Investment Highlights

• We reiterate our BUY call on Axiata Group (Axiata) with an unchanged sum-of-parts-based fair value of RM4.50/share. This implies an FY21F EV/EBITDA of 4.5x – 1 standard deviation below its 3-year average of 5.5x.

• Our FY21F–FY22F earnings have been marginally tweaked even though Axiata’s FY20 normalised net profit of RM865mil was above expectations, coming in 16% above our forecast and 11% above street’s.

• We believe that our forecasts are currently in line with management’s FY21F guidance for a low single-digit growth for revenue and EBITDA. Management also guided for FY21F capex of RM6.5bil vs. RM5.3bil in FY20, as some spending has been deferred from an earlier target of RM6.6bil last year.

• Although management declared a lower-than-expected FY20 DPS of 7 sen – 26% below our forecast – we maintain FY21F– FY22F dividend payout ratio of 70%–83% as the group aims to be a high dividend-yielding stock with an FY24F EPS of 20 sen.

• We introduce FY23F earnings with an earnings growth of 9% premised on improving cost optimisation programmes initiated by management together with a relatively stable revenue growth rate of 3%.

• QoQ, Axiata’s 4QFY20 underlying PATAMI slid 14% to RM321mil, mainly from accelerated depreciation of 3G assets across the group’s regional operations which drove depreciation up by 72% and losses from Axiata Digital Services together with bad debt provisions at edotco.

• This was partly cushioned by Celcom’s 4QFY20 normalised net profit rising by 36% QoQ to RM327mil, underpinned by a revenue increase of 3% and lower operating expenditures. Even so, this was partly mitigated by a 56% increase in Celcom’s 4QFY20 depreciation.

• Celcom’s marketing efforts are gaining traction as 4QFY20 subscribers sequentially rose 278K to 8.7mil, mostly driven by the prepaid segment (+203K) and to a lesser extent, the postpaid division (+75K) vs. Digi.com’s QoQ contraction of 240K. This was slightly softened by blended average revenue per user (ARPU) slipping by RM2/month to RM46/month from lower prepaid packages.

• Nepal-based Ncell’s 4QFY20 normalised PATAMI rose 29% QoQ to RM54mil on a flattish 1% revenue increase, supported by subscribers rising by 393K to 15.7mil and ARPU increasing by NPR8 to NPR221. This is commendable despite capacity constraints impacted by delayed spectrum assignments and rising competition from fixed internet service providers.

• XL’s 4QFY20 PATAMI decreased 24% QoQ to RM35mil due to higher competitive pressures as ARPU slid IDR2K amid accelerated depreciation charges on 3G infrastructure.

• The group’s 68.7%-owned Robi in Bangladesh registered a 62% QoQ increase in 4QFY20 normalised net profit to RM21mil from lower operating costs despite revenue slipping by 1%. This stemmed from Robi’s ARPU falling by BDT3 to BDT121 which was mostly offset by a net increase of 775K subscribers to 50.9mil.

• Sri Lanka-based Dialog’s 4QFY20 earnings was flat at RM89mil as a 17% increase in depreciation offset a 4% increase in revenue, supported by subscriber climbing by 958K to 16.3mil and partly offset by a SLR7 decrease in ARPU to SLR377.

• Similarly, 3G asset write-off also caused Cambodia-based SMART’s 4QFY20 PATAMI to rise by only 3% QoQ despite an 18% revenue growth. Meanwhile, edotco’s 4QFY20 earnings reversed into a loss of RM8mil due to bad debt provisions despite revenue increasing by 5% from 46 additional Malaysian tenancies.

• For a regional telco operator aiming to be a high dividend-yielding stock with excellent opportunities to further monetise its assets and engage in merger and acquisition activities, Axiata currently trades at a bargain FY21F EV/EBITDA of 4x vs. Maxis' 12x.

Source: AmInvest Research - 26 Feb 2021