• Maintain HOLD (TP: RM2.50). Axiata’s 9MFY23 top-line improved, growing by +10.7% YoY, in-line with our expectations, accounting for 73.4% of total revenue forecast. Nonetheless, the group’s 9MFY23 core net profit of RM255mn (-76.3% YoY), impacted by higher depreciation & amortisation and finance cost, and lower contribution from CelcomDigi. The group’s bottom-line was below ours and consensus expectations, accounting for 43.1% and 51.6% respectively. The deviation against our projection was primarily due to higher-than-expected depreciation in the current quarter. We anticipate a continued subdued performance in earnings in the near future, primarily attributed to the income loss from Celcom. Maintain a HOLD call with a lower TP of RM2.50 (from RM2.74). Our TP is based on sum-of-part valuation with each of the operating company valued using EV/EBITDA metric.

• Key highlights. In 3QFY23, the group's revenue increased by +6.1% YoY, supported by all operating companies, except for mobile operations in Cambodia and fixed broadband operations in Indonesia. Simultaneously, the group's net profit saw a significant YoY increase of >+100%. However, when excluding certain exceptional items, namely forex & derivative gain, XL gain on the disposal of towers, Ncell asset impairment, and others, Axiata recorded a core net profit of RM128mn, reflecting a -65.9% YoY decline in 3Q23.

• Earnings Revision. We cut our FY23/24/25 earnings forecasts lower by 41.0%/21.6%/15.1% to RM349mn/RM627mn/RM746 respectively, as we revised our assumptions on depreciation to be more reflective of current situation and its prospects.

• Outlook. We remain cautious on the external factors that could potentially affect Axiata's earnings, notably the current weakness of the Ringgit. Note that Ringgit has reached its lowest level in 25 years, marking the weakest exchange rate since the Asian financial crisis in 1998. Aside from that, the management’s guided FY23 KPIs include: (i) mid-single-digit revenue growth, (ii) high single-digit EBIT growth, and (iii) a capex of RM7.1bn. A downside risk to our call includes unfavourable 5G rollout regulations.

Source: BIMB Securities Research - 30 Nov 2023