Axiata Group Berhad (Axiata) 1Q23 core net profit of RM83mn came in below our and consensus expectations, accounting 6.0% and 7.0% of full year estimates respectively. Core net profit declined by 77.5% YoY impacted by higher D&A, net finance cost and smaller contribution from CDB relative to full consolidation in FY2022. We foresee flattish earnings recovery ahead despite its regional exposure as one of the growing telcos in Asia and the positive outcome of CelcomDigi merger. Maintain a BUY call on Axiata with a TP of RM3.78 (from RM4.10) based on sum-of-part valuation with each of the operating company valued using EV/EBITDA metric.

• Within expectations. 1Q23 core net profit of RM83mn (QoQ: -83.7%, YoY: -77.5%) came in below our and consensus expectations accounting 6% and 7% of full year forecast respectively. The deviation against our projection was mainly due to higher-than-expected depreciation & amortisation charges.

• Dividend. No dividend declared in the current quarter.

• QoQ. Axiata’s 1Q23 revenue down by 7.8% QoQ impacted by lower contribution from all business segments. In tandem, Axiata’s core earnings declined by 83.7% mainly impacted by lower top lines and foreign exchange losses as opposed to foreign exchange gains in 4Q22.

• YoY/ YTD. Top-line improved by 7.9% YoY attributable to better contribution from mobile operations in Indonesia and Cambodia, infrastructure business and new revenue segment from fixed broadband in Indonesia. It is worthwhile to note that revenue of its operating companies has shown better performance namely (i) XL (grew by 11.9% YoY due to growth in prepaid data and increased revenue share contribution), (ii) Robi (increased by 16.7% YoY supported by data and voice growth, and (iii) Dialog (expanded by 31.3% YoY fuelled by increased data revenue). The group’s net profit surged by >100% YoY to RM74mn (vs –RM43mn in 1Q22) due to lower forex losses and lower taxes. Axiata’s core earnings however declined or by -77.5% YoY to RM83mn impacted by higher D&A, net finance cost and smaller contribution from CelcomDigi relative to full consolidation in FY2022.

• Outlook. We foresee flattish earnings recovery despite its regional exposure as one of the growing telcos in Asia and the outcome of CelcomDigi merger. Aside to that, the management’s guided FY23 KPIs include (i) revenue growth of mid-single digit, (ii) EBIT growth of high single digit and (iii) capex of RM7.1bn. Downside risk to our call includes unfavourable 5G rollout regulations.

• Forecast: We cut our FY23/24 earnings forecasts by 32%/22% to RM935mn/RM1,124mn (from RM1,390mn/RM1,442mn) respectively as we incorporate the deconsolidation of Celcom’s earnings. We also made new assumptions for top and bottom line to be more reflective of current situation and its prospects.

• Our call. Maintain a BUY call with a TP of RM3.78 (from RM4.10) based on sum-of-part valuation with each of the operating company valued using EV/EBITDA metric.

Source: BIMB Securities Research - 26 May 2023