Axiata’s 9MFY21 beat our expectation, as costs were lower than expected. Revenue across OpCos (except NCell) continued growing on subs growth. XL’s due diligence on LinkNet is still on-going, with management hoping to sign a SPA before year-end. Without confirming rumours of edotco’s potential acquisition of Touch Matrix, management points out that edotco is also looking to grow inorganically. On the strong performance, management raised its FY21 guidance. We raised FY21E/FY22E earnings by 21%/12%. Maintain MP on SoP-TP of RM4.20 on concerns of worsening mobile competition in Malaysia and reduced enterprise service differentiation on the 5G SWN.

9MFY21 above estimates. 3QFY21 core net profit (CNP) of RM394m brought 9MFY21 CNP to RM914m, above our/street’s expectations at 92%/89%. The deviation was mainly due to lower-than-expected operating and D&A expenses. Revenue was in-line at 76% each. No dividends declared in 3QFY21, as expected.

YoY, 9MFY21 revenue rose 6% lifted by all OpCos except for NCell (-3%), which continued to suffer from delays in network rollout. Notably, Celcom’s revenue grew 7%, as a 6% growth in postpaid subs and 17% growth in prepaid subs over the period outweighed the 2% decline in postpaid ARPU and 4% decline in prepaid ARPU. EBITDA rose in tandem by 5%. Higher D&A and non-operating expenses weighed, and PBT fell 5%. Lower tax expense and minority interest helped lift PATAMI by 13%. Removing the non-core forex gains/losses and XL’s gains on tower disposals, CNP rose 67%.

QoQ, 3QFY21 revenue rose 2%, supported by strong revenue growth across all OpCos, save for Celcom, which saw a 31% dip in device sales. Celcom’s ex-device revenue rose 1%. EBITDA rose in tandem by 2%. Lower impairment on receivables and higher other income brought PATAMI up by 26%. Accounting for a forex loss in 3QFY21, CNP rose 30%.

Outlook. As the regional economies continue to recover from the pandemic, the OpCos should continue their growth trajectory from subs growth. 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. Recently, XL has also dismissed the rumours of a merger with SmartFren. Thus, we believe XL’s focus is on its acquisition of LinkNet, which is still going through the due diligence process. Management is hoping to sign a sale & purchase agreement before year-end. On the rumoured edotco acquisition of Touch Matrix, while management did not confirm the rumour, they pointed out that edotco is looking for opportunities to acquire assets across its operating countries, including in Malaysia. We think a deal is likely on the table, but we think the rumoured RM1.8b price tag Touch Matrix is asking for is a hefty price, as that implies an EV/EBITDA of over 32x, which is unjustified for c.460 towers in Pahang.

Raised FY21 guidance. After a strong 9MFY21, management raised its revenue and EBITDA guidance from low-to-mid single-digit percentage growth.

Post results, we raise FY21E/FY22E CNP by 21%/12% mainly on lower D&A expense across the group. Our FY22E CNP has already accounted for the Cukai Makmur tax.

Maintain MARKET PERFORM on unchanged SoP-driven TP of RM4.20. We continue to think that the SWN will potentially bring stiffer mobile competition and reduced differentiation in the enterprise offerings, and thus could act as a de-rating catalyst on Malaysian MNOs, weighing on Axiata’s Celcom Digi stake.

Source: Kenanga Research - 29 Nov 2021