Axiata reported another disappointing set of results – massive 2018 net loss of RM5bn due to impairments of assets and loss on dilution of Idea. Adjusted for forex and loss on dilution Idea, Axiata reported 2018 core net loss of RM1.1bn due to lower profit from several OpCos (ie. Celcom, XL, Ncell) and accelerated depreciation / asset impairments. Moving into 2019, management is rather optimistic on its business outlook, targeting 3-4% revenue growth and 5-8% EBITDA growth. We raised our 2019-20E EPS by 4-5%, maintain our HOLD rating on Axiata with a higher target price of RM4.09 based on 15% discount to SOP-valuation.

2018 Reported Net Loss at RM5bn – Below Expectations

Axiata reported a disappointing set of results – 2018 net loss of RM5bn is a stark contrast to the RM909m net profit in 2017. Adjusting for forex losses and loss on dilution of Idea (RM3.7bn), Axiata’s 2018 core net loss of RM1.1bn was below market and our expectations due to the recognition of RM1.82bn in accelerated depreciation / asset write-offs, weakened regional currencies against Ringgit, as well as lower profits from several OpCos (ie. Celcom, XL, Ncell).

OpCos’ Results: Mixed EBITDA Growth, Lower PBT Across the Board

Celcom (2018 EBITDA: RM1.91bn, -18% yoy) - weaker earnings due to higher staff cost (internal employee restructuring cost charge), higher provision for doubtful debts and higher device costs (cross-subsidy). XL (2018 EBITDA: RM2.53bn, -9% yoy) – earnings affected by strengthening of Ringgit to IDR (+6% yoy) and higher sales and marketing costs. Dialog (2018 EBITDA: RM1.30bn, +13% yoy) – strong performance from higher contributions across all segments. However, higher depreciation and amortisation charges had resulted to lower pretax profit. Robi (2018 EBITDA: RM795m, +15% yoy) – similar to Dialog, Robi reported higher EBITDA on revenue growth but pretax profit was hit by sharp increase in finance cost. Ncell (2018 EBITDA: RM1.3bn, -17% yoy) – lower earnings due to increase in Telecom Service Charge (TSC) in July 2018 and weakened Nepalese Rupee to Ringgit (-4.6% yoy).

4Q18 Core Net Loss Due to Higher Cost, Depreciation and Taxation

Sequentially, Axiata’s 4Q18 EBITDA fell by 42% to RM1.29bn due to impairments of PPE (RM408m), higher operating costs (ie. marketing, devices and network costs) and the weakening of Sri Lanka Rupee against Ringgit. Meanwhile, higher taxation had further weakened its bottom-line.

Source: Affin Hwang Research - 25 Feb 2019