FY19 CNP of RM959.7m (-5%) missed our expectation from exacerbated losses in its non-mobile segments. However, a total dividends for the year of 9.5 sen was in line. Regional segments continued to do well with more aggressive plans possible with the planned listing of Robi in Bangladesh. We believe the group could leverage on its regional OpCos to weather uncertainties in the local 5G scene. Maintain OP but with a lower SoP-driven TP of RM4.70 (from RM4.80).

FY19 missed our expectations. FY19 core PATAMI of RM959.7m missed our expectations, making up only 89% of our estimate but is in line with consensus’ at 102%. The negative deviation from our earnings was due to overly bullish profit expectations for Robi and the group’s digital business. A 4.0 sen final and 0.5 sen special dividends were announced. We deem the full-year payment of 9.5 sen to be closely within our anticipated 10.0 sen total payment.

YoY, FY19 revenue of RM24.58b (+3%) was driven by higher revenue across all OpCos except: (i) Celcom (-9%) from a shrinkage in both postpaid and prepaid subscribers, and (ii) Ncell from lower international long-distance revenue. Group EBITDA registered at RM10.62b (+27%) in a MFRS 16 environment, while registering at RM9.31b (+12%) before adjustments. This indicates the group has been successful in its initiatives to optimise costs to more favourable levels. Regardless, FY19 core PATAMI slid marginally to RM959.7m (-5%) due to poorer performance from associates and its digital businesses.

QoQ, 4QFY19 revenue was flattish at RM6.23b (+1%). While Celcom (+7%) gained traction from higher ARPUs despite a dip in subscribers, most OpCos failed to deliver similar traction dampened by heightened year-end competition at their respective countries. Nonetheless, core PATAMI rose by 5% as better profit from Celcom was offset by losses in Robi, stemming from higher opex although it must be said that it was profitable for the full year, with prospects improving ahead for listing.

Gears still in motion. With the strengthening presence in most of its regional OpCos, we believe the group’s core mobile businesses should continue to thrive with effective cost management to sustain the group in riding out the aggressive competitive environment. For Celcom, despite lower overall subscribers in 4QFY19 (vs. 4QFY18) of Postpaid 2.96m (vs. 2.99m) and Prepaid 5.41m (vs. 6.10m) with only a slight increment to blended ARPU at RM51/mth (vs. RM48/mth), it still saw a 11% improvement in contributed earnings. For others, XL has notably returned to the black with its successful dual-brand and ex-Java strategies yielding favourable results. Robi is also profitable once more after three consecutive years of losses. With that, the group aims to list Robi in the Dhaka Stock Exchange and Chittagong Stock Exchange with a sale offer of 10% of an enlarged equity base to raise up to RM255m. This would go towards expanding its network in Bangladesh and market share (c.30%, second largest in the country). The listing on edotco may not be a priority to management at this moment. Meanwhile, the group’s digital business may still struggle to become profitable. Management mulls that further monetisation and collaboration could be needed for this segment.

Post-results, we slash our FY20E earnings by 16% mainly from stretching our expected losses from the group’s digital businesses. Meanwhile, we also introduce our FY21E numbers.

Maintain OUTPERFORM but with a lower SoP-driven TP of RM4.70 (from RM4.80). Our SoP-driven TP implies a 5.6x FY20E EV/Fwd EBITDA, which is - 1.5SD below the stock’s 3-year average. We believe investors could be hesitant on the stock and its peers currently, awaiting further developments in the 5G scene. Regardless of the outcome and boons or banes from being a participant in the selected consortium, we believe that AXIATA’s growth strategies in the emerging markets would serve as a solid base against local challenges, which its peers lack.

Source: Kenanga Research - 24 Feb 2020