Axiata’s 2QFY21 CNP of RM302m brought 1HFY21 within our estimate. 2QFY21 DPS of 4.0 sen is as expected. Celcom and most regional OpCos continued posting revenue growth driven by subs growth. Axiata Digital Services’ losses continued to narrow, poised to be profitable in FY22. M&A discussions in both Malaysia and Indonesia are making good progress, and management has hinted that they will not shy away from future M&A opportunities to achieve scale. Post results, we maintain our estimates, OP call and SoP-TP of RM4.45, implying 5.5x EV/FY22 EBITDA.

1HFY21 within estimates. 2QFY21 CNP of RM302m brought 1HFY21 CNP to RM521m, within our/street’s expectations at 52%/53%. 2QFY21 DPS of 4.0 sen brought 1HFY21 DPS to 4.0 sen, in-line with our FY21 estimate of 8.0 sen.

YoY, 1HFY21 revenue rose 5% lifted by all OpCos, except (i) XL, which suffered from stiffer competition in 1QFY21, and (ii) NCell, which suffered from churn, caused by lack of coverage and slow rollout of their network. Continued cost management brought EBITDA up by 8%. All in, CNP rose by 203% on: (i) lower losses from Axiata Digital Services, (ii) lower net finance cost, (iii) markedly lower impairment on receivables and (iv) higher other income.

QoQ, 2QFY21 revenue rose 5%, supported by strong revenue growth across all OpCos. Note that while Celcom’s revenue fell 0.7%, its revenue ex-device rose 3% on encouraging prepaid take-up. NCell continued to underperform due to the prolonged lockdowns in Nepal, exacerbating the aforementioned woes. EBITDA rose in tandem by 4%, outpaced by PBT which increased 67% due to lower accelerated depreciation of 3G network and lower forex losses on financing activities. CNP rose by 38%, buoyed by a lower effective tax rate (31.8% vs 1QFY21: 48.2%)

Outlook. Despite the prolonged delay in economic recovery in the regional markets, we think the OpCos have hit a sweet spot in acquiring and retaining subs, and thus will continue to post growth in the coming quarters. We think that Axiata Digital Services (ADS) will continue to post strong revenue growth driven by: (i) recovery in merchant transactions, (ii) higher digital marketing spend, and (iii) continued growth in users. At the current rate of margin improvement, ADS should be profitable by FY22. We gather that the Celcom Digi merger is progressing well, as engagements with MCMC have been smooth and there is enthusiasm between both telcos to merge. On XL’s proposed acquisition of Link Net, management indicated that the funding could be from either XL or Axiata. Management has also hinted that they will not shy away from more M&A deals, even if it’s earnings dilutive in the near-term, as they look to achieve scale across their operating markets. While we do not anticipate any new deals in the nearterm, as the focus is currently on Celcom’s and XL’s deals, we would not be surprised of future mobile and/or fixed deals in its other operating markets.

Post results, we maintain our FY21 and FY22 estimates.

Maintain OUTPERFORM on unchanged SoP-driven TP of RM4.45. Our TP implies EV/FY22 EBITDA of 5.5x, close to its 3-year mean. All in, we think the market will continue to favour Axiata for: (i) its exposure to the regional economic recovery, (ii) continued growth and improving profitability at ADS, (iii) edotco’s growth prospects from more 5G sites.

Source: Kenanga Research - 30 Aug 2021