Axiata reported a modest set of results – 9M19 core pretax profit grew by 28% yoy to RM1.7bn on earnings contributions from its key subsidiaries (XL, Robi, edotco) and lower losses from its non-core digital businesses (transferred to Pegasus 7 in 2Q19). Notwithstanding the stellar operational performance, core net profit was below market and our expectations due to a higher-than-expected tax rate. We revise our 2019-21E core EPS by -13% to +3% after incorporating higher earnings from XL / Robi / edotco, lower losses from digital business, offset by a higher tax rate. In tandem, we have revised our SOTPderived TP to RM4.30 (from RM4.25). Maintain HOLD.

Strong 9M19 Pretax Earnings But Earnings Missed on High Taxes

Axiata’s 9M19 core pretax profit came in above our expectations at RM1.7bn (+28% yoy), driven by higher earnings from key subsidiaries (XL, Robi, edotco and Smart) and lower losses from non-core digital businesses (transferred to Pegasus 7 in 2Q19). Nonetheless, 9M19 core net profit slipped by 18% yoy to RM693m due to higher taxes in Bangladesh (due to a change in tax law) / Indonesia (write-down of some deferred tax assets), and higher minority interests (stronger earnings from XL, Robi, edotco). Overall, Axiata’s 9M19 core net profit accounts for 64% of street and 71% of our full-year forecasts; below expectations. The earnings disappointment was mainly due to higher-than-expected taxes.

OpCos’ Results (pre-MFRS16, Constant Currency)

- Celcom: 9M19 revenue slipped on lower device sales and decline in wholesale service revenue; EBITDA had however increased by 4% yoy on lower operating expenses; - XL: Higher 9M19 EBITDA (+17% yoy) on the back of higher revenue (more subs, higher ARPUs), driven by strong data growth; - Robi: Commendable 66% yoy increase in 9M19 EBITDA driven by higher service revenue. Net profit was however affected by the higher tax rate on revenue; - edotco: 9M19 EBITDA grew by 18% yoy on the back of higher revenue (+19% yoy) and lower maintenance costs; - Ncell: lower 9M19 EBITDA (-11% yoy) due to lower revenue attributable to price competition from ISPs and the introduction of a 13% telecommunication service charges in 2019.

Source: Affin Hwang Research - 29 Nov 2019