Axiata proposes to list its 69%-owned Robi in Bangladesh to unlock value. FY19 core net profit of RM960m (+17% YoY) matched expectations. FY19 results saw improvements attributable to operational excellence despite the absence of M1 dividend, higher D&A and tax. We fine-tune FY20-21 earnings marginally and TP is unchanged at RM4.56. Maintain HOLD. While regulatory and execution risks remains, long term catalysts include in-country consolidation, tower asset and digital businesses listings.

Newsbreak. Axiata proposes to list its 69%-owned Robi in Bangladesh following a Fixed Price method. A total of 523m new shares (10% of enlarged issued and paid -up share capital) are offered at a par value of BDT10 per share. Total proceed of RM255m will be for capex. Expected to complete by 4Q20.

Within expectations. 4Q19 core net profit of RM267m (+5% QoQ, +71% YoY) took FY19’s total to RM960m (+17% YoY), forming 104% and 97% of HLIB and consensus full year forecasts, respectively. 4Q19 one-off adjustments include asset disposal gain (RM21m), forex gain (RM32m), divestment gain (RM65m) and other losses (RM52m).

Dividend. In addition to second interim DPS of 4 sen, it announced special DPS of 0.5 sen given one-off gain from M1 disposal (4Q18: 4.5 sen). YTD dividend amounted to higher-than-expected 9.5 sen (FY18: 9.5 sen) per share.

QoQ. Sales gained 1% supported by Celcom (+3%), Dialog (+1%) and Smart (+1%), partly negated by Ncell (-5%), XL (-1%) and Robi (-1%), while edotco was flat. Despite higher cost structure (EBITDA margin -0.6ppt) and D&A, core net profit expanded by 5% to RM267m assisted by lower effective corporate tax rate (4Q19: 36% vs 3Q19: 48%) and MI charge (-44%).

YoY. Top line was flat where expansions from XL (+11%), Robi (+6%), Smart (+5%), Dialog (+1%) and edotco (+16%) were fully neutralized by falls in Celcom (-10%) and Ncell (-8%). However, core earnings jumped 71% thanks to improved cost discipline.

FY19. Top line grew 3% to RM24.6bn supported by the gains in all OpCos except Celcom, Dialog and Ncell. Even in the absence of M1 contribution, bottom line gained 17% to RM960m driven by better underlying performances by most OpCos but partly dragged by Dialog (intense competition and Easter Sunday incident) and Ncell (consumption levies impact and competition from ISP).

Celcom. Sub base experienced a net churn of 704k in FY19 and ended with 8.4m subs as both postpaid and prepaid saw churns of 27k and 677k, respectively. Blended ARPU strengthened to RM53 (+RM3 YoY) supported by postpaid (+RM1 YoY) while prepaid was unchanged. LTE population coverage was stagnant at 93% and spurred smartphone penetration to reach 84% (FY18: 78%).

FY20 headline KPIs. At constant currency, (1) revenue growth of 3.5-4.5%; (2) EBITDA growth of 4.0-5.5%; (3) ROIC of 5.5-6.0%; and (4) Capex of RM6.6bn broken down to Celcom (RM900m), XL (RM2bn), Dialog (RM700m), Smart (RM320m), Robi (RM1bn), Ncell (RM400m), edotco (RM900m) and others (RM200m).

Forecast. Update model with latest financial figures and guidance. In turn, FY20 -21 EPS are tweaked by +2% and +3%, respectively. Reiterate HOLD with unchanged SOP-derived TP of RM4.56 (see Figure #2). We like its regional exposures with focus on emerging countries which may deliver great growth potential. However, regulatory and execution risks are major concerns. With the mega merger called off, other potential corporate exercises that may unlock values include in-country consolidation, tower asset and digital businesses listings.

Source: Hong Leong Investment Bank Research - 24 Feb 2020