Result

• Losses due to 3G shutdown – Axiata’s posted a LATAMI of RM256m in 4Q20 vs PATAMI of RM333m in 4Q19 due to accelerated depreciation and assets write-off related to 3G shutdown amounting to RM1.07b. Excluding the one-offs, underlying PATAMI rose 22% YoY to RM326m due to ongoing cost excellence.

• Flat revenue - Quarterly revenue dropped 0.1% YoY to RM6.26b due to lower contribution from operating companies (OpCos) such as Celcom, XL and Ncell.

• Lower QoQ – 4Q20 underlying PATAMI dropped 14% QoQ due to higher depreciation and amortisation (D&A) by RM169m. Quarterly revenue rose 2.5% QoQ following higher contribution from all OpCos except XL and Robi.

• edotco falls into the red – Due to the easing of lockdown restrictions, all OpCos showed QoQ improvement except for Ncell and Robi which saw PATAMI declined 34% QoQ and 33% QoQ respectively.

• Challenging year – FY20 reported PATAMI dropped 75% YoY to RM365m due to 3G assets-related depreciation and write-off as well as lower one-off gains. Meanwhile, underlying PATAMI declined 9% YoY to RM869m due to higher D&A by RM337m and higher losses arising from e-Tunai Rakyat programme. Revenue for FY20 was 1.5% YoY lower at RM24.2b due to lower contribution from Celcom and Ncell.

• Strong margins – Despite challenges on the topline, Axiata posted an EBITDA margin of 44% in 2020 compared with 43.2% in 2019.

• Steady gearing – Net debt/EBITDA was flat at 1.89x while cash reserves depleted to RM7.2b in 4Q20 from RM10.7b in 3Q20 following debt repayment. Operating free cash flow improved significantly to RM3.26b from RM1.89b in 2019.

Earnings Outlook/Revision

• Earnings met expectation – FY20 revenue and normalized PATAMI achieved 104% and 104% of our full year forecasts respectively.

• Forecast maintained – As such, we are keeping our FY21 EPS forecast.

• Management guidance - The management has guided a low single digit % growths for both revenue and EBITDA in 2021 as well as capex of RM6.5b.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM4.53 based on Sum-Of-Parts (SOP). We expect earnings growth to sustain given the increased demand for data amid the pandemic.
• Risks include: Covid-19 situation worsens, Regulatory uncertainties in Malaysia, Indonesia and Nepal and possible dad debt provision for edotco

Source: JF Apex Securities Research - 26 Feb 2021