• Keep BUY and SOP-based MYR3.03 TP, 28% upside and c.4% FY24F yield. Axiata Group’s Analyst & Investor Day 2023 (AAID 2023) saw some refinements to its corporate strategy. Overall, the central themes remain balance sheet deleveraging and asset delayering/monetisation, with earnings tailwinds from a more positive macroeconomic outlook in 2024. The stock remains a key sector laggard, with forward EV/EBITDA at -2SD from its historical mean.

• Some refinements to Axiata 5.0. The group’s strategic blueprint has undergone a refresh to align with the move into a “Multi-Platform-Builder”. The overriding headline targets remain ie a sustainable DPS of 10 sen, highsingle digit ROE and net debt/EBITDA of 2.5x by 2025. Aside from balance sheet deleveraging, cost-rescaling initiatives could also see corporate centre cost cut by 20%. Broadly, management sees the effects of macroeconomic headwinds impacting the group over the last two years (high interest rate, regional FX weakness and inflationary pressures) receding in FY24F.

• Tailwinds and opportunities. Among the operating companies, the strongest narratives were on Robi (Bangladesh) and XL Axiata (EXCL IJ, BUY, TP: IDR3,140) on continued market price repair into 2024, and Smart (Cambodia) on ARPU uplifts. Dialog’s (Sri Lanka) earnings are also on track to recover to pre-crisis level. Meanwhile, stronger CelcomDigi (CDB MK, NEUTRAL, TP: MYR4.70) merger synergies should also pull through next year, driving stronger associate contributions.

• Spotlight on ‘x-cos’. The delayering of its Indonesia businesses will create the second largest fibre infrastructure company (FibreCo) in the country via Linknet (LN), allowing for rapid fibre deployment and monetisation (target of 8m homes passed in five years). Meanwhile, XL Axiata’s role as a service telecommunication company (ServeCo) (via the transfer of LN’s residential subs) would see it transform into one of the largest fibre broadband players with 1m home fibre subs, reinforcing its fixed-mobile convergence (FMC) aspiration. The deal is still subject to a fairness opinion and local regulatory approvals, and is slated for completion by 2Q24. On edotCo Group, the focus would be on bringing in strategic investors that can value add (ie access to new markets, in-country consolidation, new technologies) with the deleveraging process to be completed by mid-2024.

• Forecasts and key risks. Our FY23F-26F have been adjusted (-6% to -13%) to exclude Ncell following the recent disposal and revisions to LN’s estimates, while our TP includes a 2% ESG premium. Key risks are competition, weaker-than-expected earnings, regulatory setbacks, and FX.

Source: RHB Securities Research - 8 Dec 2023