AXIATA hosted its annual Analyst & Investor Day virtually. We came out feeling reassured that its OpCos are growing as expected, and that its 2024 aspirations are on track. We turned more positive on Axiata Digital Services, with better-than-expected prospects ahead. We fine tune and raise FY22E earnings, and raise FY21E/FY22E DPS from 8.0/10.0 sen to 9.0/12.0 sen. Upgrade to OUTPERFORM (from MP) on higher SoP-TP of RM4.30 (from RM4.20), premised on share price weakness and higher valuation for ADS, which we think will increasingly drive investor interest.

Tailwinds behind Axiata Digital Services (ADS) may be stronger than we expected, with its guided FY21 sales of RM1.1b exceeding our RM700m projection. Strong sales and increasing scale will continue lifting ADS’ EBITDA growth and expediting Boost's path to profitability. ADS' e-commerce and digital marketing segments should continue to see strong growth for years to come. Continued e-wallet adoption and Boost's healthy loan growth should bring it to be EBITDA positive in FY22.

edotco’s continued growth. edotco continues to expand regionally (inorganically in new markets) to be the top 5 tower company globally, vs. its current rank of 7th place and 16th last year. No guidance on IPO timeline, but edotco continues to work on achieving scale to attract a higher valuation. Post-acquisition Debt/EBITDA of 2x provides edotco ample room to borrow for further acquisitions, with management eyeing 3.5x or higher to optimize its balance sheet.

Axiata 5.0 on track. Both Celcom and XL continue to drive growth via convergence propositions, with cost-savings initiatives. Axiata is set to meet its 5: 10: 20: 20 targets - in 5 years (by 2024), to achieve: (i) cost of <10 cents/GB, (ii) Group EBIT margin of >20% (~15% YTD), and (iii) DPS of 20 sen, with edotco as a key future contributor.

Post-briefing, we maintain our FY21E estimates, but fine tune FY22E earnings upwards by 3%, after tweaking assumptions across the board. We raise FY21E DPS from 8 sen to 9 sen, as guided on the briefing (with room for upside surprises), and FY22E NDPS from 10 sen to 12 sen.

Upgrade to OUTPERFORM from MP on higher SoP-TP of RM4.30 (from RM4.20), premised on recent share price weakness and higher ADS valuation in SoP. We also think there will be heightened excitement around ADS moving into FY22, partially driven by greater visibility on the business. We switch our ADS valuation from 3.5x EV/Sales to 30x EV/EBITDA, as we have greater visibility of its track to profitability. Note that there is room for upside in our SoP-TP should we raise the Celcom Digi valuation on potential positive developments on the 5G rollout.

Risks to our call include: (i) weaker-than-expected performance at Celcom and regional OpCos, (ii) poorer-than-expected costs management, (iii) the proposed Celcom Digi merger failing to obtain the necessary approvals, and (iv) stronger-than-expected competition.

Source: Kenanga Research - 9 Dec 2021