9MFY20 CNP of RM546.2m (-21% YoY) beat expectations as the group registered a swifter-than-expected recovery in regional OpCos. There is still caution in the near term as the group’s operations are still susceptible to the socio-economic impact of Covid-19 with the performance of its digital assets still posing uncertainties. Edotco’s prospect for monetisation has been refreshed but might only materialise in 3-5 years. Maintain MP with a higher SoP-driven TP of RM4.00 (from RM3.20) as we upgrade FY20E/FY21E earnings by 33%/32%.

9MFY20 beat estimates. AXIATA’s 9MFY20 core PATAMI of RM547.2m came above expectations, making up 102%/85% of our/consensus full-year estimate. The positive deviation is thanks to better-than-expected numbers by Celcom, Dialog and NCELL. The latter two disappointed greatly in 2QFY20 and we did not expect recovery to be reflected that quickly. No dividends were declared, as expected.

YoY, 9MFY20 revenue declined by 2% to RM17.94b. Overall, Celcom (-8%) and Ncell (-27%) were weaker as ARPUs eroded from mandated free data and physical distribution being impeded by movement restrictions but this was compensated mainly by XL’s (+5%) increasing penetration in the ex-Java region. Despite the lower revenue, group EBITDA was flattish thanks to better cost management from operational restructuring. However, core PATAMI for 9MFY20 came in at RM546.2m (-21%) from greater depreciation and minority interest charges.

QoQ, 3QFY20 revenue gained 6% on the back of growth from all segments post 2QFY20’s lull from Covid-19 movement controls. All OpCos registered APRU improvements but certain markets experienced losses in total subscribers.

Pepping up but cautiously. Overall, all OpCos seem to be recovering from the effects of Covid-19 and the enforced movement restrictions in the respective countries. We opine that the group would revitalise its capex plans in enhancing its network capabilities and coverage. The group’s operational excellence initiatives appears to have reach its maturity, with management keeping from providing further details on its next course of action in terms of cost saving efforts. Meanwhile, the group is touting on edotco being ripe for monetisation within the next 3-5 years, though the health of its books is not dependent on it materialising. We are not overly moved by this as this is not the first mention of the group considering a potential spin-off of the towerco business. With the year wrapping up, management guided an expectation for a low single-digit decline in group revenue and EBITDA, with Covid-19 concerns and implications still looming.

Post-results, we raise our FY20E/FY21E earnings by 33%/32% on better overall performance from most OpCos (particularly NCELL). In lieu of the better earnings, we raise our dividend assumptions from 5.5 sen/5.5 sen to 7.0 sen/8.0 sen.

(refer to the overleaf for comments on Celcom)

Maintain MARKET PERFORM but with a higher SoP-driven TP of RM4.00 (from RM3.20, previously). Our SoP-driven TP implies 4.6x FY21 EV/Fwd. EBITDA, which is 2SD below the 3-year average. While the group registered a surprise earnings bumper in 3QFY20, there could be some earnings risk in terms of extended losses from the digital segment and the sensitivity of its regional OpCos against further movement restrictions. While the group aims to be more dividend generous, current yields might not be attractive to certain investors.

Risks to our call include: (i) better/weaker-than-expected performance at Celcom and regional OpCos, (ii) better/poorer-than-expected costs management, and (iii) higher/slower-than-expected growth from edotco.

Source: Kenanga Research - 30 Nov 2020