Maintain HOLD recommendation on Axiata Group (Axiata) with a lower SOP-based fair value (FV) of RM3.10/share (from RM3.40/share). This implies FY23F EV/EBITDA of 5.4x, in line with its 5-year average of 5x. Our FV reflects a neutral 3-star ESG rating.
We slashed FY23F-FY25F earnings by 35% after Axiata’s 1QFY23 results fell short of expectations. The group’s core earnings of RM168mil account for only 11% of our previous full year FY23F net profit and 14% of consensus. The deviation stemmed from underperformance of XL Axiata, Dialog and Ncell.
Our 1QFY23 one-off adjustments include RM85mil accelerated depreciation from revision of assets’ useful life and site rationalisation at CelcomDigi.
1QFY23 normalised PATAMI declined 55% YoY dragged by Dialog and Link Net losses as well as poor edotCo performance. This was also exacerbated by the weakening of frontier market currencies vs. RM which resulted in negative translation impact to the group’s profitability. The share of CelcomDigi results during the quarter was also lower than Celcom’s PATAMI contribution in 1Q22.
QoQ on basis, 1QFY23 core profit declined 67%, following the decline in group’s revenue (-8% QoQ) and spike up in the net interest cost (+5x QoQ). At OpCos level, Dialog (- RM2mil), Ncell (-60% QoQ) and Link Net (losses widen to RM15mil from RM2mil) were the underperformers.
Moving forward, we remain cautious on the company’s prospects due to macro headwinds that could potentially derail its frontier markets’ performance. The group’s financial performance is also susceptible to rising interest rate environment due to its highly leveraged FY23F net debt/EBITDA of 1.8x.
Affordability pressure experienced by end-consumers due to the inflationary environment also may cap revenue growth potential.
From a valuation perspective, the stock looks fairly valued trading at 4.6x EV/EBITDA compared to its 5-year historical average of 5x, especially given potential downside risks
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