Axiata Group - Cutting Off Myanmar

Date: 
2024-02-23
Firm: 
KENANGA
Stock: 
Price Target: 
3.10
Price Call: 
BUY
Last Price: 
2.57
Upside/Downside: 
+0.53 (20.62%)

AXIATA’s FY23 results beat expectations on the back of traction in market repair at Indonesia and Bangladesh. Moving forward, the prospects of attracting new investors for Edotco have improved. This is given the looming sale of its tower assets in Myanmar. We maintain our forecasts, TP of RM3.10 and OUTPERFORM call.

Surpassed expectations. Its FY23 core net profit of RM542m exceeded our full-year forecast by 35% and consensus estimate by 27%. AXIATA declared 4QFY23 DPS of 5 sen which brings cumulative FY23 DPS to 10 sen (FY22: 14 sen). The variance versus our forecast was largely due to better-thanexpected ARPU improvement at XL.

Its FY23 core net profit excludes, amongst others, chunky exceptional items such as: (i) disposal gains on XL’s towers (RM84m) and Celcom (RM402m), (ii) disposal loss on NCell (RM356m), and (iii) impairment of asset/goodwill/write off for Ncell as well as Edotco Myanmar and Pakistan (RM2.2b).

Digital telcos doing well on recovery mode... YoY comparisons are not meaningful given that FY23 figures exclude Celcom (FY22: 11-month contribution), NCell and Edotco’s Myanmar operations. Nevertheless, for the unaffected subsidiaries, there was broad based normalized PATAMI growth in FY23 for the digital telcos except for Dialog. The expansion was underpinned by: (i) XL: due to ARPU uplift, savings in direct cost, and improved contribution from data and digital services, (ii) Robi: driven by subscriber growth and ARPU expansion, and (iii) Smart: underpinned by data growth and absence of one-off regulatory fees in FY22.

…but drag from infrastructure opcos intensifies. On the other hand, FY23 normalized PATAMI was weaker for the infrastructure opcos due to: (i) Link Net: on the back of subscriber base contraction, higher opex, and spike in interest costs and depreciation (due to accelerated rollout of home passes), and (ii) Edotco: dragged by higher depreciation from towers at Philippines and Bangladesh, higher net finance cost and one-off taxation at Bangladesh.

The key takeaways from its results briefing are as follows:

1. AXIATA revealed FY24 headline KPIs that include: (i) revenue growth: mid-single digit, and (ii) EBIT growth: mid-teens. FY23 baselines for comparison include: (i) revenue: RM22b, and (ii) EBIT: RM2.4b. Additionally, AXIATA guided FY24 capex of RM6.1b (FY23: RM5.0b)

2. Edotco’s Myanmar operations were reclassified under asset held for sale in 4QFY23 given that negotiations with a potential buyer are ongoing. The decision to exit Myanmar was underpinned by its uncertain and deteriorating market conditions. Moving forward, AXIATA expects improved earnings from Malaysia, Philippines and Bangladesh to compensate for the loss of EBITDA contribution (14%) from Myanmar.

3. Following recognition of chunky impairments and write-offs for NCell in FY23, AXIATA does not expect to book in any more residuals for such charges moving forward.

Forecasts. We maintain our FY24F earnings whilst introducing FY25F numbers.

Valuations. We also maintain our Sum-of-Parts TP of RM3.10 (refer below). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5)

Investment case. We continue to like AXIATA for: (i) its plans to deleverage and strengthen its balance sheet, (ii) growth prospects for digital telcos and tower assets at emerging markets, and (iii) strong asset monetization prospects for Edotco and its digital businesses. Maintain OUTPERFORM.

Risks to our call include: (i) a strong USD may weigh on the performance of its digital telcos at frontier markets (e.g. Robi Bangladesh, Dialog Sri Lanka, Smart Cambodia), (ii) gestational earnings and cashflow drag from Link Net’s aggressive expansion, and (iii) capex upcycle from looming implementation of 5G at Indonesia.

Source: Kenanga Research - 23 Feb 2024

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