• Keep BUY with higher SOP-derived TP of MYR4.37 from MYR4.13, 39% upside and c.4% yield. FY22 results trumped expectations with most operating companies exhibiting strong YoY growth. Our forecasts are adjusted for the deconsolidation of Celcom’s earnings. We see a 24% core earnings decline in FY23F before staging a rebound in FY24F (+26%). Stock valuation remains undemanding with forward EV/EBITDA at -1.5 SD below historical mean.

• MYR4.1bn impairment charges for Dialog, Ncell, and XL. FY22 revenue, EBITDA and core earnings were up 6.3%, 9%, and 20%. This excludes: i) gains from the disposal of Celcom (MYR13.5bn), and ii) MYR4.1bn goodwill impairment booked on Ncell, XL Axiata (EXCL IJ, BUY, TP: IDR3,140), and Dialog during the quarter, reflecting the higher cost of capital and difficult macro conditions in the frontier markets. Relative to our/consensus’ forecasts, full year core earnings were 9%/24% higher, with Celcom and edotCo’s outperformance outflanking Ncell and Dialog. Full year numbers include contribution from Celcom (11 months to end-November). A second interim dividend of 4 sen/share brings full year payout to 14 sen/share (FY21: 9.5 sen) - the highest in seven years.

• Up and away. The dim spots continue to be Ncell (lower international long distance and core revenues) and Dialog (higher network cost). Revenue (ex- device) and EBITDA grew 10.3%/11.4% on constant currency terms. Key earnings drivers were Celcom (+65%), Robi (+61%), and Smart (+14%). Celcom contributed MYR1.35bn to group PAT (11 months), a 44% jump on opex savings. XL’s service revenue benefitted from data repricing in the market with FY22 EBIT up 9.8%. Meanwhile, edotCo’s revenue and EBIT surged 25%/24% from inorganic acquisitions, specifically additional revenue generating sites procured from the Philippines (4Q22: 2,335/2Q22: 1,604) and Malaysia (Touch Mindscape) as well as higher colocations in Bangladesh.

• Positive above the line guidance. Axiata is guiding for FY23F revenue growth (ex-device) of mid- single digit and high single digit for EBIT from continuing operations (excluding Celcom where the group has accounted for its 33.1% associate share from Dec 2022). We lower our FY23-24 forecasts by 13-15%, mainly to factor in the de-consolidation of Celcom’s earnings (partially offset by share of associates line), new capex assumptions as per management’s guidance (MYR7.1bn), and our recent revision in XL’s forecast post its results release.

• Key downside risks are competition, weaker than expected earnings, FX weakness and regulatory setbacks across its mobile footprint. Our SOP valuation has a 2% premium for ESG, riding on good sustainability efforts across its mobile assets.

Source: RHB Research - 24 Feb 2023