Investment Highlights

• We maintain HOLD on Axiata Group (Axiata) with an unchanged SOP-based fair value (FV) of RM2.95/share. This implies FY24F EV/EBITDA of 6.3x, which is the 5-year median. We have a neutral 3-star ESG rating for Axiata.

• Axiata’s FY23 CNP of RM542mil (excluding RM982mil of forex losses, gain on tower disposal, prior year taxes, impairment, employees’ VSS and PPA amortisation) was above expectations, coming off more than quarter of our estimate and consensus’.

• The above-than-expected results stemmed from exceptional earnings performances from XL Indonesia (+24% YoY) and Robi Bangladesh (+21%). XL Axiata’s topline rose by 11% in FY23, thanks to improved pricing environment, higher data/digital services and better cost savings. Robi’s strong reported net profit was further supported by forex gain of LKR10.2bil.

• We have marginally raised our FY24-25F earnings for Axiata by 2% each to account for better prospects from the operating companies in Indonesia, Bangladesh and Malaysia.

• Axiata has declared a final dividend of 5 sen per share, bringing gross DPS to 10 sen for FY23. This translates to a dividend payout ratio of 169% and yield of 3.6%.

• Axiata’s CNP fell by 66% to RM542mil in FY23 due to higher depreciation expenses from Link Net and edotco. This was exacerbated by interest expenses climbing by 16% YoY to RM2.5bil in FY23 as the cost of debt rose by 50 bps.

• On QoQ basis, 4QFY23 CNP more than doubled to RM287mil, driven by Robi (+36%) and Dialog (+19%). Robi’s strong earnings delivery was fueled by strong subscriber growth and ARPU. Cost rescaling initiatives and international hubbing boosted Dialog’s 4QFY23 PATAMI.

• Management maintains a mid-single digit revenue growth for FY24F but reduced the guidance for EBIT growth to mid- single digit from high single-digit. Management expects a capex of RM6.1bil for FY24F vs. RM5bil in FY23.

• Looking forward, we are cautious on Axiata’s prospects. The group may be affected by digital banking losses and higher interest expense arising from additional debt financing for Link Net’s fibre rollout.

• We believe that Axiata is fairly valued, currently trading at 6.1x EV/EBITDA, at parity to its 5-year historical mean. We believe that this is fair due to near-term earnings risks.

Source: AmInvest Research - 23 Feb 2024