FY22 core net profit of RM1.6bn (+20% YoY) beat expectations. Except for Dialog and Ncell, all OpCos contributed positively along with Link Net consolidation to the top line growth which was filtered down to the stronger core e arnings, partly aided by lower effective tax rate and MI charge. Reiterate HOLD with higher SOP derived TP of RM3.33 as a result of our upward earnings revisions. We like its regional exposures with focus on emerging countries which may deliver great growth potentials. While we are positive on Celcom-Digi merger, regulatory and economic risks are major concerns.

Exceeded expectations. 4Q22 core net profit of RM510m (+36% QoQ, +24% YoY) lifted FY22’s to RM1.6bn (+20% YoY) which beat expectations, accounting for 113% and 124% of our and consensus full year estimates, respectively. The positive surprise was due to lower-than-expected effective tax rate. FY22 one-off adjustments include tower disposal gain (-RM77m), forex loss (+RM770m), OpCos goodwill impairments (+RM4.1bn), net gain on disposal of Celcom (-RM13.5bn) and others (+RM467m).

Dividend. Resolved a single tier tax exempt DPS of 5.0 sen (4Q21: 5.5 sen). Entitlement and payment dates will be determined and announced in due course. FY22 DPS amounted to 14.0 sen vs FY21’s 9.5 sen.

QoQ. Turnover fell by 20% mainly due to deconsolidation of Celcom while the expansions in Dialog (+13%), Link Ney (+9%) and edotco (+8%) were not sufficient to offset the contractions in XL (-2%), Robi (-2%), Ncell (-1%) and Smart (-7%). However, core net profit gained 36% aided by lower tax.

YoY. For the same reason above, top line was down by 16% with mixed contributions from OpCos: XL (+9%), Robi (+1%), Dialog (-15%), Ncell (-7%), Smart (+9%) and edotco (+27%). Core earnings expanded by 24% thanks to lower tax rate.

YTD. Top line growth of 1% can be broken down into edotco (+25%), Smart (+13%), XL (+11%), Robi (+3%), Ncell (-4%) and Dialog (-15%). Bottom line gained 20% thanks to lower effective tax rate and MI charge.

XL. Total base added 128k QoQ to 57.5m subs as both postpaid and prepaid sub bases gained and ended 4Q22 with 1.5m and 56.0m, respectively. Prepaid ARPU was stable at IDR38k while postpaid’s was eroded by IDR4k QoQ to IDR92k. With the improved coverage and more affordable device bundle offerings, 93% of total base or 53m are 4G users generating 2,106PB of total traffic in 4Q22, +3% sequentially and +10% YoY.

FY23 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 XL (RM2.2bn), Dialog (RM500m), Smart (RM500m), Robi (RM500m), Ncell (RM500m), edotco (RM1.2bn), Link Net (RM1.5bn) and digital business (RM200m).

Forecast. Based on the deviation above, we tweak our assumptions which led to higher FY23-24 core PAT projections by 2% and 5%, respectively.

Reiterate HOLD with higher SOP-derived TP of RM3.33 from RM2.97 (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 economic (in Sri Lanka) risks are major concerns. Other potential corporate exercises that may unlock values include tower asset and digital businesses listings.

Source: Hong Leong Investment Bank Research - 24 Feb 2023