KEY INVESTMENT HIGHLIGHTS

• Maintain NEUTRAL with a revised SOP-derived target price of RM2.44 post the 3QFY24 results announcement
• Commendable 3QFY24 performance lends a hand to stronger 9MFY24 normalised earnings of RM550.9m(+264.4%yoy)
• The surge in cumulative earnings came in within ours and consensus expectation at 78.9% and 79.1% respectively
• Moving forward, we are anticipation higher earnings risk, primarily from its operations in Bangladesh and Indonesia

Mixed outlook. We maintain our NEUTRAL on Axiata with a revised SOP-derived target price of RM2.44 (previously RM2.56) post the 3QFY24 results announcement. On a cumulative basis, the majority of the opcos have performed relatively well. This excludes Link Net and Dialog. Nonetheless, we are anticipating more opcos to encounter earnings volatility especially in Bangladesh which are experiencing civil unrest as well as in Indonesia. Apart from competitive landscape, we expect the earnings volatility for its Indonesian operation may also come from the potential merger with Smartfren and funding for fibre development.

Better quarterly performance. 3QFY24 normalised earnings came in at RM228.1m, an improvement of +200.2%yoy. Note that the normalised earnings have been adjusted for forex impact as well as gain on early redemption of debt. Notwithstanding this, the improvement in financial performance was contributed by Robi, Smart AND EDOTCO which was brought about by a combination of opex and/or capex optimisation. However, contribution from XL and dialog came in lower due to market softness and higher depreciation and amortisation respectively.

Match expectation. On a cumulative basis, 9MFY24 normalised earnings came in higher at amounted to RM550.9m (+264.4%yoy). This came in within our and consensus expectations, making up 78.9% and 79.1% of full year FY24 earnings estimates respectively.

Change in target price. While we retain our earnings estimates at this juncture. Our SOP-derived target price has been adjusted for lower valuation from CelcomDigi following our downgrade during the recent quarterly results announcement. As a result, our target price has been reduced to RM2.44 from RM2.56 previously.

Stronger balance sheet position. The group's net debt to EBITDA for 3QFY24 has improved to 2.59x from 3.17x recorded for 3Q23. This was mainly attributable to the improvement in EBITDA as well as notable reduction in long-term borrowings to RM17.7b (-20.3%yoy).

Source: MIDF Research - 29 Nov 2024