• 2020 EBITDA of RM11bn (+1.6%) was within our expectations but core net profit of RM261m (-73%) was a miss due to accelerated depreciation
• Axiata guided for low single-digit growth in 2021 revenue and EBITDA. Management cited “establishment and operations of SPV for 5G rollout in Malaysia” as a business risk
• Maintain HOLD with a lower PT of RM3.60 after lowering valuation multiple for Celcom and XL due to higher regulatory and / or competition risks

2020 core profit of RM261m (-73%) was below market and our expectations

Despite a lower revenue of RM24bn (-2.4% yoy), Axiata’s 2020 EBITDA grew by 1.6% to RM11bn on cost savings and better operational efficiencies. Operationally, the group’s revenue and EBITDA were within our expectations but the core net profit of RM261m (-73% yoy) was below market and our expectations due to the recognition of RM604m of charges in relation to accelerated depreciation and writeoff of 3G assets during 4Q20. Full-year dividend for 2020 totalled to 7.0 sen per share, lower than 9.5 sen in 2019.

4Q20 EBITDA: Celcom, Ncell, Dialog and Smart came in higher qoq while XL, Robi and edotco weakened

Sequentially, Celcom and Smart reported higher 4Q20 EBITDA on lower operating expenses while Ncell and Dialog’s EBITDA came in higher on the back of improved revenue. XL saw a 7% decline due to price war, Robi’s EBITDA had softened due to higher expenses while higher provision for doubtful debts has affected edotco.

For 2021, management guided for low single-digit revenue and EBITDA growth

Management guided for low single-digit growth in 2021 revenue and EBITDA growth, and capex of RM6.5bn. Management has cited “establishment and operations of SPV for 5G rollout in Malaysia – pending full details” as a business risk.

Maintain HOLD With a Lower Price Target of RM3.60

We tweaked our 2021-22E EPS forecasts by 2% after incorporating Axiata’s full-year statements with minor tweaks in our assumptions. Elsewhere, we have trimmed our valuation multiples for Celcom and XL due to higher risks arising from regulatory uncertainties and / or higher competition. Maintain HOLD. Key upside risks to our call are strong earnings and value-accretive M&As. Downside risks are earnings disappointments and negative regulatory changes.

Source: Affin Hwang Research - 26 Feb 2021