Review

• Excluding the forex and derivative loss of RM105.9mn and other exceptional items, Axiata’s 1QFY24 core profit of RM189.9mn came in within expectations, accounting for 25.9% and 28.1% of ours and consensus’ full-year estimates.

• YoY, 1QFY24’s revenue and EBITDA grew 13.3% and 25.4% to RM5,662mn and RM2,737mn, respectively. All opcos contributed decent revenue growth except Link Net. Meanwhile, the stronger EBITDA was mainly driven by XL and Robi as a result of higher ARPU and cost optimisation, as well as better earnings performance from Edotco, thanks to higher co-location and lower manpower costs.

• At the bottom line, 1QFY24’s core profit jumped 128.3% YoY to RM189.9mn, largely contributed by robust earnings performance of XL resulting from higher ARPU and improved contribution from data and digital services. Coupled with lower operating and sales & marketing costs, the core profit of XL jumped 454.7% to RM90.2mn.

• QoQ, 1QFY24’s revenue fell by 2.3% to RM5,662mn due to lower contributions from all options except for mobile operations in Indonesia, Sri Lanka, Bangladesh and Cambodia. Nevertheless, the group saw the EBITDA grow by 10.6% to RM2,737mn, mainly attributed to lower operating costs.

Impact

• Maintain our FY24 and FY26 earnings forecasts.

Outlook

• Axiata’s FY24 headline KPIs were maintained: i) revenue growth of midsingle digits and ii) EBIT growth of mid-teens, based on continuing operations. Meanwhile, CAPEX remained guided at RM6.1bn.

• On the other hand, Axiata is still working on the potential merger between XL Axiata and Smartfren in Indonesia.

Valuation & Recommendation

• We take this opportunity to roll forward our valuation base year to CY25. Consequently, we tweaked the target price higher from RM2.35 to RM2.61 based on SOTP valuation. Maintain a Sell call on Axiata. Key downside risks include heightened competition, macroeconomic headwinds, and regulatory uncertainties.

Source: TA Research - 30 May 2024