• Further forex loss – Axiata posted a net loss of RM106m in 2Q22 compared to PATAMI of RM278m in 2Q21, mainly due to unrealised forex losses following the depreciation of the Sri Lankan rupee (LKR). The LKR/USD further weakened by 22.7% in 2Q after losing 45% in 1Q. Excluding the forex loss, Underlying PATAMI grew 13.6% YoY to RM343m with Celcom leading the earnings growth.

• Higher revenue - Quarterly revenue grew 4.9% YoY to RM6.7b due to higher contribution from all Operating Companies (OpCos) except ADS.

• Lower QoQ – 2Q22 underlying PATAMI decreased 7% QoQ to RM344m mainly due to earnings decline in Dialog (Sri Lanka). Quarterly revenue rose 3.6% QoQ to RM6.7b due to higher sales in all OpCos except Boost.

• Steady margins – Axiata maintained its EBITDA margin of 45% thanks to cost savings initiatives of RM645m (capex RM388m and opex RM257m). All OpCos delivered EBITDA growth except for Dialog and Ncell (Nepal).

• Higher gearing – Net debt/EBITDA was higher at 2.48x vs 1.99x in 1Q22 due to higher debt to fund acquisitions of Link Net and Philippines towers. Adjusted Operating free cash flow stands at RM966m while cash reserve increased to RM6.6b from RM5.78b 1Q21.

• Dividend deferred – The management has deferred its interim dividend in light of recent macroeconomic headwinds. Apart from Sri Lanka, there is now some USD liquidity pressures in Bangladesh. Earnings

Outlook/Revision

• Earnings within expectation – 1H22 revenue and underlying PATAMI achieved 51% and 57% of our full year forecasts respectively.

• Forecast maintained – We expect forex loss to be minimal in 3Q22 as the Sri Lankan rupee has stabilised around 360 rupees/USD in July and August.

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

• Project Resilience – Axiata’s management has embarked on Project Resilience to build resilience in the face of macroeconomic crisis by learning from Dialog’s challenges in Sri Lanka and sharing them group-wide.

Valuation & Recommendation

• Maintain BUY with a lower target price of RM3.65 (previously RM4.18) based on Sum-Of-Parts (SOP) following lower EV/EBITDA from Dialog as we expect some forex losses will be realized next year upon the repayment of Dialog’s USD debts.

• Caution ahead – Going forward, the management is cautious on macroeconomic challenges that could impact its KPIs such as Global inflationary pressures, higher interest rates, currency volatility, and regulatory risks. Potential catalysts include the Celcom-Digi merger and progress in DNB discussions

Source: JF Apex Securities Research - 29 Aug 2022