FY20 CNP of RM865m (-10%) beat our/consensus expectations. FY20 DPS of 7.0 sen declared as expected. Looking ahead, regional OpCos seem poised for a recovery. Axiata Digital Services is also gaining traction with user growth and profitability. MyDigital serves as a tailwind for edotco and Boost. We increase FY21E CNP by 33% and introduce FY22E CNP of RM1.03b. FY21E/FY22E DPS of 8.0 sen/9.0 sen. Maintain OUTPERFORM on higher SoP-TP of RM4.40.

FY20 beat estimates. FY20 CNP of RM865m came above expectations, exceeding our/consensus full-year estimates by 23%/11%. The positive deviation is thanks to better-than-expected numbers by Celcom and Smart, with Celcom’s subs (8.7m) rebounding beyond pre-pandemic levels. A final interim dividend of 5.0 sen was declared, bringing FY20 DPS to 7.0 sen, as expected.

YoY, FY20 revenue declined by 3% to RM24.2b. Overall, Celcom (-7%) and NCell (-25%) were the only OpCos with declining revenue. Despite Celcom’s subscriber recovery (8.6m vs. FY19 8.4m), its ARPU eroded in FY20 (RM46/mth vs. 4Q19 RM53/mth) from mandated free data and unlimited prepaid packages, which are competitively priced. NCell in Nepal was affected by prolonged lockdowns, spectrum constraints, and lower subs (15.7m vs. FY19 of 16.9m) and ARPU (NPR 221/mth vs. FY19 NPR 250/mth). Despite the lower revenue, Group EBITDA remained flat on the back of better performance from most OpCos. Excluding one-offs, CNP of RM865m (-9.8%) was mainly impacted by higher depreciation, and higher marketing spend for Boost.

QoQ, revenue rose 3% on the back of growth from most segments, save for XL and Robi. All OpCos registered higher subs, but also experienced lower ARPUs, save for NCell. CNP fell 14.7% on higher depreciation by RM169m and lower contribution from XL and edotco.

Steady progress. Moving forward, we expect subs across OpCos to continue recovering from easing lockdowns. While persistent price competition and slow economic recovery may present headwinds in some markets, management continues to focus on cost optimisation. Axiata Digital Services (ADS) looks to ride its growth momentum into FY21, with MyDigital potentially expediting e-wallet adoption, boosting Boost. On the back of RM860m capex and potential tailwinds from the 5G SPV, edotco is poised for a recovery in FY21, in our view. Continuing it’s strive to be a “high dividend” company, the Group continues to prudently manage its cash flows, such as by taking advantage of the low interest rate environment to raise funds. For FY21, management guided low single-digit revenue and EBITDA growth on the back of RM6.5b capex.

Post-results, we raise FY21E CNP by 33% to RM938m (+8%) on better overall performance from most OpCos. We introduce FY22E CNP of RM1.03b (+10%). As management has DPS targets instead of payout targets, FY21E DPS of 8.0 sen remains intact and we expect FY22 DPS of 9.0 sen.

(refer to the overleaf for comments on Celcom)

Maintain OUTPERFORM as we raise our SoP-driven TP to RM4.40 (from RM4.30). The increase is mainly due to slightly better long-term prospects from Celcom and XL in their respective DCF computation. We also believe market will react well to further positive news on Axiata’s Digital Services, as well as possible consolidation news, particularly in Indonesia.

On Celcom, the brand has managed to gain some momentum within the prepaid segment thanks to its unlimited data offerings, providing a boost to subs (4QFY20: 5.6m subs vs. 3QFY20: 5.4m subs). However, the competitive pricing of the offering dragged on prepaid ARPU (4QFY20: RM30/mth; 3QFY20: RM32/mth). Postpaid subs have also steadily risen to 3.03m from 2.96m in the previous quarter, while ARPU remained flat at RM84/mth.

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

Source: Kenanga Research - 26 Feb 2021