Results

• Improved core profit – Axiata’s reported 4Q22 net profit stands at RM9.97b boosted by gain on Celcom disposal of RM13.5b but offset by RM4.1b in goodwill impairment for Ncell, XL and Dialog.

• The goodwill impairment (RM2.6b in Ncell, RM1.5b in XL and RM55.2m in Dialog) was due to higher WACC from higher interest rates and market risk premium. Excluding the exceptionals, underlying PATAMI grew 22% YoY to RM500m mainly due to Celcom’s cost control measures.

• Higher revenue - Quarterly revenue grew 3% YoY to RM7.09b due to higher contribution from all Operating Companies (OpCos) except Celcom, Ncell and ADA.

• Better QoQ earnings – 4Q22 underlying PATAMI grew 32% QoQ to RM495m mainly due to higher profit from Celcom. This was despite quarterly revenue falling 2.4% QoQ to RM7.09b.

• Steady margins – Axiata’s 4Q22 EBITDA margin stood at 47% as all OpCos delivered growth except for Dialog, LinkNet and edotco.

• Lower gearing – Net debt/EBITDA was lower at 2.29x vs 2.56x in 3Q22. Adjusted Operating free cash flow improved to RM1.21b from RM825m in 3Q22 while cash reserve was steady at RM7.45b vs RM7.7b in 3Q22.

• Dividend announced – Axiata announced a second dividend of 5 sen, taking full year dividend to 14 sen or a decent yield of 4.4%.

Earnings Outlook/Revision

• Earnings beat expectation – 2022 revenue (+6.3% YoY to RM27.5b) and underlying PATAMI (+21% YoY to RM1.6b) achieved 98%/102% and 111%/125% of our/consensus full year forecasts respectively.

• Forecast maintained – We are keeping our revenue and EPS forecasts for FY23 and FY24.

• Management guidance - The management introduced its 2023 guidance which is similar to 2022: a) mid-single digit Revenue growth. b) high-single digit EBIT growth and c) capex of RM7.1b.

Valuation & Recommendation

• Maintain BUY with an unchanged target price of RM4.02 based on Sum-Of-Parts (SOP).

• 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.

Source: JF Apex Securities Research - 24 Feb 2023