line FY19 DPS of 9.5 sen and payout ratio of 86% vs. 85% in FY18.

• Management is conservatively guiding for an FY20F EBITDA growth of 4%–5.5%, half of the MFRS 16-boosted increase of 10.9% in FY19. Nevertheless, the FY20F revenue growth guidance of 3.5%–4% vs 2.9% in FY19 is more aggressive given that the group missed its earlier target of 3%–4%. However, this is in line with our current assumptions.

• QoQ, Axiata’s 4QFY19 underlying earnings rose 14% QoQ to RM289mil despite a tepid 1% revenue increase to RM6.3bil largely due to net forex gains of RM48mil vs. a loss of RM56mil in 3QFY19.

• Celcom’s 3QFY19 revenue was up 3% QoQ to RM1.7bil QoQ, but was lower by 10% YoY, due to lower mobile termination rates and wholesale contributions as subscribers declined by 251K (-8% YoY) to 8.4mil, partly offset by average revenue per user (ARPU) improving by RM1/month QoQ to RM53/month.

• The net subscribers for Celcom’s postpaid segment have fallen by 15K QoQ and 27k YoY to 3mil despite Maxis’ rising by 565K and Digi’s by 227K. Partly offset by lower operating costs, this largely caused Celcom’s normalised FY19 earnings to decrease by 28% to RM513mil.

• XL’s prospects remains bright from higher subscriber growth and upselling strategies as its FY19 revenue rose 10% YoY to RM7.1bil while EBITDA climbed on a faster 16% growth, which reversed earlier losses to a normalised net profit of RM55mil.

• Nepal-based NCELL’s FY19 revenue slid 6% YoY from the impact of new consumption levies, which caused EBITDA to drop 10% YoY and core net profit to decrease by 16% YoY.

• Sri Lanka-based Dialog’s FY19 earnings fell by 27% QoQ to RM213mil on higher depreciation charges despite net subscribers increasing by 1.1mil (+8%).

Source: AmInvest Research - 24 Feb 2020