• Into the red – Axiata posted a net loss of RM43m in 1Q22 compared to PATAMI of RM76m in 1Q21, mainly due to RM477m of unrealised forex loss following the depreciation of the Sri Lankan rupee and Ringgit. Out of the forex loss, RM387m came from Dialog’s USD-denominated debt as the rupee weakened 46% to 293.87 rupees/USD in 1Q22. Excluding the forex loss, Underlying PATAMI grew 71% YoY to RM373m.

• Higher revenue - Quarterly revenue grew 6.7% YoY to RM6.47b due to higher contribution from all OpCos except Ncell.

• Lower QoQ – 1Q22 underlying PATAMI decreased 8.8% QoQ due to earnings decline in all OpCos except Robi and edotco. Quarterly revenue dropped 4.4% QoQ due to lower sales in all OpCos except edotco.

• Steady margins – Axiata maintained its EBITDA margin of 45% thanks to cost savings initiatives of RM241m (capex RM163m and opex RM78m).

• Higher gearing – Net debt/EBITDA was higher at 1.99x vs 1.95x in 4Q21. Adjusted Operating free cash flow stands at RM904m while cash reserve declined to RM5.78b from RM6.97b in 4Q21.

Earnings Outlook/Revision

• Earnings within expectation – 1Q22 revenue and underlying PATAMI achieved 24.5% and 29.6% of our full year forecasts respectively.

• Forecast reduced – We expect forex loss to continue in 2Q22 as the Sri Lankan rupee further depreciated to 360 rupee/USD recently. Currently, Dialog has two USD unsecured loans amounting to RM877m that are maturing in January 2023. Although, the forex loss is currently not realized, the significant amount could be realized if the Sri Lankan rupee does not recover by then. As such, we are lowering our FY23 EPS forecasts by 24% while maintaining our FY22 figures.

• Management guidance - The management maintained its 2022 guidance of: a) mid-single digit Revenue growth. b) highsingle digit EBIT growth and c) capex of RM7.1b.

Valuation & Recommendation

• Maintain BUY with a lower target price of RM4.18 (previously RM4.53) based on Sum-Of-Parts (SOP).
• Risks include: Global inflationary pressures, higher interest rates, currency volatility, regulatory risks, and deadlock in DNB negotiations.

Source: JF Apex Securities Research - 26 May 2022