Axiata Group’s (Axiata) continuing operations posted a LATAMI of RM4bn for 4QFY22, mainly due to the recognition of a massive goodwill impairment amounting to RM4.1bn. After accounting for profit and gains on disposal of discontinued operations (Celcom), headline PATAMI stood at RM10bn. For full year FY22, Axiata incurred a LATAMI of RM5.1bn while core net profit came in at RM1.6bn, beating our and consensus expectations at 119% and 123% of full year numbers respectively. We introduce our new earnings forecasts for Axiata, following the disposal of Celcom as well as the acquisition of Link Net and the tower business. We have also accounted for the cost of 5G wholesale agreement with Digital Nasional Bhd, which could still be subject to change pending finalisation of the 5G rollout by the government. We maintain our Neutral rating with a revised TP of RM3.40. The Group declared a tax exempt dividend of 5.0 sen per share, bringing total dividend declared to 14.0sen per share (FY21: 9.5sen per share).

• FY22 revenue rose 8.7% YoY, mainly driven by stronger contribution from Indonesia (+11.2% YoY), Cambodia (+13.3% YoY) as well as newly acquired fixed broadband business in Indonesia, Link Net. This has managed to offset lower revenue contribution from other operating units such as Sri Lanka, Nepal and infrastructure. Indonesia was the best performing unit, mainly driven by higher prepaid data revenue and device sales while Cambodia was supported by growth in prepaid business.

• FY22 net loss due to goodwill impairment. The group posted headline loss of RM5.1bn in FY22, mainly due to impairment of goodwill of mobile operations in Nepal, Indonesia and Sri Lanka amounting to RM4.1bn. Stripping out non-operating items, core net profit stood at RM1.6bn, increasing by 20% YoY due to stronger earnings contribution from Malaysia (Celcom), Bangladesh (Robi) and Cambodia (Smart).

• Outlook. While we are positive on Axiata’s acquisitions in Indonesia and the Philippines that should enable the Group to diversify into high-growth emerging markets, they are not likely to make meaningful earnings contribution in the near term due to sizeable funding requirement. In addition, we reckon that synergies are not likely to be reaped immediately given the possibility of post-acquisition integration risk. Following the completion of its disposal of Celcom to DiGi, we introduce our new FY23- 25F earnings. However, these numbers are our preliminary estimates as further adjustment is possible pending finalisation of review by the government on the country’s 5G rollout. Axiata currently holds a 33.1% stake of DiGi Celcom.

Source: PublicInvest Research - 24 Feb 2023