• Keep BUY and MYR3.40 SOP TP (52% upside). During Axiata Group's 2025 Analyst & Investor Day (AAID 2025) yesterday, management tightened the narrative on: i) Balance sheet repair/optimisation, ii) dividend capacity (progressive MYR0.10/share) and iii) portfolio transformation (value illumination and monetisation). A new operating model sees the holding company's (holdco) role re-defined (lower cost). We continue to like the stock with balance sheet de-leveraging and operational improvements as share price catalysts. A 2% ESG premium has been incorporated into our TP.
• Central theme: Balance sheet repair. Continued focus on balance sheet deleveraging is a key positive, in our view, with net debt/EBITDA at 2-year lows (3Q24: 2.5x). After lowering holdco USD debt by USD2.7bn in 9M24, Axiata is looking to further pare down holdco debt in FY25-26F via proceeds from asset monetisation (edotco, Link Net, digital services) and equalisation of stake (USD475m) in XL Axiata (EXCL IJ, BUY, TP: IDR3170) pursuant to its merger with Smartfren (FREN IJ, NR). Holdco debt made up 38% of group debt (3Q24) and 73% of overall USD debt (group USD debt exposure: 53%). Holdco cost is to be cut by 17% in FY24 (FY23: -18%) and 19% in FY25F on reduced headcount and the use of digital tools and artificial intelligence (AI).
• edotco to upstream maiden dividends in FY25. edotCo would look to: i) Enhance yields (focus on co-location and selective builds) and maximise dividends in core markets (Malaysia, Bangladesh, Cambodia), ii) deliver in growth markets (Indonesia, Philippines); and iii) monetise non-core assets (Myanmar (sale pending regulatory approval), Pakistan, Sri Lanka). As at 3Q24, all towercos (except in the Philippines) are self-sustaining and PAT positive. In Malaysia, edotCo aims to capture a bigger share of the seven 'red states' (currently no presence) via partnerships (>40% of future built-to-suit demands from 5G will come from these states).
• CelcomDigi (CDB MK, BUY, TP: MYR4.35) to punch above its weight. Network integration is tracking ahead with completion targeted for mid-2025 (4Q24: 75%). Management expects significantly more synergies to be realised in FY25-26F (MYR800m opex savings run-rate post FY27). In a positive move, edotco extended tenancies for retained CDB sites by seven years and entered into 12-year site leasing agreements for new sites. The win-win deal is net cashflow neutral, with liquidated damages waived.
• Boost to be EBITDA-positive by FY26F (9M24: MYR101m LBITDA). It is set to receive a new strategic investor (USD45m), bringing cumulative investments to USD203m and providing further validation of its valuation. Since the launch of Boost Bank, it has netted over 200k digital banking customers, mainly via the embedded banking app - a first in Malaysia.

Source: RHB Research - 14 Jan 2025