AXIATA’s 1QFY24 results tracked expectations. Earnings were mainly anchored by XL and Smart, which more than eclipsed losses at Dialog and Link Net. In particular, XL achieved multi-year record quarterly earnings as ARPU reached an all-time high on easing competition. We maintain our forecasts, TP of RM3.00 and OUTPERFORM call.

Within expectations. Its 1QFY24 core net profit of RM189.9m tracked expectations – coming in at 29% and 28% of our full-year forecast and the consensus estimate, respectively.

Earnings powered by XL and Smart. YoY comparisons are not meaningful given that 1QFY24 figures exclude NCell and Edotco’s Myanmar operations. Nevertheless, for the other subsidiaries, there was normalized YoY PATAMI expansion across the board, except for Dialog and Link Net.

1QFY24 earnings were mainly anchored by XL and Smart as the latter’s YoY profits were uplifted by strong data growth and higher interest income.

Meanwhile, XL delivered multi-year record quarterly earnings and strong YoY growth due to: (i) surge in ARPU to all-time high of IDR44k (+10%) given a rationale pricing environment, (ii) improved contribution from data and digital services, and (iii) savings in direct cost and sales &marketing.

To a lesser magnitude, Edotco also delivered commendable YoY profit expansion. This was mainly attributed to (i): increased co-location and buildto-suit solutions at Bangladesh, Cambodia and Philippines, and (ii) lower manpower costs,

On a less encouraging note, after having turned around for two quarters, Dialog slipped back into the red in 1QFY24 due to multiple cost drag. Moreover, its YoY losses widened due to higher interest costs after refinancing its USD debt to LKR at higher rates.

Meanwhile, Link Net’s sequential losses more than halved on the back of lower opex. However, YoY losses expanded due to higher depreciation and finance costs following increased roll-out of home passes for XL.

Forecasts. Maintained.

Valuations. We also maintain our Sum-of-Parts TP of RM3.00 per share (refer below). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We continue to like AXIATA for: (i) its plans to deleverage and strengthen its balance sheet, (ii) growth prospects for digital telcos and tower assets at emerging markets, and (iii) strong asset monetization prospects for its digital businesses and Edotco. Maintain OUTPERFORM.

Risks to our call include: (i) a strong USD may weigh on the performance of its digital telcos at frontier markets (e.g. Robi Bangladesh, Dialog Sr Lanka, Smart Cambodia), (ii) gestational earnings and cashflow drag from Link Net’s aggressive expansion, and (iii) capex up-cycle from looming implementation of 5G at Indonesia.

Source: Kenanga Research - 30 May 2024