• Earnings tumbled – Axiata’s reported 2Q20 PATAMI plunged 58% YoY to RM80m while underlying PATAMI dropped 81% YoY to RM44m due to higher depreciation & amortisation, lower revenue due to Covid-19 and higher losses from digital business due to e-Tunai Rakyat contribution. Amid Covid-19, management estimates revenue loss of RM400m and has handed out RM80m in CSR assistance.

• Decline revenue - Quarterly revenue dropped 6% YoY to RM5.67b due to lower contribution from all operating companies (OpCos) except XL, Robi and Smart.

• Lower QoQ – 2Q20 underlying PATAMI tumbled 65% QoQ while revenue fell 4% QoQ.

• Challenging year - For the first six months, 1H20 reported PATAMI dropped 72% YoY to RM268m while underlying PATAMI declined 62% YoY to RM166m due to one-off items namely Celcom employee restructuring cost (RM77m) and XL’s gain from tower sale (RM299m), as well as forex loss (RM103m). Meanwhile, 1H20 revenue was 2.3% YoY lower at RM11.83b.

• Stable gearing – Net debt/EBITDA inched up to 2.06x vs 2.05x in 1Q20.

Earnings Outlook/Revision

• Earnings below expectation – 1H20 revenue and EBITDA came within forecasts but PATAMI of RM166m only achieved 23% of our full year forecast.

• Forecast slashed – We are reducing our FY20 EPS forecast by 31% following the higher-than-expected loss in digital business as well as higher tax rate.

• Dividend – Axiata declared an interim dividend of 2 sen/share.

• COVID-19 update – In 2Q20, Axiata felt the full impact of Covid-19 in April but has since started to recover with revenue growth climbing back to pre-lockdown levels.

Valuation & Recommendation

• Maintain BUY with a lower target price of RM3.93 (previously RM4.15) based on Sum-Of-Parts (SOP). We expect earnings growth to accelerate in 2H20 with lockdowns being lifted and economies restarting.

Source: JF Apex Securities Research - 28 Aug 2020