• Profit impacted by depreciation – Axiata’s reported a PATAMI of RM76m in 1Q21, falling 60% YoY due to accelerated depreciation of RM126m at Celcom and Robi. However, underlying PATAMI rose 85% YoY to RM231m mainly due to lower losses from digital services and higher EBITDA contribution from Celcom.

• Flat revenue - Quarterly revenue inched up 0.5% YoY to RM6.06b. Excluding losses from forex translation, revenue grew 3.2% YoY to RM6.23b due to higher contribution from all operating companies (OpCos) except XL and Ncell.

• Lower QoQ – 1Q21 underlying PATAMI dropped 30% QoQ due to accelerated depreciation and higher tax from Robi and XL. Quarterly revenue declined 3.2% QoQ due to lower contribution from digital services, Smart and XL.

• Stable OpCos - Among the OpCos, Celcom posted steady revenue but earnings were impacted by accelerated depreciation of RM123m. Other OpCos recorded stable performances after lockdown restrictions were lifted.

• edotco back into the black – edotco posted a PATAMI of RM91m vs loss of RM21m in 4Q20. EBITDA margin rose 17.7 ppt to 64.1% from the previous quarter as the tower business experienced limited impact form the Myanmar coup so far.

• Narrowed losses from digital services – ADS’ 1Q21 revenue grew 30.5% YoY but dropped 44% QoQ to RM112m while net loss narrowed 72% YoY and 44% QoQ following lower losses in Digital Financial Services.

• Resilient margins – Despite challenges on the topline, Axiata maintained its EBITDA margin of 44%.

• Steady gearing – Net debt/EBITDA was flat at 1.9x while cash reserves depleted to RM6.6b in 1Q21 from RM7.2b in 4Q20 following debt repayment. Adjusted Operating free cash flow improved significantly to RM710m from RM273m a year ago.

Earnings Outlook/Revision

• Earnings met expectation – 1Q21 revenue and normalized PATAMI achieved 26% and 24% 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 resilient demand for data and improved profit contribution from edotco and digital services.
   
• Risks include: Covid-19 situation worsens, regulatory uncertainties and Myanmar coup

Source: JF Apex Securities Research - 27 May 2021