Investment Highlights

• We resume coverage on Axiata Group (Axiata) with a HOLD recommendation and SOP-based fair value (FV) of RM3.40/share. This implies FY23F EV/EBITDA of 5.3x, in line with its 5-year average of 5x. Our FV reflects a neutral 3-star ESG rating.

• Axiata’s core FY22 earnings of 1,587mil exceeded street’s expectations, coming in 24% above consensus. The deviation stemmed from a stronger Celcom contribution and lower depreciation charge (-12% YoY).

• FY22 one-off adjustments include i) a total RM4.1bil fair value impairment of Ncell, XL and Dialog, ii) RM13.5bil net gain on disposal of Celcom, and iii) XL’s RM77mil gain on disposal of towers.

• Axiata declared its second interim dividend of 5 sen/share, bringing its FY22 dividend to 14 sen/share (including special dividend of 4sen/share) and this translates to a dividend payout ratio of 81% based on core EPS.

• FY22 normalised PATAMI jumped 20% on 9% revenue growth. Almost all OpCos reported positive revenue growth, except for Dialog and NCell (Exhibit 2). The consolidation of the recently acquired Link Net (completed in June 2022) also contributed to the improvement in top line which trickled down to the higher core earnings.

• QoQ on basis, 4QFY22 core profit rose 36%, supported by lower operating expenses (-12% after excluding the RM4.1bil goodwill impairment) despite the decline in revenue (-20%). Notably, the share of associates deteriorated to a loss of RM45mil (from profit of RM5.4mil), likely due to kitchen sinking activities at Celcom Digi level following the completion of the merger.

• Despite the positive sets of result, we remain cautious on the company’s future prospects due to macro headwinds that could potentially derail its frontier markets’ performance. The group’s financial performance is also susceptible to rising interest rate environment due to its highly leveraged position. Affordability pressure experienced by end-consumers from an inflationary environment also may cap its revenue growth potential.

• From a valuation perspective, the stock looks fairly valued trading at 4.4x EV/EBITDA when compared to its 5-year historical average of 5x, especially given potential downside risks.

Source: AmInvest Research - 24 Feb 2023