• Improved earnings – Axiata’s underlying PATAMI grew 75% YoY to RM289m mainly due to higher contribution from Celcom and XL. Similarly, underlying EBITDA grew 12% YoY to RM2.3b as Celcom and XL led earnings growth.
• Higher revenue - Quarterly revenue decreased 1% YoY to RM6.21b as the declines in Celcom and Ncell erased revenue growth from other operating companies (OpCos).

• Better QoQ – 4Q19 underlying PATAMI jumped 13.5% QoQ mainly due to higher bottomline contribution from Celcom while revenue was flat at RM6.2b. Meanwhile EBITDA declined 2.2% QoQ due to lower contributions from Robi and edotco.

• Slower YoY - 2019 underlying PATAMI increased 1.2% YoY to RM1.02b but normalized PATAMI declined 5% YoY mainly due to absence of share of M1 profit, expenses for proposed merger with Telenor and higher tax rate in Bangladesh. Twelve months’ revenue grew 2.3% YoY with all OpCos delivering higher sales except for Celcom and Ncell.

• Stellar performance by OpCos – Except for Ncell, all OpCos achieved double digit growths in PATAMI and Free cashflow while gaining revenue market share in their respective markets.

• Higher gearing – Net debt/EBITDA inched up to 2.0x vs 1.97x in 3Q19 despite cash reserve dropping to RM4.2 from RM5.0b in 3Q19.

Earnings Outlook/Revision

• Earnings below expectation – 2019 revenue and EBITDA came within forecasts but PATAMI of RM1b fell short of our expectation of RM1.2b due to lower-than-expected earnings from Dialog and the digital business.

• Forecast maintained – We are keeping our EPS and revenue forecasts in expectation of earnings momentum by all OpCos going into 2020.

• 2020 KPIs – The management introduced KPIs for 2020: (a) revenue growth of 3.5%-4.5%, (b) EBITDA growth of 4.0%- 5.5%, (c) ROIC of 5.5%-6.0%.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM4.81 based on Sum-Of-Parts (SOP). We expect various OpCos to continue improving given their strong market positions amid regulatory risks and market competition. Earnings will also be buoyed by ongoing cost reduction at group level which has seen savings of RM1.3b in 2019.

• Dividend – Management announced a second interim dividend of 4 sen and a special dividend of 0.5 sen, taking full year dividend to 9.5 sen or a yield of 2%

Source: JF Apex Securities Research - 24 Feb 2020