1H23 core net profit of RM127mn (YoY: -92.0%) came in below our and consensus expectations accounting for 13.6% and 13.9% of full year forecast respectively. The deviation against our projection was mainly due to higher-than-expected depreciation. We expect earnings to remain subdued in the near future due to the loss of income from Celcom and ongoing prevailing macroeconomic challenges. Downgrade to HOLD from BUY with a lower TP of RM2.74 (from RM3.78) following our adjustment in earnings. Our TP is based on sum-of-part valuation with each of the operating company valued using EV/EBITDA metric.

• Below expectations. 1H23 core net profit of RM127mn (YoY: -92.0%) came in below our and consensus expectations accounting for 13.6% and 13.9% of full year forecast, respectively. The deviation against our projection was primarily due to higher-than-expected depreciation.

• Dividend. Axiata has declared a DPS of 5.0 sen in 1HFY23. Note that there was no DPS declared in 1H22. We are estimating a total FYE23 DPS of 7 sen, which would result in a yield of 2.7%.

• QoQ. Axiata’s 2Q23 revenue increased by 11.4% QoQ driven by higher revenue from all operating companies except mobile operations in Nepal and the digital business (ADA). However, Axiata’s core earnings declined by 46.9% QoQ mainly impacted by higher depreciation and amortisation, as well as impairment of assets for mobile operations in Nepal.

• YTD. Top-line improved by 11.7% YoY attributable to better contribution from all operating companies except ADA and Ncell. It is worth to note that revenue of its operating companies has shown better performance namely (i) XL (grew by 12.0% YoY), (ii) Robi (increased by 18.9% YoY), and (iii) Dialog (expanded by 19.8% YoY). Nonetheless, the group recorded net loss of RM502mn in 1H23 due to higher depreciation and amortisation. After stripping out exceptional items namely forex and derivative gain, XL’s gain on disposal of towers, net gain on disposal of Celcom and others, Axiata registered a core earnings of RM127mn (- 92.0% YoY). The significant decline was dragged by lower share of results from CelcomDigi compared to Celcom’s contribution as a wholly-owned subsidiary in the previous year.

• Outlook. We expect earnings to remain subdued in the near future due to the income loss from Celcom and ongoing macroeconomic challenges. Aside to that, the management’s guided FY23 KPIs include: (i) mid-singledigit revenue growth, (ii) high single-digit EBIT growth, and (iii) a capex of RM7.1bn. Downside risk to our call includes unfavourable 5G rollout regulations.

• Forecast: We cut our FY23/24 earnings forecasts lower by 37%/29% to RM592mn/RM799mn respectively, as we revised our assumptions on depreciation and earnings growth, to be more reflective of current situation and its prospects.

• Our call. Downgrade to HOLD from BUY with a lower TP of RM2.74 (from RM3.78) following our earnings revision. Our TP is based on sum-of-part valuation with each of the operating company valued using EV/EBITDA metric.

Source: BIMB Securities Research - 30 Aug 2023