Results

• Lower core profit – Axiata’s reported 1Q23 net profit stands at RM74m compared to a net loss of RM43m in 1Q22. However, underlying PATAMI declined 79.4% YoY to RM76m due to higher depreciation and amortisation, higher net finance costs and contribution from associate CelcomDigi of RM114m was lower than Celcom’s previous contribution as a subsidiary.

• Higher revenue - Quarterly revenue grew 7.9% YoY to RM5.38b due to higher contribution from all Operating Companies (OpCos) except Ncell and ADA. Excluding forex translation impact of RM572m, revenue grew 19.4% YoY to RM5.95b.

• Lower QoQ earnings – 1Q23 underlying PATAMI declined 81.3% QoQ to RM84m due to reasons mentioned above. This was amid quarterly revenue falling 7.4% QoQ to RM5.38b.

• Steady margins – Axiata’s 1Q23 EBITDA margin stood at 44% as compared to 42% in 4Q22 as EBITDA was flat at RM2.6b while revenue declined 4% QoQ.

• Temporary spike in gearing – Net debt/EBITDA spiked to 3.23x from 2.29x in 4Q22 due to exclusion of Celcom’s EBITDA but is expected to drop to 2.9x in 2Q23 as proceeds of RM2.4b from repayment of Celcom shareholder loan will be used to repay debt. Adjusted Operating free cash flow decreased to RM352m from RM1.21b in 4Q22 following higher capex while cash reserve dropped to RM5.45b from RM7.45b in 4Q22.

Earnings Outlook/Revision

• Earnings below expectation – 1Q23 revenue achieved 28%/25.5% of our/consensus FY23 forecast but underlying PATAMI only achieved 7%/6.4% of our/consensus full year forecasts respectively.

• Forecast reduced – We are slashing our net earnings estimate for FY23 by 24% due to unexpected losses in Link Net, edotco and ADA, and lower than expected performance by XL while keeping our revenue forecast.

• Management guidance - The management maintained its 2023 guidance: a) mid-single digit Revenue growth. b) high-single digit EBIT growth and c) capex of RM7.1b.

Valuation & Recommendation

• Maintain BUY with a lower target price of RM3.72 (previously RM4.02) based on Sum-Of-Parts (SOP).

• Caution ahead – The management remains cautious on macroeconomic challenges such as global inflationary pressures, higher interest rates, currency volatility, and regulatory risks.

Source: JF Apex Securities Research - 26 May 2023