Investment Highlights

• We maintain HOLD on Axiata Group (Axiata) with an unchanged SOP-based fair value (FV) of RM2.90/share, implying FY24F EV/EBITDA of 6.3x, which is the 5-year median. We have a neutral 3-star ESG rating for Axiata.

• XL Axiata’s net profit soared 2.7x YoY to IDR547bil in 1QFY24. This was within our expectations but exceeded consensus. XL Axiata’s results accounted for 22% of our full year forecast and 31% of consensus estimates. We make no changes to our earnings projections.

• The upbeat results stemmed mainly from a strong 13% YoY growth in data and digital revenue, which was driven by attractive pricing packages.

• Also, XL’s data traffic surged 7% in the city and 4% in Kalimantan area during the month of Ramadan and Hari Raya festivities. This contributed to a healthy traffic growth of 18% YoY and retention of 58mil quality subscribers in 1QFY24.

• YoY, XL’s blended average revenue per user (ARPU) increased by 10% to IDR44k as XL Satu’s home subscribers surged by +91% YoY to 252k. This was underpinned by the acceleration of coverage penetration, which increased to 79% in 1QFY24 from 44% in 1QFY23. As a result, XL Satu’s coverage substantially widened to 102 cities in 1QFY24 from 30 cities in FY22.

• QoQ, XL’s 1QFY24 PATAMI rose 105% to IDR547bil due to a 2% data and digital revenue growth. Also, XL enjoyed lower operating expenses, as reflected in the sales and marketing cost-to-revenue ratio of just 6%. This was supported by continuous cost improvements and optimised channel mix.

• For FY24F, XL is guiding for high-single digit revenue growth, EBITDA margin of 50% and capex of IDR8tril. XL said that the majority of capex will be used to support the development of business networks for data services and convergence, including for IT. This year, the focus of expansion plans is to increase and expand the penetration of its fixed mobile convergence (FMC) business.

• Although XL’s results are a positive read-through for Axiata, we are cautious on the group’s prospects. Axiata’s finance costs are expected to increase due to additional debt financing for Link Net’s fibre rollout and digital banking start-up losses.

• Hence, we view the stock as fairly valued at an FY24F EV/EBITDA of 5.9x vs. its 5-year mean of 6.3x.

Source: AmInvest Research - 30 Apr 2024