AXIATA’s FY22 results beat expectations. Its mobile subscription and ARPU improved domestically and across the region as economies reopened, despite some hiccups in frontier markets. We maintain our FY23F earnings, TP of RM3.96 and OUTPERFORM call.

FY22 core net profit of RM1.6b (excluding forex losses and the net one off gain on the disposal of Celcom at RM13.7b) beat our forecast and consensus estimate by 19% and 20%, respectively. The variance against our forecast came largely from the stronger-than-expected performance from regional markets, with the exception of Sri Lanka and Nepal. Similarly, the announced DPS of 14.0 sen exceeded our expectation of 12.0 sen.

Results’ highlights. YoY, FY22 revenue improved 6% to RM27.5b underpinned by a strong recovery in domestic and regional operations (On a restated post deconsolidation basis, revenue saw a 9% advancement to RM21.7b). Revenue was underpinned by specifically Edotco(>+100%), Dialog (Sri Lanka) at 27%, Smart (Cambodia) and XL Axiata (Indonesia) at 9% each. Celcom’s contribution fell 3% on account of its deconsolidation in Dec 2022. EBITDA growth outpaced revenue at 11% led by Edotco (34%) and Robi (Bangladesh) at 17%. PATAMI surged 21% YoY with Celcom being the main driver, growing at 65% though partly offset by Cukai Makmur. Dialog, Ncell and Edotco reported decline in PATAMI, falling 54%, 30% and 42%, respectively, on account of forex losses and higher funding cost, with Edotco incurring higher funding costs following incremental debt for recent acquisitions in Malaysia and the Philippines.

Its mobile subscription continued to be resilient across all Axiata’s telcos with Dialog leading the way, growing 9% YoY and 1% QoQ, followed by Ncell at 2% YoY but flat QoQ. Similarly, blended ARPU saw improvement or stayed stable across all its operating companies, with the exception Ncell which saw a 2nd consecutive quarterly drop (5%) to RM180 on account of inflationary pressure.

The key takeaways from the results briefing are as follows:

1. Based on current momentum across its regional markets, AXIATA guided for a mid-single-digit revenue growth and high-single-digit EBIT growth. However persistent headwinds are expected to persist as inflationary pressures undermine frontier markets such as Sri Lanka, Nepal and Cambodia.

2. It guided for a capex in the region of RM6.5b (FY22: RM7.1b) of which the bulk is for XL (RM2.2b), Edotco (RM1.2b – mainly to build and acquire more telco towers), and Linknet in Indonesia (RM1.5b on fixed broadband).

3. FY23 dividend should be at par with FY22 (at a minimum of 10.0 sen). All its operating companies are committed to a 50% payout but the final level will depend on prevailing headwinds of each market. Ncell is looking to pare down its debts, thus it is unlikely to exceed a 50% payout.

4. Gross debt/EBITDA was at 2.9x as at end-FY22 (vs. 2.6x in FY21) but still below its guidance for 3x (post the Celcom-Digi merger). Its USD-denominated loans rose by 3ppts to 56% but fixed rate loans saw a decline of 3ppts to 64%. With a targeted gross debt/EBITDA level of 2.5x by FY25, AXIATA will be looking to tap into the capital market to fund its expansion, driven by digitalisation of economies.

We maintained our FY23F earnings based on a revenue growth of 5% on account of strong performance from its regional operating companies and introduce FY24 numbers. We keep our SoP-derived TP of RM3.96 (see Page 4). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see page 5).

We continue to like AXIATA for: (i) its strong foothold in the growing telco markets in the region, (ii) its dominant position in the telco tower sector in the region via edotco, and (iii) the strong execution of its M&A strategy, having concluded major acquisitions in Indonesia and the Philippines recently.

Risks to our call include: (i) unfavourable terms with regards to the 5G rollout in Malaysia, and (ii) risks associated with overseas operations.

Source: Kenanga Research - 24 Feb 2023