• Axiata’s 3Q23 results were operationally inline at the subsidiary levels. Reported EBIT (ex-NCell) came in at 79% of our FY23F ex-Ncell estimate.

• Axiata has reclassified NCell as an asset held for sale, and a recapitalisation exercise at edotco could see Axiata deconsolidate edotco.

• Reiterate Add call on Axiata. Efforts to monetise the balance sheet is a key rerating catalyst. TP of RM3.07 based on 5.8x FY24F EV/EBITDA.

Operationally Inline and Key Subsidiaries Improving

• Continuing operations 9M23 EBIT of RM1.982m (+4.8% yoy), as disclosed in Axiata’s presentation slides (which exclude NCell) made up 79% of our FY23F EBIT estimate (removing NCell).

• Core subsidiary results in their respective currencies were tracking ahead at the EBIT level, except for XL Axiata and Linknet.

• Dialog, Robi and Smart were the standouts in terms of qoq performance, growing their EBITDA by 12%, 23%, and 16%, respectively.

NCell for Sale; Edotco Recapitalisation Could Lead to Deconsolidation

• Axiata has reclassified NCell as an asset held for sale and aims to dispose of its stake within 12 months. Post the RM1.2bn in impairments recognised in 3Q23 accounts, the residual value of NCell on Axiata’s balance sheet is RM378m, with a further RM360m in forex reserves associated with Ncell. We view the plan to divest Ncell positively as NCell has been a drag on earnings and valuations of Axiata for some years, in our view.

• Management also confirmed that Axiata is running a process whose primary goal is to recapitalise edotco. Depending on the ultimate terms, there may be a situation where existing shareholders of edotco exit or get diluted, and for Axiata to be diluted to a point where edotco is deconsolidated. This ties in with our overall thesis of deconsolidation de-risking Axiata’s balance sheet and unlocking value for shareholders via monetisation. However, in an ideal situation, we believe Axiata’s shareholders would also prefer some form of cash inflow from these exercises.

Add Maintained, Deconsolidation/monetisation the Key Driver

• We maintain our Add call on Axiata with an unchanged EV/EBITDA- based (5.8x FY24F) TP of RM3.07.

• Efforts to deconsolidate/monetise assets are, we believe, key rerating catalysts for its shares which are trading at an undemanding 5.1x adj FY24F EV/EBITDA. The announcements today (29 Nov 23), in our view, are positive steps in this direction.

• Key downside risks, in our view, include failure to execute on its monetisation plans, regulatory risks in its various operating jurisdictions, and higher interest rates.

Source: CGS-CIMB Research - 29 Nov 2023