Flat profit – Axiata’s 3Q21 reported PATAMI slipped 1% YoY to RM350m due to forex and one-off provisions. Excluding forex impact, underlying PATAMI rose 5% YoY to RM394m due to lower losses from digital services and higher EBITDA contribution from OpCos.

Higher revenue - Quarterly revenue grew 7.1% YoY to RM6.54b due to higher contribution from all OpCos except Ncell and ADS.  Better QoQ – 3Q21 underlying PATAMI increased 29% QoQ due to lower accelerated depreciation and higher EBITDA by all OpCos except Ncell and edotco. Quarterly revenue rose 2.4% QoQ due to higher contribution from all OpCos except Celcom, Ncell and ADS.

Slower tower business – edotco’s 3Q21 PATAMI declined 2% YoY and 7% QoQ to RM41m on the back of a 7% YoY and 5% QoQ revenue growth to RM503m driven by Malaysia and Bangladesh markets.

Narrowed losses from digital services – ADS’ 3Q21 revenue grew 91% YoY but dropped 13% QoQ to RM247m while net loss narrowed 40% YoY and was unchanged QoQ at RM29m. For 9M21, net loss declined 60% YoY to RM97m from RM243m in 9M20 following narrowed losses Boost e-wallet at (from RM224m to RM110m) while ADA posted profit of RM27m.

Strong margins – Axiata maintained its EBITDA margin of 44% thanks to operating cost savings of RM378m in 3Q21. 

Steady gearing – Net debt/EBITDA was slightly lower at 1.83x vs 1.85x in 2Q21 while cash reserves increased to RM7.3b from RM7.0b in 2Q21. Adjusted Operating free cash flow improved to RM1.0b from RM786m in the previous quarter.

Earnings Outlook/Revision

Earnings met expectation – 9M21 revenue and normalized PATAMI achieved 79.6% and 100% of our full year forecasts respectively.

Forecast lifted – As such, we are raising our FY21 revenue and EPS forecasts by 3.7% and 24% respectively. Our FY22 revenue and EPS estimates are also lifted by 4.8% and 23% respectively.

Management guidance - The management upgraded its guidance of “low single digit growths for both revenue and EBITDA in 2021, and capex of RM6.5b” to “mid-single digit growths for revenue and EBITDA, and capex of RM6.9b”.

Merger update – The Celcom-Digi merger proposal has now been formally accepted by MCMC.

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 profitability from digital services.

Risks include: new lockdown measures if the Covid-19 situation worsens, regulatory risks, 5G rollout in Malaysia and slower than expected recovery in Ncell.

Source: JF Apex Securities Research - 29 Nov 2021