What’s New

We attended Axiata’s virtual Analyst & Investor Day 2021 where the company provided updates on several business units, namely ADA, Boost, edotco, XL and Celcom. Key takeaways:

• ADA (Axiata’s digital analytics and marketing company) aims to achieve RM1b of gross revenue in 2021 (vs RM577m in 2020) and close to RM100m EBITDA in 2021 (vs RM44m in 2020). It targets to become a sustainable and profitable unicorn by 2024 and aims to achieve valuation of US$1b in 2024 (from US$260m in 2020). As of 9M21, ADA achieved net profit of RM27m compared to a net loss of RM6m in 9M20.
• Boost (e-wallet) aims to achieve gross transaction value of RM4.8b in 2021 (vs RM3.bm in 2020) and revenue of RM109m in 2021 (vs RM50.4m in 2020). Boost has achieved positive contribution margin in 3Q21 and expects to be profitable by next year. As of 9M21, Boost posted a narrowed loss of RM110m from RM224m in 9M20. Moving forward, Boost will be focusing on four fronts: a) digital bank, b) buy now, pay later credit offering, c) merchant & B2B business, d) expanding regional presence.
• edotco saw earnings growth affected in 2020 as some of its customers from the small mobile operators went out of business. However, edotco rebounded strongly as shown in its 9M21 performance where revenue grew 4% YoY to RM1.45b while PATAMI rose 20% YoY to RM193m. Growth will be fuelled by rising demand for data and development of 5G. edotco continues to look for opportunities in under connected areas and potential M&A deals.
• XL has been repositioned to serve the young families in Indonesia. This is a large and untapped market segment with 85 million families as no mobile operator and not many digital brands are focusing on families yet. XL is among the firsts to offer convergence and digital solutions and could benefit from its first mover advantage.
• Celcom continues to reap benefits from its transformation programme and has added 1 million subscribers in the past 12 months. As at 9M21, ex-device revenue grew 4.6% YoY to RM4.4b, PATAMI climbed 7% YoY to RM518m and EBITDA margin added 2.7 pps to 418%. The Celcom-Digi merger proposal has been formally accepted by MCMC recently and a decision is expected in 1Q22.

Valuation & Recommendation

• Given the continuous improvement in all operating companies, Axiata is on track to becoming a high-dividend company by 2024 and achieve its target dividend of 20 sen per share, the level which was last paid in 2015.
• 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 - 9 Dec 2021