We are positive on AXIATA 5.0 aspiration to transform itself to a telco-tech company (from a telco company). Reflecting the deconsolidation of Celcom’s earnings following the completion of the Celcom-Digi merger, we cut our FY22-23F net profit forecasts by 3% and 16% respectively. BUY with TP of RM3.96. We continue to like AXIATA for: (i) its strong foothold in the growing telco markets regionally, (ii) its dominant position in the telco tower sector in the region via EDOTCO, and (iii) the strong execution of its M&A strategy, following acquisitions in Indonesia and the Philippines recently and iv) sustainable and diverse revenue stream from mobile operations, telco infra and digital.

CELCOM-DIGI legally came into being on 1 Dec 2022. The final cash and settlement received from the merger will be at RM5.2bn (RM2.8bn in cash-higher due to the strong performance of CELCOM). Meanwhile, with the successful conclusion of AXIATA mandatory tender offer in 4Q 2022, AXIATA’s stake in LinkNet now stands at 79.5%. Recall, XL Axiata aspires to become the leading convergence operator in Indonesia, strengthening its synergy with LinkNet via cross selling to 800k home subscribers. With >3m home broadband customers in 27 cities. LinkNet expects a to double its market share in 3-5 years.

EDOTCO, currently the 6th largest tower infra globally will capitalise on 5G deployment in Malaysia and at the same time accelerating its growth in both Indonesia and the Philippines which are categorised as growth markets. Together with Malaysia and Bangladesh (core markets) these markets will contribute 85% in revenue and 87% in EBITDA in the long term. 80% of towers owned by EDOTCO will be coming from both these markets.

AXIATA is targeting a gross debt/EBITDA of 2.5x by 2025 and a DPS of 20 sen by 2027. In the immediate term, the company is committed to a DPS of 10 sen.

Source: Rakuten Research - 5 Dec 2022