FY21 core net profit of RM1.3bn (+53% YoY) matched ours but beat consensus forecasts. Celcom grew its sub base while ARPU was stable. Due to strong product traction, Sequentially, XL experienced minor subscriber churn while ARPU was relatively stable. After tweaking projections, our SOP-derived TP is lower at RM4.03. Maintain HOLD call. While we are positive on Celcom-Digi merger allowing Axiata to unlock values, regulatory (especially in Nepal) and execution risks are major concerns.

Within HLIB but above street. 4Q21 core net profit of RM411m (+4% QoQ, +29% YoY) brought FY21 sum to RM1.3bn (+53% YoY) matched ours but beat consensus expectations, accounting for 104% and 109%, respectively. FY21 one-off adjustments include gain on tower disposals (-RM80m), forex loss (+RM117m), Ncell goodwill impairment (+RM338m) and others (+RM132m).

Dividend. Declared a tax exempt DPS of 5.5 sen (4Q20: 5.0 sen) under single tier system where entitlement and payment dates will be determined and announced in due course. FY21 DPS amounted to 9.5 sen (FY20: 7.0 sen).

QoQ. Turnover gained 6% led by Celcom (+9%), followed by edotco (+8%), Smart (+4%), Ncell (+2%) and XL (+2%), more than sufficient to offset the contractions in Robi (-3%) and Dialog (-1%). However, core net profit grew at a slower rate of 4% to RM411m due to higher D&A and effective corporate tax rate.

YoY. Top line was up by 10% thanks to higher contributions from Celcom (+8%), XL (+12%), Robi (+7%), Dialog (+7%), edotco (+9%), while Smart was flat and Ncell was the only OpCo that experienced decline (-2%). In turn, core earnings leaped 29% also attributable to lower D&A.

YTD. Revenue inched up by 7% as the expansions from Celcom (+7%), XL (+3%), Robi (+6%), Dialog (9%), Smart (+6%) and edotco (+5%) more than sufficient to neutralize the contraction in Ncell (-2%). As a result, core earnings advanced 53% to RM1.3bn due to lower finance cost (-8%) and lower tax rate.

Celcom. Sub base experienced a total net gain of 215k QoQ in 4Q21 and ended with 9.6m subs as both prepaid and postpaid added 136k and 79k, respectively. Blended ARPU was stable at RM45. LTE population coverage maintained at 94% along with smartphone penetration at 92% (3Q21: 91%).

XL. Total base only lost 80k QoQ to 57.9m subs as postpaid’s addition was neutralized by prepaid’s attritions. Prepaid ARPU was flat QoQ at IDR36k while postpaid’s gained IDR1k QoQ to IDR106k.

FY21 headline KPIs. At constant currency, (1) revenue growth of mid-single digit; (2) EBIT growth of high single digit; and (3) Capex of RM7.1bn broken-down to Celcom (RM1.0bn), XL (RM2.8bn), Dialog (RM700m), Smart (RM300m), Robi (RM7 00m), Ncell (RM250-300m), edotco (RM1.0bn) and digital business (RM300-350m).

Forecast. After tweaking our forecast based on guidance, FY22-23 earnings are revised by -15% and -14%, respectively.

Reiterate HOLD after trimming our SOP-derived TP from RM4.06 to RM4.03 (see Figure #2). We like its regional exposures with focus on emerging countries which may deliver great growth potentials. While we are positive on Celcom-Digi merger allowing Axiata to unlock values, regulatory (especially in Nepal) and execution risks are major concerns.

Source: Hong Leong Investment Bank Research - 23 Feb 2022