Investment Highlights

• We upgrade Axiata Group (Axiata) to BUY from HOLD with a higher SOP-based fair value (FV) of RM3.50/share (vs RM3.00/share previously), which implies FY25F EV/EBITDA of 5.2x – 1SD below its 5-year EV/EBITDA median of 5.8x. We think that valuations are now F compelling as the share price has dropped by 10% over th past 3 months. We attach a neutral 3-star ESG rating fo 6 Axiata.

• Axiata’s 1HFY24 core net profit (CNP) of RM330m 1 (excluding exceptional items totaling RM192mil from 0 8 merger transaction expenses, forex loss, hedging cost, XL 5 gain on disposal, impairment of assets and PPA 5 amortisation) was above our expectations, accounting fo 4 61% of our earnings estimate, but within consensus 1 Hence, we raise our FY24F-FY26F earnings by 14%-20% to 8 account for stronger performances of operating companies (OpCos).

• Axiata declared an interim dividend of 5.0 sen/share in 1HFY24, on track towards meeting the full year target o DPS 10.0 sen/share.

• Axiata’s 1HFY24 CNP surged 4.4x YoY to RM330mil from RM75mil in 1HFY23. The upbeat results stemmed from topline climbing (+8% YoY) to RM11.4bil in 1HFY24 from RM10.7bil in 1HFY23. This was driven by revenue growth across OpCos i.e. XL (+8% YoY), Robi (+5% YoY), Smar (+11% YoY) and edotco (+13% YoY).

• The robust growth for XL, Robi and Smart was fueled b higher data traffic, increased subscribers and cos optimisation measures. Edotco’s topline growth of 13% th YoY in 1HFY24 was supported by higher co-location and build-to-suit revenue in key frontier markets. .5) .

• 2QFY24 CNP grew by 22% to RM181mil from RM149mil in 1QFY24. This can be attributed to increased revenue (+2% QoQ) and lower net forex losses (-22% QoQ).

• Annualised net debt/EBITDA improved to 2.9x in 1HFY2 (from 3.0x in FY23) due to a US$100mil debt prepayment in March with EBITDA growth of 18% YoY.

• For FY24F, management maintains guidance for a mid single digit percentage revenue growth and mid-teen EBIT growth. However, management does not discount th possibility of high-teen EBIT growth based on the strong 1HFY24 performance.

• Looking forward, we are optimistic on Axiata’s mid-to-longer term prospects. The group is expected to benefit from i) more tower upgrade jobs for edotco from the second 5G rollout, ii) narrowing digital banking losses, iii) lower interest expense from stronger local currency, and iv) merger synergies with Dialog-Airtel Sri Lanka.

• We believe that Axiata is currently trading at an inexpensive 5x EV/EBITDA, below its 5-year historical median of 6x.

Source: AmInvest Research - 29 Aug 2024