• Back into the black – Axiata’s 4Q21 reported PATAMI of RM116m was a huge improvement against a loss of RM256m in 4Q20 due to higher revenue and lower depreciation. Excluding exceptional items such as forex, derivatives and Ncell goodwill impairment of RM338m, Underlying PATAMI grew 30% YoY to RM414m.

• Higher revenue - Quarterly revenue grew 10% YoY to RM6.9b due to higher contribution from all OpCos except Ncell and Smart.

• Better QoQ – 4Q21 underlying PATAMI increased 4.6% QoQ led by Celcom’s 50% QoQ PATAMI growth while quarterly revenue rose 6% QoQ thanks to revenue growth in all OpCos except Dialog and Robi.

• Narrowed losses from digital services – ADS’ 4Q21 revenue grew 69% YoY and 36% QoQ to RM337m while net loss narrowed 62% YoY and 52% QoQ to RM14m. For FY21, net loss declined 58% YoY to RM113m from RM270m in FY20 following narrowed losses Boost e-wallet at (from RM298m to RM125m) while ADA posted profit of RM32m.

• Steady margins – Axiata maintained its EBITDA margin of 44% thanks to ongoing cost savings initiatives.

• Higher gearing – Net debt/EBITDA was higher at 1.95x vs 1.83x in 3Q21 due to the acquisition of Touch Mindscape as cash reserves decreased to RM7.0b from RM7.3b in 3Q21. Adjusted Operating free cash flow increased to RM1.9b from RM1.0b in the previous quarter.

Earnings Outlook/Revision

• Earnings met expectation – FY21 revenue and normalized PATAMI achieved 99.5% and 108% of our full year forecasts respectively. FY21 underlying PATAMI grew 58% YoY thanks to improved EBITDA from all OpCos, narrowed losses in ADS, and lower interest cost.

• Forecast maintained – As such, we are keeping our FY22 & FY23 forecasts.

• Strong performance by OpCos – For FY21, all OpCos have shown revenue growth (except Ncell) and EBITDA growth (except ADS). For FY21 underlying PATAMI, all OpCos shown earnings growth (except for Celcom and Robi) with the biggest improvement coming from ADS. We expect the OpCos’ earnings momentum to continue in FY22.

• Management guidance - The management guided the following for 2022: a) mid-single digit Revenue growth. b) high-single digit EBIT growth and c) capex of RM7.1b. Axiata’s Boost e-wallet has partnered with RHB to bid for a digital bank license which will be announced by Bank Negara next month.

• Dividend – The management announced a final dividend of 5.5 sen, taking total dividend for the year to 9.5 sen (2.4% yield).

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 restriction measures if the Covid-19 situation worsens, regulatory risks, and 5G rollout in Malaysia.

Source: JF Apex Securities Research - 23 Feb 2022